More Fed Critics


Reposted from John Taylor’s blog, EconomicsOne:

In a new piece called “Quantitative Quicksand” published in Project Syndicate, Allan Meltzer argues that the U.S. recovery would be better off if the Fed had not engaged in quantitative easing.  The banks are just loaning the extra liquidity to credit worthy borrowers and the government, rather than to the smaller businesses that need it.  The economic problems lie elsewhere. In the meantime the risks of not being able to exit smoothly from the Quantitative Quicksand (what a great title) are mounting.

Meltzer is one of many economists and policy makers—on both sides of the political spectrum—who have been speaking or writing on the risks and the already-realized downsides of the Fed’s recent policy.

Just last week Paul Volcker weighed in at the Economic Club of New York, arguing that the exit problems are indeed tough while the benefits of the policy are “limited and diminishing.” Volcker also makes the case for getting rid of the dual mandate because of the risks it too causes. The recent market volatility over tapering—exiting from the quicksand—is just an early realization of the risks that many have long been warning about.


I wholeheartedly agree with both constructive criticisms.


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