Former Fed governor Laurence Meyer, now a private consultant, estimated the Fed would need to buy $5.25 trillion of new assets if it wanted to accomplish the equivalent of cutting short-term interest rates by 4.25 percentage points, about what Mr. Meyer's model indicates is needed now.This is funny on several dimensions. First, the guy has a model that is giving him a policy conclusion: short term interest rates should drop by 4.25 percentage points, which obviously is not feasible. Second, after making that statement, he's asking us to put some confidence in his prediction that what is "needed now" is $5.25 trillion in asset purchases by the Fed. Third, what exactly does he think that a more-than-tripling of the size of the Fed's balance sheet will accomplish and why is a $5.25 trillion asset purchase somehow equivalent to a non-feasible decrease of 4.25 percentage points in the fed funds rate?
Tuesday, November 2, 2010
Bizarre-Statement -of- the-Month Club
This month's winner is our friend Laurence Meyer, former Fed Governor and forecaster, previously discussed here, who wins for this statement, from today's Wall Street Journal (sorry if you don't have a subscription):