Few interesting links criticizing Fed policy.
- Impotence of Fed by Marty Feldstein (very strong title by Feldstein)
- The Fed Shirks Its Duties by Joseph Gagnon of PIIE (he summarises the debate really nicely)
- Fed Harms Itself by Missing Goals by Betsey Stevenson and Justin Wolfers
Gagnon advocates following interesting measures:
- The main alternative instrument in the Fed’s toolkit is foreign exchange, generally in the form of sovereign bonds of foreign governments. The point of such purchases would be to drive the dollar down and boost US exports. Massive purchases of such bonds would be considered an act of economic warfare by many recipient governments, despite the hypocrisy implied by the large purchases of US bonds by many of the same foreign governments.
- A foreign-exchange program that would not face opposition from abroad would be large-scale purchases of Italian and Spanish bonds. That would defuse the euro debt crisis at a stroke, thereby eliminating the main downside risk to the US economy. But such purchases would expose the Fed to even stronger domestic political attacks than it has already faced. Chairman Bernanke explicitly ruled out this option last week.
- The best alternative would be to purchase exchange-traded funds of the total US stock market. That would have broad-based benefits, repairing household balance sheets and unlocking consumption and investment. Unfortunately, the Fed is not authorized to buy equities and Congress is not likely to grant it that power anytime soon.
This suggestion of asking Fed to buy GIPS economy bonds was made earlier as well. Fed rejected it then. All one can say is Fed agrees to do so, GIPS might leave EMU/ECB and join the US/Federal Reserve instead…