Stop sticking our heads in the sand Time for action on jobs / Joe Gagnon

Joe Gagnon is a former senior economist for the Federal Reserve, among other points in a stunning CV.  Obama said at a town hall a couple of weeks ago that he had made two mistatkes: underestimated the recession and not taken strong enough action on housing.  We know that.  What can be done now without Congressional approval?  Quite a lot.  - GWC

by Joe Gagnon - Peterson Institute for International Economics

RealTime Economic Issues Watch: "I propose aggressive actions that can be taken by the Obama Administration and the Federal Reserve without a single vote in Congress. Indeed, to some extent, these are the same actions I proposed nearly two years ago but that were never adopted. The stakes are higher now because of the harmful consequences of allowing long-term unemployment to persist.

First and foremost, the Federal Reserve should announce an additional $2 trillion of asset purchases, including longer-term Treasury bonds, agency mortgage-backed securities (MBS), and foreign exchange. This is more than three times the size of the woefully underpowered quantitative easing of late last year (dubbed QE2) and it should be accompanied by a clear statement that more is forthcoming if the economy continues to underperform.
The goals are to push down bond yields and mortgage rates, to push down the value of the dollar in terms of foreign currencies, and to boost stock prices. All of these help households deleverage their balance sheets and encourage consumption, investment, and exports (which would become cheaper for foreign buyers as a result of the dollar’s depreciation). Businesses would need to hire more workers to meet the additional demand.
The Obama Administration can help in two important respects: First, the Administration should use its control of Fannie Mae and Freddie Mac to force them to invite all homeowners whose mortgages are already guaranteed by Fannie and Freddie, and who are not delinquent in their mortgage payments, to refinance their current mortgage balance at the new low rates regardless of loan-to-value ratio."