Archive for August, 2011

Alan Krueger, impeccable choice

29 August 2011

. . . to be the new chair of President Obama’s Council of Economic Advisers. Krueger is a world-class economist who has produced much fascinating, groundbreaking research, and he has ample Washington policy experience. Although Krueger is typically classified as a labor economist, not a macroeconomist, his research is far-ranging and his opinions on macro issues, as expressed in his columns and Economix blog posts for the New York Times, look sensible and well supported.

On the other hand (and there has to be an “other hand” — I’m an economist, after all!), will Obama listen to him? Christina Romer and Austan Goolsbee, Krueger’s predecessors at CEA, gave Obama excellent advice about the need for a strong fiscal stimulus but he ignored it, opting for a stimulus only about half as large as they urged. Neither of them could possibly have agreed with this summer’s bizarre pivot away from jobs toward deficit reduction at a time of 9% unemployment, not to mention the way it opened up the president to Republican debt-default brinkmanship.  No wonder Goolsbee was so delighted to leave the job.

The usually excellent Ezra Klein was on “The Rachel Maddow Show” tonight, and for once I’d say he got it wrong. He said Krueger’s policy work experience with Larry Summers in the Clinton and Obama administrations and his tennis partnering with Tim Geithner make him just another insider, not a real change. I see no evidence that Krueger is as willing as Summers or Geithner to kowtow to Wall Street interests, and at this point even Summers seems to be calling for a fiscal stimulus instead of short-term deficit reduction. It looks to me like Krueger is cut from similar nuanced-Keynesian cloth as Romer and Goolsbee, but better connected. The CEA chair who plays doubles with Geithner has a better shot of making a difference.

Consumption — What a difference a month makes

29 August 2011

Today’s big news is an unexpected surge in consumer spending in July. After adjusting for inflation, the increase is 0.5%, which is the largest since 2009. It comes after three straight months of decreases in real consumer spending and a historically dismal reading for consumer confidence a few weeks ago.


Granted, the recent plunge in consumer confidence could translate into an immediate about-face in consumer spending, but for now the picture looks quite different. Much of the collapse in confidence was due to the debt-ceiling fiasco and dashed hopes for a budget deal, but memories of that episode may fade, at least as far as their impact on consumer behavior; after all, Congressional dysfunction is nothing new.

The July increases for personal income (0.3%) and consumption (0.8%) pull the year-to-year monthly increases up to 5.3% and 5.1% (in nominal terms). Subtracting the 2.8% inflation over the same period, the real increases are 2.5% and 2.3%.(Source: Bloomberg.com; sorry, no Permalink available.) Still not enough to lead a rapid recovery, as 3% real GDP growth is the norm and at least 4% would be needed to reduce unemployment, but not bad. Dean Baker has noted that consumption is actually fairly high, in the sense that the household savings rate is low by postwar standards. So it appears that consumers are spending, they just don’t have a lot of income to spend.

What’s dragging the economy down?

27 August 2011

This recent observation by Dean Baker got me thinking:

‘As noted in today’s lesson on accounting identities, the share of GDP devoted to investment in equipment and software is almost back to its pre-crisis level. And, the saving rate is still below its post-war average, meaning that consumption is high, not low.’

The point about investment is particularly notable. All through this Little Depression we’ve been hearing that companies are reluctant to invest, whether because of pessimism about future sales (me, for example) or because of uncertainty about future taxes and regulations (conservatives). A bit less than half of  investment is in equipment and software, so it’s good news that that’s largely come back. The larger part of investment, structural investment (both commercial and residential), is still hurting, however; I’d think the reasons are related to the post-2007 woes in the housing and real estate sector in general.

The Commerce Department’s quarterly GDP reports are a godsend for trying to pinpoint what areas of the economy are strong and which are week. The reports have three one-page tables: Table 1 gives the annualized real percent change for the various GDP components, broken down into a couple dozen sub-components; Table 2 gives the contribution of each one to real GDP growth (e.g., if increased investment caused GDP growth to be 1.0% instead of 0.0%, its contribution is listed as 1.0%); Table 3 gives the dollar value of each component and sub-component. Yesterday’s report contains revised figures for the second quarter of this year, and quarterly figures dating back to 2007. What do they tell us?

