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Home Publications Blogs Beat the Press Tip to NPR: News Outlets Would Not Call It a "Massive" Stimulus Program

Tip to NPR: News Outlets Would Not Call It a "Massive" Stimulus Program

Monday, 09 December 2013 05:34

NPR used the phrase "massive" stimulus in describing the Fed's quantitative easing policy in its top of the hour news segment on Morning Edition. It is arguable whether the stimulus is "massive." There is certainly a plausible argument that the stimulus is too small since unemployment remains high and inflation is running below the Fed's 2.0 percent target. NPR could have saved time and increased accuracy by just referring to the program as "stimulus."

Comments (10)Add Comment
written by watermelonpunch, December 09, 2013 6:44

It's the culture now. You have to use extreme vocabulary, for absolutely everything, no matter how inaccurate.
Otherwise nobody hears you, or alternatively, they will accuse you of pussy-footing.
Nobody wants to be ignored or accused of pussy-footing.
Being dead wrong is far more preferable in today's culture.
written by kharris, December 09, 2013 8:17
Logically, the stimulus can be both massive and too small. Those terms are not contradictory, though they may seem so if one doesn't think things through. If what is needed is more than massive, then massive is too small.
Sorry, tripling the monetary base is humongous....just ineffective
written by pete, December 09, 2013 9:23
Of course, lending did not grow simultaneously, so M1 kind of stagnated. Thus, the effect is, ex post, tiny. But clearly the Fed bought massive amounts of securities. This has fattened Wall St., which is what the originator of the Tea Party, Rick Santelli, was talking about. Sine Yellen is a firm believer that real wages must be driven down through inflation, echoed by Jared B., perhaps she will be more proactive in getting M1 up too.
written by kharris, December 09, 2013 9:31
What tool does Yellen have to boost M1, apart from boosting excess bank reserves?
kharris, you mean reducing excess reserves...
written by pete, December 09, 2013 9:46
Instead of paying banks to keep reserves, charge them to keep reserves. Or explicitly lay out the Yellen put...guarantee lending (tell them they are too big to fail). Loosen lending standards. Jawbone. Armtwist. Etc. Moral suasion.
misplaced scare quotes
written by David M., December 09, 2013 9:47
I'm okay with the massive part, it's the idea that what the fed is doing counts as "stimulus" that I'd take issue with.
On the theoretical level, the whole concept of a deposit multiplier is suspect, see http://neweconomics.net.nz/ind...ate-money/, so inflating bank balance sheets is no way to boost the economy.
On the practical level, the only people who seem to benefit from stimulus right now are the asset-owning 1%. The rest of us, who actually spend our income to survive, haven't gotten a break.
sorry dave, helicopter Janet will disagree with you....
written by pete, December 09, 2013 11:05
Akerloff Yellen is explicitly an inflation=>increased firm profitbility with slower growing nominal wages=> growth. But yes indeedy...these inflations post 1972 have definitely benefited the 1%, if not the tope 20%.
written by skeptonomist, December 09, 2013 3:08
There is now over $2.3T in excess reserves in the banking system - this much at least is the result of QE. Is this massive? No other program which could conceivably be described as deliberate stimulus is this large. But the real question is whether it is stimulus. That "money" is just sitting there and not being used in the economy. Would more purchases stimulate the economy in a way that the $2.3T did not?

There are two things which QE may have done. Firstly, QE1 bought up about $1T in MBS's. It is very likely that this prevented that particular market from collapsing. Now the Fed has this much in securities which nobody really knows the value of - some of the bonds are certainly bad. This got a lot of banks and others who held the bonds off the hook. The second thing QE is alleged to have done is to generally reduce long term rates, especially as the program shifted to medium and long-term Treasuries. But rates came down just as much or more in other places, such as Germany and other well-off countries in Europe, without QE.

What will the excess reserves do if the economy turns up, and how will QE be described if it does lead to uncontrollable inflation, as some people allege? How about we just call it a "multi-trillion-dollar program" since nobody really knows for sure what it has done or what it may eventually do?
written by kharris, December 09, 2013 3:08

I mean increase bank reserves, which is what she has power to do directly. Standard Fed operations aim to increase reserves to the point that the commercial bank no longer wants them, and lends them out.

Moral suasion and arm twisting are fake tools. All that she has available is lowering the IOER - essentially making excess reserves less attractive, same as always. Problem it, the Fed made paying interest on reserves a policy goal, then got what it wanted. So of the tools you list, only one is the sort of mechanical, model-able thing the Fed does, and the Fed worked very hard to make that tool unavailable. One realistic, not-very-available tool is not a big tool kit.

Ward McCarthy has recommended creating 2 classes of excess reserves. One pays the target rate, the other only 25 bps. In a higher-rate environment, the 25 bp rate would be a disincentive to hold excess reserves, but not in this environment. There has been talk of lowering the current IOER, mostly outside the Fed, but some inside as well.

So good luck with the notion that Yellen can pick a specific aggregate other than excess reserves and make it dance any way she wants. The recent history of monetary policy, from velocity proving non-stationary onward, suggests that the Fed plays the music, but doesn't get to call the steps.
skepto....prevent a collapse or reinflate the bubble
written by pete, December 09, 2013 3:34
This is the tricky thing, eh. Dean has finally admitted that real housing prices are darn high. In fact, when he and Shiller called the bubble in the early 2000s, prices were about this level. So if by preventing a collapse you mean keeping the bubble alive, or reinflating, I agree that QE has done that. The mitigating factor is that a lot of foreign investors are buying the property, since, so far, lending standards were tightened so that the lower incomes could not participate. That might change of course, as commnutity activists are again clamouring for increased access to loans.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.