[lbo-talk] Goldman/Krugman: The limits of quantitative easing

Mike Beggs mikejbeggs at gmail.com
Thu Mar 12 18:39:45 PDT 2009


On Fri, Mar 13, 2009 at 9:15 AM, Michael Pollak <mpollak at panix.com> wrote:


>
> http://krugman.blogs.nytimes.com/2009/03/11/not-so-easing-wonkish/
>
> ...


>
>
> There's been a fair bit of buzz about a Goldman Sachs report (no
> link) suggesting that the Fed's policy of "unconventional easing" --
> buying up lots of assets other than the usual Treasury bills --
> isn't very effective. Specifically, GS estimates, based on market
> responses to Fed moves to date, that it would take between $1
> trillion and $1.6 trillion of unconventional easing to accomplish as
> much as the Fed can achieve, in normal times, by cutting the Fed
> funds rate by 1 percentage point. And since GS's estimate is that
> the Fed funds rate "should" be -6 percent, this means that the Fed
> has a problem.

This is really interesting stuff because the capacity of the state to affect rates higher up the interest spectrum if it puts its mind to it is a real unknown. Is anyone familiar with this Goldman Sachs Financial Conditions Index? How credible is it?

The Financial Times has an overview of the method here: http://alphaville.ftdata.co.uk/lib/inc/getfile/5285.jpg

And the GS document explaining the overall framework is here, but it's from 2001 which seems like an awfully long time ago: http://www.investinginbonds.com/assets/files/Understanding%20US%20Economic%20Statistics.pdf

Mike Beggs



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