So concludes the BIS, but the failure may not be in the theory but
the execution of QE. Businesses still need demand before they can hire, which
means they need customers with money to spend. QE has not gotten new money into
the real economy but has trapped it on bank balance sheets. A true
Bernanke-style helicopter drop, raining money down on the people, has not yet
been tried.
How Monetary Policy Could Stimulate Employment
The Fed could avoid collateral damage to the shadow banking system
without curtailing its quantitative easing program by taking the novel approach
of directing its QE fire hose into the real market.
One possibility would be to buy up $1 trillion in student debt and
refinance it at 0.75%, the interest rate the Fed gives to banks. A proposal along
those lines is Elizabeth
Warren's student loan bill, which has received a groundswell of support
including from many colleges and universities.
Another alternative might be to make loans to state and local
governments at 0.75%, something that might have prevented the recent bankruptcy
of Detroit, once the nation's fourth-largest city. Yet another alternative
might be to pour QE money into an infrastructure bank that funds New Deal-style
rebuilding.
The Federal Reserve Act might have to be modified, but what Congress
has wrought it can change. The
possibilities are limited only by the imaginations and courage of our congressional
representatives.
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