Fed extends bond buying.

The Fed is extending buying bonds. See WSJ article http://online.wsj.com/article/SB10001424127887323981504578175362999853652.html?mod=WSJ__LEFTTopStorieshere.

Is Quantitative Easing the Right Policy

The Fed's recent announcement of pursuing additional Quantitative Easing--now called QEinfinity by some or QEp (p for perpetual)--keeps monetary policy in the foreground.  Scott Sumner is the best known advocate of nominal GDP targeting--the idea the Fed should target a nominal rate of GDP growth, perhaps 5%, with the idea that ultimately it will help get to 3% real GDP growth.  Tyler Cowen in his Marginal Revolution blog has several good posts on it.  He supports the idea but is concerned about the linkages that will or should or might lead to the growth of real GDP.  Today's Wall Street Journal has an op-ed piece that claims the easy money of the Fed is punishing the middle class.  It is worth a read.

I am less certain about nominal GDP targeting as the cure. Like Cowen, it can sound rather mechanical.  Whether one agrees with the op-ed piece I cite above, it is clear that easy money is punishing savers, including most retirees.

Interesting Pieces in Today's WSJ

Several interesting pieces in today's Wall Street Journal.  John Taylor on monetary policy and the next crisis is quite good.  He doesn't say so, but it strikes me that if price controls distort, continued low interest rates must also distort.  On a different note, Stephen Moore writes about lessons regarding energy policy from the power outage in his neigborhood.  He argues that as we pursue green energy and actively disourage coal and natural gas, we can expect such outages on a regular basis.  Austan Goolsbee writes about the impact of the Supreme Court decision on Obamacare, claiming there wasn't one. He argues that this shows that the slow recovery is not due to business fears over regulation. If so, markets would have dropped and they did not.  This relies on the belief that the markets had not anticipated the Supreme Court's decision though.  He offers some other interesting empirical tests though.
Finally, a news article that got a lot of attention on Squawk Box this morning--some cities are considering using eminent domain to seize mortgages from banks, write down the amount so the owners can stay in their homes.  To do so, they would have to compensate the holders of the mortgages, but the plan would be to pay them the "market value" of the mortgage rather than the contracted amount.  There has been a widening of the power of eminent domain to take property even when it is not to be used by the government.  I find this very disconcerting.  It strikes me as a weakening of the rule of law--one of the key ingredients for an economy to be successful

Negative Interest Rates Anyone?

According to an article in today's Financial Times, a Fed memo indicates that the best interest rate for the inflation/unemployment conditions today is -5%. Of course, a negative interest rate is not possible. The estimate of -5% comes from the Taylor Rule, which is a monetary rule that prescribes how a central bank should adjust its interest rate in response to macroeconomic developments. An article by an economist at the Fed explaining Taylor Rules can be found by googling Taylor Rule. Greg Mankiw had a piece in the New York Times on the need for a negative interest rate and how to achieve it. The fact that interest rates cannot literally be negative is part of the argument that the current situation needs fiscal stimulus.