Steve Forbes, the former presidential candidate and magazine publisher, says the Federal Reserve has its priorities wrong.
Instead of buying Treasuries, it should be purchasing mortgage-backed securities, credit-card loans, and car loans to get the credit markets flowing again, he told CNBC.
"Since December the Fed's balance sheet hasn't grown one single dollar,” he says.
“The Federal Reserve has been tight-fisted, amazingly, in the last five months."
The solution: “I think the Fed should announce first they're not going to buy any more Treasury securities,” Forbes says.
“Cash in the banking system is not the problem. The problem is that parts of the credit economy still aren’t working."
He says the Fed needs to follow through on its promise “of aggressively buying mortgage-backed securities to get housing sales moving again.” The Fed also should snap up packages of “credit card loans, of car loans and the like.”
If the Fed executes hundreds of billions of dollars of such purchases, while pulling back on Treasuries, it can “get the financial system fully working again,” Forbes says.
"It doesn't have to balloon its balance sheet, but it does have to pump, literally, hundreds of billions of dollars" into this system to get credit going again, he maintains.
Others agree that the Fed should hold back on Treasury purchases.
"There is no pressing need to read the bond market the riot act and buy Treasuries like there is no tomorrow," Chris Rupkey, chief financial economist with Bank of Tokyo-Mitsubishi, tells MarketWatch.
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