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The Federal Reserve has been desperate to buoy the US economy.  For a while, they reduced the overnight lending rate, until they could reduce it no more. This is the "free money" that some politicians have been referring to lately.

Yet the "free money" interest rates haven't actually increased lending, because the banks are still reluctant to give it up.  So the Fed reached down into its bag of tricks and pulled out something called a quantitative easing, in which it buys mortgage backed securities and treasury bills.  There have been 3 of these quantitative easings so far (QE3).

This week, the stock market jumped at the rumor of a further easing, a QE4.  It has yet to take shape but it's possible that it could circumvent the obstructionist Congress and give progressives some of what we've been clamoring for.

One way that the QE4 could take shape is more purchasing of mortgage backed securities.  This would allow the retail banks to loosen up and lend money for mortgages while minimizing their risk.  It's not exactly the mortgage refinancing bill we were hoping to get through, but it's a step in the right direction.

The other way a QE4 could take shape is to encourage municipalities to issue infrastructure development bonds, and then have the fed buy those bonds.  This would be a beautiful thing, since it would bypass the reluctant congress to get infrastructure projects financed and rolling, and then take the financial burden away from the municipalities.  We were unable to get the Rebuild America Jobs Act passed through the Congress but this would have essentially the same effect.

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Comment Preferences

  •  I like the local infrastructure bond option (18+ / 0-)

    It would help immediately if local governments could refinance their existing debt, and long term if local governments are given enough time to get new projects rolling.

    This option not only gets around a reluctant Congress, it gets around all those GOP-dominated state legislatures. Give local Democrats the option to improve schools and sidewalks and water lines and they will make it happen.
     

    Filibuster reform now. No more Gentleman's agreements.

    by bear83 on Wed Nov 28, 2012 at 09:00:45 PM PST

  •  And Mitt said he'd fire Bernacke. (3+ / 0-)
    Recommended by:
    alba, HoundDog, Lujane

    Go figure. :)

    Happy little moron, Lucky little man.
    I wish I was a moron, MY GOD, Perhaps I am!
    —Spike Milligan

    by polecat on Wed Nov 28, 2012 at 09:01:13 PM PST

  •  "what we've been clamoring for"???? (1+ / 0-)
    Recommended by:
    Pluto

    The QE enterprise is just a modern version of printing money and debasing the currency.  This is going to come back and bite us big time.  You can't keep inflating the money supply without it eventually causing serious inflation.  The QE policies of the Fed will eventually hurt the elderly on fixed incomes and anyone with a savings.

    •  It's not like a run away fire. I know the (0+ / 0-)

      President has a good handle on what is happening.  

      "Republicans are the party that says that government doesn't work, then they get elected and prove it."-- PJ O'Rourke

      by nocynicism on Wed Nov 28, 2012 at 10:08:13 PM PST

      [ Parent ]

    •  Not necessarily true (3+ / 0-)
      Recommended by:
      tobendaro, polecat, Vatexia

      If the assets are sold back on the open market, then its not at all like printing money. This is why they are buying assets rather than just printing money, because they will be able to offset any inflationary tendencies by reducing the money supply with valuable asset sales during more confident times.

      Give me a f'ing banana - Eddie Izzard

      by linc on Wed Nov 28, 2012 at 10:11:46 PM PST

      [ Parent ]

    •  Also, (6+ / 0-)

      this asset purchase process can be and probably will be good for long term debt considerations.

      As the fed slowly sells assets back to the open market, Treasury gets to cull the Fed's accounts and take what would have been inflationary money and apply it to debt reduction. The inflationary effect of debt spending has already been felt in the economy, particularly money borrowed from SS.  And no one will be the wiser, especially if that money is applied specifically to internally held debt (SS trust fund IOUs).

      Give me a f'ing banana - Eddie Izzard

      by linc on Wed Nov 28, 2012 at 10:17:48 PM PST

      [ Parent ]

      •  What you said. Bernanke has obviously been pissed (6+ / 0-)

        at Congress lately that they've  done nothing fiscally to goose up the economy recently except the payroll tax holiday.  Before his irritation  became plain in the last 3-6 months or so, I never would've expected him to even think about doing something like the community bond buys.  Will wonders never cease -- BB, a friend to progressives.  I guess the species of Republicanus Semirationalus hasn't gone completely extinct, although it certainly took him long enough to get that creative.  Maybe the continuing  idiocy of the European austerians has him -- rightly -- scared shitless.  I know it does me.

    •  What we HAVE been clamoring for (0+ / 0-)

      is mortgage refi and infrastructure spending which the GOP Congress has thwarted for myriad reasons.  Of course no one here is advocating for diluting the currency.

