Tags: Krugman | Fed | Inadequate | measures

Krugman: Fed’s Latest Measures 'Pathetically Inadequate'

By Bob Willis   |   Monday, 25 Jun 2012 12:02 PM

Federal Reserve policymakers, in announcing last week their latest economic projections showing they expect to fail on both parts of their “dual mandate’’ to seek price stability and full employment, propose to do “almost nothing’’ to lower unemployment and bring inflation closer to target, writes Nobel-prize winning economist Paul Krugman

The Fed announced a moderate policy measure known as “Operation Twist,’’ which involves swapping short-dated bonds for longer-maturity government debt in a bid to lower borrowing costs and spur investment.

Krugman, writing in the New York Times, says the measures are considered by most observers as “pathetically inadequate – the bare minimum’’ the Fed could do to avoid charges it is doing nothing at all.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans

Krugman says the Fed’s refusal to commit to stronger measures such as more quantitative easing may be because it doesn’t want to be seen by congressional Republicans as providing political aid to President Barack Obama, and the economy, in an election year.

The Fed forecast unemployment to average between 8 percent and 8.2 percent in the fourth quarter of this year, with the economy too weak to achieve so-called “full employment’’ by 2014, Bloomberg reported. Weak growth will keep their favored inflation measure at or below the target of 2 percent through 2014, the Fed said last week.

Krugman sees a similar “abdication of responsibility’’ taking place among European policymakers in the face of the eurozone debt crisis.

The so-called eurozone “solution’’ to Spain’s banking crisis, he writes, was to lend money to the Spanish government to bail out its banks, a move that only put the Spanish government deeper in debt, threatening a wider, regional crisis, says Krugman.

European creditor nations need to “assume some of the risks’’ that the Spanish banks face. With the fate of the euro hanging in the balance, taking some financial risk – particularly for regional powerhouse Germany -- is a “small consideration,’’ he argues.

Much like in 1931, when nobody “stepped up to the plate,’’ and an Austrian banking crisis morphed into a global financial meltdown, leaders in both the U.S. and Europe are acting equally irresponsibly, says Krugman.

In a related development, Spain’s government Monday formally asked the 17-member Eurogroup for up to 62 billion euros ($77 billion) in financial aid for its banking sector, following the group’s offer on June 9 to provide up to 100 billion euros for its banking sector, CNNMoney reported.

Leaders of the four biggest eurozone economies Friday agreed on a series of measures to boost growth that they said were equal to about 1 percent of the zone’s GDP, CNN reported.

Editor's Note: You Owe It to Yourself to Know What Obama and Bernanke Are Hiding From Americans



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