Something Useful Which the Fed Could Do

Buy Greek bonds.

I am very suspicious of proposals that the Fed do more to save the economy which do not specify what. They seem to be based on the idea that expanding Fed liabilities would be useful no matter what assets the Fed buys. I am convinced that Fed purchases are useful if and only if the Fed purchases assets which private investors fear. I think the QEII experiment supports this view.

Investors fear Greek government bonds. The Fed certainly has the legal authority to buy foreign treasury securities. It can save Greece any day it pleases. This would be good for the USA, because it reduces the risk of another world financial crisis.

There is no chance that the Fed will do this. I don’t know why ?