      I ought to have said in the diary that no one at the Fed is hinting about doing the local bond thing. That's just something a rightwing economist predicted in an expression of his deepest fears, but it certainly is within the Fed's authority and something the reelected administration would support.

      The Virtue of Selfishness is not a driving manual

      by bondibox on Thu Nov 29, 2012 at 03:04:40 AM PST

      [ Parent ]

    •  WRONG (2+ / 0-)
      Recommended by:
      FG, bondibox

      The housing market deflation has caused great harm to a generation of homeowners.

      Fed and/or Congressional action is/was required to counteract these extremely harmful market forces.

      The Fed actions are precisely an attempt to create inflation for an economy that lost 10% of GDP.

      The Fed actions are an attempt to provide something to our ailing economy beyond the austerity measures espoused by the GOP.

      Lastly, your notion that, "You can't keep inflating the money supply without it eventually causing serious inflation," is based on what fact?

      The Fed may have increased the money supply, but they also exchanged this newly minted cash for other assets.  The Fed has purchased mortgage-backed securities that are paying them interest.  The Fed is making money from the money they've printed.  All the Fed has done is put cash in place of what the market believes is worthless paper.  Banks can loan against cash, but have a difficult time loaning against questionable commercial paper.

      The issues surrounding fixed-income and savings are unintended consequences.  If our economy fails again: no pension fund will be able to keep pace with obligations, social security will take in far less than necessary for future generations, and we will be providing current beneficiaries with far more than the market should provide them.  In other words, you're missing the forest through the trees.

    •  Do you know what Deflation is? (2+ / 0-)
      Recommended by:
      FG, bondibox

      Far, far worse than a little Inflation.

      Happy little moron, Lucky little man.
      I wish I was a moron, MY GOD, Perhaps I am!
      —Spike Milligan

      by polecat on Thu Nov 29, 2012 at 04:53:35 AM PST

      [ Parent ]

    •  In the situation we are in printing money is (0+ / 0-)

      a good idea. So yeah, it's printing money. But no, it's not a big deal and actually a good thing as long as we don't go too far overboard with it.

  •  Why would QE4 do this (1+ / 0-)
    Recommended by:
    tommyd357

    when 1 thru 3 didn't?  

  •  Banks are lending more now. (0+ / 0-)

    I recently saw a survey of institutions and noticed that their borrowing from banks for capital investments has gone up for the first time in I don't know how long.

    Show us your tax returns !!!!!!

    by Bush Bites on Thu Nov 29, 2012 at 04:44:17 AM PST

  •  Fed should include student loan debt (1+ / 0-)
    Recommended by:
    bondibox

    QE1 through 3 have shown that the Fed buying mortgage debt has some small effect on mortgage rates, but less on the broader economy.

    For a QE4, the Fed should make a deal with the Treasury to purchase at a reduced rate a large tranche of Direct Student Loan debt held and serviced by the government, with the understanding that the reduced interest rate would be passed on to the borrowers.

    This would have an immediate and strong effect on the monthly budgets of millions of middle-income (principally) and lower-income families and recent graduates.  Families' PLUS and Consolidation loans should be included because that is the means that many families have used to get enough money together for their children's education.

    This approach would have both redistributive and stimulative effects with no cost to the Treasury, deficit or debt.

  •  So, let me see. The Fed is going to print money (0+ / 0-)

    and give it to banks who will not use it for the common good, but will somehow use it for their own benefit.

    But, also, the Fed is going to buy municipal bonds so that infrastructure construction projects can begin. But who is going to pay the Feds for the bond coupons and principal later? Why, I am, and a whole bunch of ordinary citizens who can't afford to pay any more taxes.

    I don't get this crap. Why do we give money to banks and municipalities? Why not give it to the People and tell them to spend it.

    Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

    by hestal on Thu Nov 29, 2012 at 08:46:33 AM PST

    •  Oh, why didn't I think of that? (0+ / 0-)

      Instead of allowing $300 Billion in infrastructure spending, we should give $1000 to everybody and let them buy shovels and bags of quickrete so they can patch the road in front of their house.Maybe they could pool their money to fix bridges.

      the Fed is going to buy municipal bonds
      I never said that. I said the fed COULD buy munis.

      The Virtue of Selfishness is not a driving manual

      by bondibox on Thu Nov 29, 2012 at 05:02:48 PM PST

      [ Parent ]

      •  Well, aren't you special? nt (0+ / 0-)

        Might and Right are always fighting, in our youth it seems exciting. Right is always nearly winning, Might can hardly keep from grinning. -- Clarence Day

        by hestal on Thu Nov 29, 2012 at 05:42:30 PM PST

        [ Parent ]

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