First, looking at the yearly figures, in 2008 and 2009, the two years when real GDP actually fell, investment fell even more sharply, and consumption fell somewhat, with positive contributions from net exports and (secondarily) government purchases making up some of the difference. Okay, that’s not news, but it’s worth keeping in mind.

Turning to the quarterly figures, we’ve now had two full years of rising real GDP dating back to the third quarter of 2009, but from 2010:I to 2011:I that growth slowed in every single quarter: 3.9, 3.8, 2.5, 2.3, 0.4%. It rebounded to a still-anemic 1.0% in 2011:II. Those last few growth rates are not enough to keep the unemployment rate from rising, which is the definition of a “growth recession.”

The economy had three consecutive strong quarters in 2010:IV-2011:II, with real GDP growth of almost 4%. What drove that little spurt? In the first two cases, investment, especially inventory investment (which means companies were optimistically producing in expectation of higher sales and/or failed to sell much of what they produced). Equipment and software investment made a modest contribution, and structural investment again made a negative contribution. In the third quarter, investment again led the way (this time sparked by equipment and software), with consumption closely behind. Notably, despite the federal stimulus, the total government contribution to GDP growth was slightly negative in those first two quarters (state and local retrenchment more than offset the federal stimulus) and modest in the third quarter (of note: the modest federal contribution of 0.71% was actually the second-highest since the stimulus began, with the highest being 1.09% in 2009:II. Draw your own conclusion. Mine is that the stimulus was way too small.)

What caused growth to be so slow in the first two quarters of 2011? Government retrenchment led the way, with respective contributions of -1.23% and -0.18%. In the first quarter, most of the retrenchment was at the federal level (-0.81%), which probably represents the winding down of the stimulus. In the second quarter, state and local government retrenchment shaved 0.34% off GDP, while the federal contribution was slightly positive. Also in the first quarter, a surge in imports mostly negated the contribution of increased consumption (1.47%-1.35%).

If we want to look for positives, here are the components of real GDP that grew by at least 3% (annualized, and 3% is about the historic norm for GDP growth) in both quarters of 2011:

  • investment in equipment and structures: 8.7%, 7.9%
  • exports: 7.9%, 3.1%

Not bad, but too small in relation to the economy to lead economic growth. Investment in structures was still poor (with a combined contribution to GDP growth in the two quarters of about zero), and rising imports more than offset the improvement in exports. Perhaps the key thing that sticks out is that even without the drags on the economy from government retrenchment and negative net exports, the positive parts of the economy were themselves fairly weak. Consumption contributed just 1.47% and 0.30% respectively; investment just 0.47% and 0.78%. Even without the drags from government and net exports, that’s total growth of just 1.94% and 1.08%. This is still a very slowly recovering economy, still a Little Depression. It also looks like there’s way too much vacant housing and physical plant out there for many people to want to build.

Taxes — not lonely enough at the top?

20 August 2011

Bruce Bartlett offers a fine economic history lesson on the U.S. top marginal tax rate. Most people know that the top rate has changed quite a bit over time. (For those keeping score: 91% from WW2 to the early 1960s; 70% till the early 1980s; 50% for most of the Reagan administration; 28% in the late 1980s; raised to 31%, then 36%, then 39.6% in the early 1990s; lowered to 35% in 2001). Bartlett compares the top tax rate with the economic growth rates during those intervals and finds basically no correlation. That, too, is not really news (and a more careful study would take other factors into account).

What is striking, however, is how the threshold level of income for the top rate has changed over time. The original income tax, at the height of the Progressive Era during the Wilson administration, set the threshold at $500,000, which is not only higher than today’s $374,000 but was in 1913. The price level has increased more than 20 times since then; adjusting for inflation, the 1913 top tax rate kicked in at $11 million.

