All of us have been concerned about the economic numbers that have been coming out lately. It shows that our economy is faltering.
Well Krugman has some very practical suggestions for both the Federal Reserve and the Obama administration.
http://www.nytimes.com/...
He says it is time to act!
The economy has sent alarm bells these past few weeks that it is slowing down. The alarms are ringing so loudly that Obama heard them while he was on vacation this week in which he called his economic team on creating a plan on what more can be done. Don't know what it is yet for they haven't articulated it.
Tomorrow Bernanke is suppose to give a speech in Jackson Hole, Wyoming on what the Fed may be doing to rev up the economy.
Well Krugman has given some good suggestions for both the Fed and the Obama administration on what they should be doing.
The Federal Reserve:
Krugman believes that the Fed will just give a speech saying that we are recovering although slowly and doesn't add much more to that.
What will Ben Bernanke, the Fed chairman, say in his big speech Friday in Jackson Hole, Wyo.? Will he hint at new steps to boost the economy? Stay tuned...
...After its last monetary policy meeting, the Fed released a statement declaring that it "anticipates a gradual return to higher levels of resource utilization" — Fedspeak for falling unemployment. Nothing in the data supports that kind of optimism.
Krugman's suggestions for the Fed:
The Fed has a number of options. It can buy more long-term and private debt; it can push down long-term interest rates by announcing its intention to keep short-term rates low; it can raise its medium-term target for inflation, making it less attractive for businesses to simply sit on their cash. Nobody can be sure how well these measures would work, but it’s better to try something that might not work than to make excuses while workers suffer.
The Obama administration:
Krugman suggests that Geithner needs to get his head out of the sand and act himself.
Meanwhile, Tim Geithner, the Treasury secretary, says that "we’re on the road to recovery." No, we aren’t.
Krugman's suggestion for the Obama's economic team:
The administration has less freedom of action, since it can’t get legislation past the Republican blockade. But it still has options. It can revamp its deeply unsuccessful attempt to aid troubled homeowners. It can use Fannie Mae and Freddie Mac, the government-sponsored lenders, to engineer mortgage refinancing that puts money in the hands of American families — yes, Republicans will howl, but they’re doing that anyway. It can finally get serious about confronting China over its currency manipulation: how many times do the Chinese have to promise to change their policies, then renege, before the administration decides that it’s time to act?
The suggestion of using Fannie and Freddie to refinance everybody's loans to the low 4.5% mortgage rate has been suggested by other economists and there was a rumor that this was indeed going to happen (the August surprise). I think it is time to get serious about this proposal.
In terms of China, I think the Senate is getting fed up. The Senate has plans on pushing legislation to address Chinese currency manipulation and they are going to do it shockingly in a bipartisan way.
We are all are hearing alarm bells. As Krugman says it is time to act!
Which of these options should policy makers pursue? If I had my way, all of them.
I know what some players both at the Fed and in the administration will say: they’ll warn about the risks of doing anything unconventional. But we’ve already seen the consequences of playing it safe, and waiting for recovery to happen all by itself: it’s landed us in what looks increasingly like a permanent state of stagnation and high unemployment. It’s time to admit that what we have now isn’t a recovery, and do whatever we can to change that situation.
On a personal note:
I am a physician, a neonatologist to be exact. I work in neonatal intensive care unit in which if one doesn't act quickly than things are much worse so my profession is all about action. Seeing the economy faltering and no action is being done is incredibly frustrating. In my professing sitting and waiting is a matter of life and death. In this case I hear Krugman. He believes that the Federal Reserve and the Obama administration is now just "sitting and waiting". Hopefully they will now start acting on those alarms.