Sunday, April 15, 2012

Comment on John Williams

This is a comment on an article excerpted by Mark Thoma here

It's not just housing ? Oh really. Oddly discussion of actual evidence tends to get back to housing. For example, search fo "For example". I recall two. On tight credit the "example" is tight mrtgage standards. The claim that small businesses also have a problem with tight credit is not backed up with evidence. I note that only the normal tiny fraction of small businesspeople say their worst problem is "interest rates/finace" .

Then on QE worked. "For example" QE I purchases of mortgage backed securities. There was no discussion of QE II in the article. There was no distiction between opration twist and low forecast inflation, low forecast groth and his own proposal to keep the short term rate low. I would say that twist sure seems to have worked (although no evidence is presented in the article). But I also think the case for QE II consists entirely of conflating it with the other two interventions. In particular no evidence was presented which challenges my conviction that investors treated 7 year notes and cash as close substitutes.

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