The famous tax cuts engineered by Harding-Coolidge-Hoover Treasury Secretary Andrew Mellon in the 1920s lowered that threshold considerably (to $100,000, or $1.2 million in today’s dollars) but in real terms left it still well above today’s. Pres. Franklin Roosevelt raised both the top tax rate and the threshold to sky-high levels (79%, and a threshold that would be $80 million in today’s dollars and may have only affected one person; some called it “the Rockefeller tax”).  The threshold fell to $200,000 (equivalent to about $3 million today) during WW2 and basically stayed there till the early 1980s. The “Reagan tax cuts” of 1981 lowered the threshold to $85,600 (not quite $200,000 today). The Tax Reform Act of 1986, which Reagan signed, flattened the tax system further, with a top rate of 28% that kicked in at just $30,000 (about $50,000 today). The “Clinton tax increase” raised the threshold from $86,000 to $250,000, and inflation adjustments have raised it to $374,000 today.

Notice a partisan pattern here? It’s no secret that Republicans think the rich are overtaxed and Democrats think the rich are undertaxed, but the discussion almost always focuses on the top tax rate. What’s often missing is just where the definition of “rich” begins. In the historical record, Democrats (Wilson, Franklin Roosevelt, Clinton) have tended to set the top tax threshold high, whereas Republicans (Harding, Reagan) have tended to lower it. Much of this comes down to different notions of fairness: Democrats tend to favor a progressive income tax in which richer people pay a larger share of their income and poor people pay little or none; Republicans tend to favor a flat income tax (or no income tax), in which everyone pays the same marginal rate. Having the top rate kick in at very high levels of income tends to go hand in hand with a multiplicity of different tax rates and a highly progressive tax structure, whereas having it kick in at low levels of income means a much flatter tax.

Ever since the “Bush tax cuts” of 2001 were passed, many Democrats have talked about raising the top tax from 35% back to 39.6%, but until recently I’d  heard surprisingly little talk about raising the threshold.This was surprising to me, because, as Bartlett points out, many people do not regard $250,000 or even $374,000 as particularly rich — at least not if, say, you live in New York City and have a family of four. It’s rather unclever politics to talk about raising the top rate without reassuring upper-middle class people that you’re not going to raise their taxes too. Republicans, with clever simplicity, typically truncate “tax increase on the wealthy” to “tax increase,” implying that it’s a tax increase on everybody. Lately Pres. Obama has called for raising the threshold to $1 million, so that people making $374,000-$999,999 would still pay 35 cents on their last dollar of income but people would pay 39.6 cents on every dollar of income above $1 million.

It is still debatable whether raising anyone’s taxes in a depression is ever a good idea, but ideally whatever major long-term deficit reduction plan Congress passes will go into effect only when recovery is well underway and unemployment is down to, say, 7% or less. When that happens, I agree with Bartlett that raising revenues efficiently and equitably will entail raising taxes on the top brackets (either through raising rates or, better yet, closing loopholes) and raising the top tax threshold.

The great Keynesian hope: Republicans?

19 August 2011

It is well known that Republican politicians typically denounce John Maynard Keynes as an apologist for big government and deride “public investment” as a smokescreen for pork-barrel spending (mmm, smoked pork). Steve Benen at The Washington Monthly notes, however, that Republicans in Congress are rather Keynesian in prolifically proposing public investments in their own districts. Which leads him to a clever idea:

‘… how about a new stimulus package focused on granting Republicans’ requests for public investments?

‘Here’s the pitch: have the White House take the several hundred letters GOP lawmakers have sent to the executive branch since 2009, asking for public investments, and let President Obama announce he’ll gladly fund all of the Republicans’ requests that have not yet been filled.’

(Hat tip: Bob Cesca, who sums it up as ‘Keynesian economics as endorsed by the Republican Party.’)

If Obama wants to make this idea more responsible, he could say he’ll do this only for requests that are also on the American Society of Civil Engineers‘ extensive list of needed infrastructure improvements.

It may be the best hope for a new spending stimulus. (A tax-cut stimulus might be easier to get through Congress, but standard economic impact estimates find that tax cuts do less to increase GDP than new spending does. And the type of tax cuts that Republicans tend to favor, like lowering the top marginal tax rate and reducing the capital gains tax rate, do even less, because wealthy people don’t consume much of their extra income.) If Republicans reject it, they’ll look hypocritical for wanting one thing for their districts and another for the nation.

