Time to Recess-Appoint Joe Gagnon to the Federal Reserve Board...

Joe Gagnon:

Stop Sticking Our Heads in the Sand! A Plan for Action on Jobs: Despite the claim that last week’s jobs numbers were “better than expected,” they were in fact an abysmal indictment of US economic policy over the past two years. The unemployment rate has remained near or above 9 percent for 28 consecutive months, a policy failure not seen since the Great Depression of the 1930s…. Many actions that would be helpful—extension and enlargement of the payroll tax cut, extension of unemployment benefits, extension of aid to the states, and a substantial and accelerated infrastructure program—require Congressional approval. I have no insights as to how to get such actions approved….

I propose aggressive actions that can be taken by the Obama Administration and the Federal Reserve without a single vote in Congress… the same actions I proposed nearly two years ago but that were never adopted. The stakes are higher now….

First and foremost, the Federal Reserve should announce an additional $2 trillion of asset purchases…. $2 trillion of [quantitative easing] monetary stimulus is not comparable to $2 trillion of fiscal stimulus. In my previous proposal, I estimated that this policy would boost US GDP by an amount comparable to $500 to $800 billion in fiscal stimulus. However, monetary easing reduces rather than increases our national debt.

An additional step the Federal Reserve should take is to stop paying interest on reserves….

[T]he Administration should use its control of Fannie Mae and Freddie Mac to force them to invite all homeowners whose mortgages are already guaranteed by Fannie and Freddie, and who are not delinquent in their mortgage payments, to refinance their current mortgage balance…. Lowering mortgage interest payments on underwater loans would be the best way to prevent future defaults that would harm Fannie, Freddie, the holders of second liens, and US taxpayers. It is a win-win for all….

[T]he Administration needs to acknowledge that the strong dollar policy… is defunct and opt to embrace moderate further dollar depreciation….

Naysayers will argue that this strategy is a recipe for runaway inflation. Indeed, they have been saying that for nearly three years…