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« I am perpetual. I keep the country clean. | Main | Media Bias »

As promised

Krugman on the Fed action:

So, how big a deal was yesterday's Fed announcement? Philosophically, it was pretty major; in terms of substantive policy implications, not so much...

Substantively, however, there isn't that much going on here. Basically, Bernanke is promising that the Fed won't do anything stupid -- specifically, that it won't pull an ECB, and raise rates even though the economy is still depressed and underlying inflation is still low. As it was, however, few people expected the Fed to pull an ECB in any case. That's reflected in the market reaction: rates actually rose, and expected inflation, as measured by the spread between nominal and real rates, went up only slightly.

Sorry, but this move, while it speaks well of the Fed's learning process, was not a game-changer.

And in his follow-up he brings it back to fiscal policy:

This means that the Fed is projecting elevated unemployment nine full years after the Great Recession started. And, of course, the Fed has been consistently over-optimistic.

This is an awesome failure of policy -- not solely at the Fed, of course. When I wax caustic about Very Serious People, bear this in mind. Faced with an economic crisis where textbook macroeconomics told us exactly how to respond, people of influence chose instead to obsess over budget deficits and generally punt on employment; and the result has been a huge economic and human disaster.

By fnord12 | December 13, 2012, 12:08 PM | Liberal Outrage