During the Future of the Federal Reserve event there was an interesting back-and-forth between Joe Stiglitz and Joe Gagnon in their respective talks and the Q&A about the merits of QEII. I edited down their remarks into this video:
Stiglitz had been critiquing the models of the Federal Reserve, with little-to-no room for banks or a financial system, earlier in his introductory remarks, which is the reference to the old models animating the QEII assumptions. Gagnon executed QEI for the Federal Reserve and made the big arguments for starting QEII – he states that the delay and the weak implementation of QEII has cost us a million jobs. The final question from Stiglitz at the end, if you can’t hear it, asks that if the theory requires people feeling wealthier from QEII to make additional purchases through asset substitution wouldn’t rational expectations and the idea that QEII will be ended blunt any stimulative effect.
Side note: Gagnon earlier in his talk said that “one of the biggest goals of QEI was to push down the mortgage rate to spark a refinancing boom to encourage households and enable households to reduce their expenditures and repair their balance sheets and be able to spend again. That worked not quite as well as we hoped because the administration’s program for getting underwater borrowers to borrow didn’t work and I think that’s a true disaster that has no excuse. I have nothing but incredible, there’s just, the blame the administration on not doing this is just incredible. This could have been a huge success. We got the lowest 30-year mortgage rates in history and we couldn’t take advantage of them to the extent that we could. We got about a trillion dollars in refinancing when we should have gotten two or three trillion dollars in refinancing.” I haven’t heard this critique before and I thought it was really interesting.
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The mortgage rate did get pushed down. How much lower than 4% can you go? I find it hard to believe that this guy (gagnon) thinks that pumping more credit into the housing sector would’ve been a good idea. What if there aren’t enough qualified buyers? What if there’s too much stock?
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Hard to re-fi when you don’t have a job.
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