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Federal Reserve expanding its bond buying program announcing plans to purchase 45 billion dollars in long term treasuries while continuing to -- about forty billion dollars in mortgage backed securities each and every month but.
Will the feds new -- spur economic growth joining us now is Alan black his former Federal Reserve.
Vice chairman and he is now at the Woodrow Wilson School -- -- great to see professor thanks for coming in appreciate it.
Well hi there I'm gonna quote Alan Blinder I'm sure you wouldn't object to that because back -- you -- back in July US the following question does anyone really think.
That lower US treasury rates are what this country.
Needs -- does anyone really think that lower rate right now which is.
Obviously what this bond purchasing is is is all of Buiter try to do will spur.
Well let me I don't know let me let me distinguish between the treasury purchases and the MBS purchases got.
You mentioned both in the lead right I think the MBS purchases of potentially more important more stimulative.
Holding down MBS rates which hold down mortgage rates which helps refinancing and so on but if I get a -- -- my point on the treasury purchases.
As opposed -- as an old time type of of thing which was just to switch switching that.
The short term for longer terms this is this is brand new purchases I mean I would argue that that's the more important part of today's announcement.
-- well that's the more important part of today's announcement because the MBS purchases was announced a while ago.
But in terms of strength on the economy I I put the MBS purchases first.
And the treasury second look the Fed was in a quandary it was doing this twisting operation buying -- and selling the shorts.
It no longer has any shorts to sell right.
So it's choice was do we do nothing which would be a modest contraction -- policy or we just do we just leave on the buying -- belongs.
Which would be a modest stimulant of policy and of course they chose the -- Professor -- things Ben Bernanke also said was with this new move we are quote not ramping up stimulus except when you look at the Fed's balance sheet -- right now it's at about what two point eight trillion.
By the end of next year under this program will be -- three point eight trillion.
What does he mean he's not ramping up stimulus is he being is -- being honest about that or is is he big.
A little less then upfront.
I'm not sure I was -- not -- -- to ask him questions it sounds like the wording meant that we're not a steep.
We're not accelerating that as we -- -- a stimulative.
Mode and works continue -- that stimulative mode we're not really ramping it up.
You know I think get them at least -- a minus since they are ramping it up because of keeping only half of Operation Twist and dropping.
Dropping the other part.
John hills and -- from the Wall Street Journal.
It seems to know -- Ben Bernanke in his -- better most people do at least.
In the media and he has suggested several times most recently today that the goal of what they're doing is.
To lower barring costs and stimulate stock markets now this.
This goal or mandate if you well as stimulating as stock markets can be dangerous because sometimes.
When stocks go up it's because of the fact that companies are firing people not hiring people and that.
Would conflict with their mandate on unemployment would -- not.
What I think.
Stimulating the stock market is -- minor part of the Fed's intent well intentioned but.
I wouldn't tonight -- -- chairman Bernanke would deny that it's at least is a minor part.
That it's keyed much more at stimulating the mortgage market as we were saying.
A while ago and stimulating other interest sensitive components of spending.
Not nevermind stock prices but of spending.
Consumer spending on automobiles for example business spending on equipment and software -- things like that that's where the Fed would really like to see more activity.
I I think they've really like to see congress.
Start moving a you know he was pretty mu pretty clear right I mean he said today -- -- fiscal cliff is a fair and sensible term.
They can only do so much that the Fed you were there you know that's starting at what shift what is the number one -- congress should really be doing right now that a Federal Reserve chief wishes they were acting upon.
Well I don't.
Out that -- -- -- came down and gave Ben Bernanke three wishes his first two would be about avoiding the fiscal cliff.
Really he has nothing in his arsenal that's anywhere close.
-- -- being able to offset.
The contraction -- impact of actually jumping off.
While -- fiscal cliff he knows that and he said that he's been quite frank.
The fiscal cliff poses a clear and present danger.
To the even the kind of tepid economic recovery -- we're living through.
Now you know you were known to be one of the few people it would challenge Alan Greenspan when you were with the Fed.
And a lot of people complementing that if you -- the Fed right now is there any thing about which you would challenge directly Ben Bernanke.
There is one thing and he knows that I've challenged him about this in the in -- off from the outside and a variety of ways I've been advocating dead and in addition to the things the Fed is doing so.
I -- I support really is doing.
In addition to that he he the Fed.
Cut the interest rate that banks are being paid.
For holding idle reserves.
-- idle reserves sitting in their bank accounts of the Fed is doing nobody any good.
And I'd like to see it pushed out of there -- some of it you'll push all of it out there.
Hi into some kind of productive you know there's a Republican who agrees -- -- and that another former fed official I think you know that is Wayne -- who we've had on our air so both a debt Democrat and Republican agreement when -- let's hope I'm happy to take allies wherever they come.
Good and good to see rate of about it thank you so much for being here to -- -- Alan Blinder former Federal Reserve vice chairman all right how about.
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