The deficits between politicians’ ears

17 August 2011

‘This isn’t hard. Hire people to build things with the free money the world is offering us.’

— Jay Ackroyd, at Eschaton (Hat tip: Brad DeLong)

Well, yeah. We should worry about the long-term deficit, but when the world is ready to lend us more money at zero real interest rates, the world clearly has other priorities. And so should we — like the 16% of the labor force that’s either unemployed or underemployed. What might we do with all this money the world is so eager to lend us?

The closest thing to a proposal to build things that’s come out of Washington lately is an infrastructure bank, to fund various improvements in the nation’s roads, bridges, levees, and such. A recent Bloomberg editorial praises the idea, and Pres. Obama is urging Congress to create such a bank. The obstacle, not surprisingly, is Congressional Republicans who view all domestic spending as “pork.” In this case, however, the pork is more like bacon bits. From the WSJ:

‘Under the White House plan, the infrastructure bank would augment current highway and transit programs. The bank would receive $30 billion over six years and would issue grants, loans and other financial tools.’

$5 billion a year? Barely a drop in the giant bucket that is the U.S. output gap. And barely a dent in our nation’s gaping infrastructure needs, which the American Society of Civil Engineers (ASCE) estimates as costing $2.2 trillion over 5 years. Way to think big, Mr. President. As Krugman wrote recently, the battle in Washington is between Republicans who want to do nothing and Democrats who want to do very, very little. And outside the beltway, we have a Republican presidential front-runner who thinks that doing anything to help the economy before November 2012 is not only wrong but treasonous.

But heroically assuming for a minute that Washington actually wanted to employ people to fix the nation’s infrastructure, the ASCE’s website provides ample details about where to do it. Talk about “shovel-ready projects.” Meanwhile, my former professor David F. Weiman recounts some of the infrastructural marvels of the New Deal. Even a longtime Great Depression researcher (me) was amazed:

‘The New Deal’s Public Works and Works Progress administrations spurred rapid productivity growth in the midst of the Depression. New roads and electrical power networks paved the way for post-World War II economic expansion built around the automobile and the suburban home. Astonishing 21st-century innovations such as next-day FedEx deliveries and Wi-Fi still rely on these aging investments. We associate FDR with massive hydroelectric dam projects — including the Grand Coulee and Hoover dams in the West, and the Tennessee Valley Authority in the South — but the New Deal also electrified rural America through cooperatives that distributed cheap, reliable power. Nearly 12 percent of Americans still belong to these collectives. Without the New Deal, they would be stuck in the much darker 1920s.

‘As would modern travelers. Without the New Deal, New York commuters would be without the FDR Drive, the Triboroughand Whitestone bridges, and the Lincoln and Queens-Midtown tunnels. There would be no air traffic at LaGuardia and Reagan National airports. D.C.’s Union Station, wired for electricity during the New Deal, would have a very different food court. Between New York and Washington, Amtrak runs on rails first electrified during the New Deal.

‘Out West, the New Deal gave us Golden Gate Bridge access ramps, the Oakland-San Francisco Bay Bridge, the first modern freeways, and San Francisco and LAX airports. Between the coasts, it brought more than 650,000 miles of paved roads, thousands of bridges and tunnels, more than 700 miles of new and expanded runways, improvements to railroad lines, and scenic routes such as the mid-South’s Natchez Trace Parkway. Without the New Deal, of course, some of these would have eventually been built by state and local governments or the private sector — years after America’s recovery from the Depression.

‘Moreover, private infrastructure improvements would have bypassed poor regions such as the South. Because of its vision and virtually unlimited borrowing capacity, the New Deal underwrote Southern modernization with new roads, hospitals, rural electrification and schools. These public investments paid off. After 50 years of stagnation, average Southern incomes began to catch up with the national average during the New Deal era.’

Granted, economic historians have long criticized FDR’s New Deal deficits as being too small to restore the economy to full employment, but neither were they insignificant. An average of 3.5 million workers a year worked in New Deal jobs. From the above it’s clear that a great many of those jobs produced great gains for America’s infrastructure, economy, and society.

