Alternative title: Stimulus without Congress.
Many argue that the Fed should buy long maturity and/or risky assets in order to reduce interest rate differentials. The Federal Funds rate is essentially zero, but interest rates which matter are still significantly positive so more could be done by some huge player in the bond market.
But why the Fed ? The Treasury is a huge player in the bond market. They are still selling long term bonds. Why ? What if the Treasury decided to finance the deficit with 1 and 3 month T-bills alone ? A now deceased parrot said that this would reduce the slope of the yield curve.
But so long as the Fed keeps the target federal funds rate roughly zero, that means lower medium and long term interest rates.
There must be something wrong with this proposal. What ?
What is the profound difference between the Fed buying more and the Treasury selling less which outweighs the fact that Obama can fire Geithner and can’t fire Bernanke ?