Ron Paul celebrates a big victory after the historic House vote yesterday, bringing a bit of libertarianism into Congress.
Republicans overwhelmingly supported this bill, but Democrats too saw the benefits. Representative Jim Matheson (D-Utah) said he was voting for the bill to pass, writing that “greater transparency in gov't is always a good thing.”
In the wake of this big moment, further rumors have seeped to reporters that the Federal Reserve is getting a bit more serious in their talks about taking steps towards boosting the crumbling national economy.
Amidst a recent Census report with some rather bleak findings – we're in the worst financial condition we've been in throughout the past fifty years with about 100 million poor Americans – Fed Chairman Bernanke and the Fed are under a great deal of pressure to help fix the economy.
But can they really fix anything at this point? Or are they merely but a small band-aid on a growing, gaping wound?
Bernanke openly admitted that he wished Congress would take some of that burden away from the Fed.
Last week, Ben Bernanke told Congress that “further action” would insinuate QE3, a third dose of quantitative easing.
The Fed meets again in September and analysts expect that is when QE3 will be officially announced. If this happens, the central bank will again buy up more assets (like mortgage-backed securities) so they can push down long-term interest rates in an attempt to encourage consumer spending.
Bernanke told Congress that this type of program will be good for corporations, as it will bring down mortgage rates, possibly boosting the stock market, and “therefore increase wealth effects for consumers” who will then be less hesitant about spending money.
According to Credit Suisse's recent academic research, QE and QE2 were reportedly effective in raising the GDP and also preventing deflation, but economists “differ on the exact numbers.”
Understanding that the Fed itself can't give the economy all the help it needs with QE3, some experts have offered alternative, unconventional options.
For example, Fed. Joseph Gagnon, senior fellow at the Peterson Institute for International Economics suggested that the Fed target a set 30-year mortgage rate for the next 12 months by buying up all the mortgage-backed securities they can (at a rate of 2.5%, perhaps). Under the traditional QE3 plan, the Fed would only by a fixed umber of assets without targeting rates. Ideally, this alternative would encourage more individuals to enter the housing market as it shows early signs of recovery.
From the Washington Post:
Others have suggested the central bank raise its inflation target. Chicago Fed president Charles Evans has argued that the Fed should commit to keeping short-term rates at zero “until either the unemployment rate goes below 7 percent or the outlook for inflation over the medium term goes above 3 percent.” The logic goes like this: As the economy recovers, an uptick in inflation will likely follow (as, say, younger workers move out of their parents’ houses and rents rise). Right now, however, the Fed appears to be unwilling to let inflation rise above 2 percent. Evans said the Fed should make clear it won’t hit the brakes just because prices are rising, at least not until the recovery has firmly taken hold.
Essentially, the Fed wants to help the economy without inducing inflation. So far, they are failing in keeping unemployment and inflation at a minimum with repeated overestimates of “new jobs” added to the economy each month.
It's a tough time for the Fed to try to regulate anything... while trying to stay out of politics, they're receiving a lot of pressure from Republicans to reject additional stimulus in a close election year.
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