Point of Information: the Fed (Updated)

When did underwriting investments become the job of the Federal Reserve rather than securing the health of the banking system by riding herd on the monetary system? This isn’t a new complaint of mine. I’ve made the same observation a number of times during Alan Greenspan’s tenure as head of the Fed—I thought a number of his actions couldn’t reasonably be interpreted as securing the health of the banking system but could be handily interpreted as a move to plow the field for investors.

This morning there are a number of interesting stories about the economy. Robert Murphy and Lee Hopkins, writing at Forbes, urge the Fed to stop cutting the fed funds rate. Their argument is, essentially, the same as mine above. They’re urging the Fed to stick to its knitting. And Paul Krugman wonders how close we are to a liquidity trap, the point at which monetary policy is no longer effective (he thinks we’re very, very close). I note, too, that Dr. Krugman doesn’t make the mistake that I’ve heard even economists who should know better make, i.e. confusing the Federal Reserve with the Treasury.


E. J. Dionne doesn’t know the difference between the Fed and the Treasury. Alan Blinder does and he makes the point I’ve been making for some time: there are limits to what the Fed can do.

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