own debts or to invest in approved ways.
The U.S. Federal Reserve may be considering a similar approach. So says Professor David Blanchflower, a former member of the Bank of England's Monetary Policy Committee, who stated on October 18 that he had been at the Fed in Washington for one of its occasional meetings with academics.
"Quantitative easing remains the only economic show in town," he said, "given that Congress and President Barack Obama have been cowed into inaction."
What will the Fed buy with its quantitative easing tool?
" They are limited to only federally insured paper," said Blanchflower, "which includes Treasuries and mortgage-backed securities insured by Fannie Mae and Freddie Mac. But they are also allowed to buy short-term municipal bonds, and given the difficulties faced by state and local governments, this may well be the route they choose, at least for some of the quantitative easing. "
The Fed could buy short-term municipal bonds from the states, easing the states' budget crises. It could set up a facility for bailing out the states at very low interest rates, along the lines of those facilities set up to bail out the Wall Street banks.
A similar plan might be pursued in the eurozone. The European Central Bank (ECB) has already engaged in something equivalent to "quantitative easing." In a post titled " ECB credit easing by buying debt from Greece and Spain analogous to Fed buying California and Illinois munis ," Ed Harrison remarks:
When the European experiment threatened to unravel, the ECB chose the nuclear option and stepped into the breach to start buying up the debt of its weakest debtor states. Now, the ECB claims these actions are unsterilized i.e. it is not just printing money. But I have my doubts. In any event, the ECB is the New "United States of Europe" as Marshall Auerback puts it.
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