Self-inflicted wounds: Nov. 23 edition

14 August 2011

Another Kabuki dance has commenced in Washington, now that Congressional leaders of both parties have made their selections for the Gang of Twelve charged with crafting $1.5 trillion in savings in 2013-2022. They have until Nov. 23 to agree on a package of savings. If Congress can’t pass that package, then $1.2 billion of automatic, across-the-board spending cuts (no tax increases) would kick in.

I’d place my bets on none of those things happening. Here’s what I foresee:

1. Negotiations among the twelve constantly are on the verge of breaking down along party lines, especially on the issue of tax increases. Possibly they are unable to reach a compromise at all. Even if they do, few of them will throw much weight behind it.

2. If a budget plan emerges, getting majority support in the House and 60 votes (or 51 votes, if nobody filibusters it) in the Senate will prove impossible. The partisan acrimony will look like open warfare.

3. With the specter of $1.2 trillion in across-the-board cuts, including maybe $500 billion in Pentagon cuts, the Secretaries of Defense, Homeland Security, and other agencies, joined by citizens and interest groups all over the nation, will howl that these cuts would devastate our country. Congress’s approval rating will plummet even further, to about the same level as the Taliban’s.

4. Congress will pass a new bill that says, um, nevermind about all those spending cuts. (This is an inherent problem in trying to tell future Congresses what to do, or even telling oneself what to do a little ways down the road.) Republicans will continue to pummel Obama and the Democrats for overspending, but neither side will be able to push a new deficit-reduction plan through both houses of Congress.

Now, what about the reaction of the markets to all this? I think that most of the market already expects something like this and has basically priced it in. It’s decades-old news that Congress has no stomach for long-term deficit reduction, and obvious by now that the partisan split in this Congress is among the worst ever. If the above predictions come to pass, then the markets and economy will get worse, as this failure becomes definite. As I’ve written before, I think the market is reacting less to the U.S. debt burden than to continued evidence that U.S. politicians are simply not doing their job when it comes to dealing with the Little Depression. I think they’re appalled that Congress and the White House are wasting so much time on this doomed debt deal and have basically painted themselves into a corner with this Nov. 23 deadline and automatic-spending-cuts mechanism. They see the writing on the wall; either Obama, Boehner, Reid, et al. don’t or each side is cynically thinking that they can spin this fiasco-in-waiting to their advantage. Either way, they’re not doing their job. They’ve set themselves up to fall, each side hoping that the other falls further.

Don’t look to us

12 August 2011

Households, that is.

Household consumption has long been the mainstay of U.S. GDP, and asset-bubble-driven consumption in turn helped drive the expansions of the 1990s and 2000s. But consumption spending has been weak in this so-called recovery, growing at only about 2% (annualized and inflation-adjusted) since its trough in spring 2009, and it fell in each of the last three months for which we have data (see graph). On top of that, today’s consumer sentiment numbers are the worst in three decades. To find worse, you’d have to go back to a month that included recession, double-digit inflation, Americans held hostage in Iran, long gas lines, and the eruption of Mount St. Helen’s (this is starting to sound like a pub trivia quiz . . . the answer is May 1980).

(Graph from www.data360.org.)

File under “Outraged and paying attention”: From the press release accompanying the consumer sentiment survey data (from Thomson Reuters / University of Michigan):

‘”Never before in the history of the surveys have so many consumers spontaneously mentioned negative aspects of the government’s role,” survey director Richard Curtin said in a statement.

‘The Obama administration received poor ratings from 61 percent of respondents, the worst showing among all prior heads of state. [I could not find a rating for Congress, but in recent polls Congress gets even lower ratings than Obama.]

‘”This was more than the simple recognition that traditional monetary and fiscal policy measures were largely spent; it was the realization that the government was unable or unwilling to act,” Curtin added.’

Yes. Imagine if the government had spent this year looking for ways to stimulate the economy rather than contract it through spending cuts. Failing that, imagine if if Obama had forcefully and publicly told the Republicans that it was absolutely unacceptable for them to hold the debt ceiling hostage to their root-canal economics. (It worked for Bill Clinton in 1995-96 with the government shutdown.) At least one branch of government would be seen as more focused on jobs than deficits.

