As I prepare for tomorrow’s panel on progressive monetary policy, do take note of panelist Mike Konczal’s Q&A with Joe Gagnon who explains many things and calls for a big additional round of monetary stimulus:
What should QE3 look like?
A lot of the benefit of telling the markets that you aren’t going to allow deflation is already out there. You could re-enforce that, but the major effect is out there already. They would need to do a bigger number. There’s no point in doing it unless it’s at least $1 trillion dollars.
The floor is set. The market is reassured against fears of deflation. Can QE3 return to trend and full employment?
While QE2 had good effects, it was too timid. A QE3 needs to be bigger than QE2 — you want to signal a larger amount. A trillion dollars sounds like a big number, but it isn’t like a trillion dollar tax cut. All it is is a swap of two different assets. Buying one kind, selling another.
You need to say that one TRILLION dollars stuff with a Dr. Evil voice. But I completely agree. Later in the interview, Gagnon makes the point that under present circumstances, monetary stimulus and fiscal stimulus are two great tastes that taste great together. And indeed my preference would be that rather than on the one hand talk fiscal policy and on the other hand talk somewhat convoluted quantitative easing, we just talk directly about so-called “money financed” tax cuts or spending initiatives.