Instead, as Curtin implies, the public rationally concludes that jobs take a back seat to deficit cutting on all major politicians’ agendas. And the attention given to the debt-ceiling debacle has much of the public expecting more of the same in connection with the budget appropriations deadline on Sept. 30, the deadline for the Group of Twelve’s long-term budget-cutting proposal on Nov. 23,  and the expiration of the Bush tax cuts on Jan. 1, 2012. It’s easy to imagine the entire rest of the year devoted to partisan trench warfare, isn’t it? Be glad these guys are on vacation.

P.S. Title inspired by The Clash, of course. Alas, poor London. Feels weird to read about traditional looting for a change instead of the financial variant.

What more could the Fed do? (cont’d)

11 August 2011

The New York Times joins the chorus of complaints that the Fed has not done enough to jump-start this stalling economy. In yesterday’s lead editorial the gray lady ruefully notes that Ben Bernanke basically ruled out further quantitative easing when he said at the Fed’s June meeting that it would not happen unless there was a heightened risk of deflation. Then the editorial offers a paragraph’s worth of additional measures the Fed could take. One by one:

‘For starters, the Fed could take modest steps, like shifting its portfolio toward bonds with longer maturities, which would help to keep long-term rates low and nudge investors into riskier investments.’

In other words, QE3, or QE2 on steroids. Normally the Fed targets the shortest of short-term rates (the fed funds rate) and does so through its open market purchases and sales of short-term T-bills. And T-bills are the security of choice because the Fed does not want to make too big a splash (at least not directly) in the markets for particular bonds. The logic here is the reverse: of course the Fed wants to make a splash in the bond market by lowering long-term interest rates — that’s the penultimate goal of monetary policy, behind stimulating business investment and consumer spending. In today’s extraordinary circumstances, ending the Little Depression seems more important than not disrupting the bond market. So it’s hard to argue against this one, other than to note that the Fed would probably be monetizing a lot more of the federal debt than otherwise, which could raise inflation fears. (Of note: In the early 1930s Keynes thought the central banks should buy up long-term debt so as to lower long-term interest rates, too. So this isn’t exactly a new idea.)

‘It could reduce the interest it pays on the banks’ huge reserves or even tax the reserves to try to encourage more lending.’

Absolutely. Reduce it to 0%, which was the rate on reserves prior to 2008. Bernanke’s main rationale paying interest on reserves, as I understand it, was to reassure the markets that the huge pools of bank reserves, which the Fed created in response to the crisis, would not lead to a runaway inflation when the economy began to recover and banks loaned those reserves out. The idea was that as the economy recovered the Fed would “soak up” those reserves by raising the interest rate on them so that banks would be less inclined to loan them out. At this point, however, hardly anyone seem to be worried about the inflation threat posed by those reserves. They’re more worried about how they continue to just sit there. Lowering the rate to zero can only help, though maybe not by much.

‘It could also resume buying Treasuries or other securities to provide additional monetary stimulus.’

This is a lot like the first suggestion. It could get more radical if the “other securities” are things like mortgage-backed securities, in which case it’s more like QE1 (when the Fed effectively bought up many of the toxic subprime securities, thereby taking them off the market). This brings to mind the dramatic proposal by Joseph E. Gagnon of the Peterson Institute for International Economics, which has gotten a lot of attention lately. Gagnon: “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.” I haven’t digested Gagnon’s proposal yet, but this is what a radical proposal looks like. Krugman and Brad DeLong seem to like it.

‘A more aggressive strategy would be letting inflation rise above the Fed’s comfort level of 2 percent or so to, say, 4 percent. That could help the economy by easing the repayment of debt.’

This would have promise if the Fed could actually control the rate of inflation like that. As I’ve written before, I don’t think it can, not when the economy is in a depression and seems to be tending on its own more toward deflation than to 4% inflation. The Fed has already flooded the banking system with reserves; when they don’t get loaned out (as so many of them haven’t), they don’t raise aggregate demand, the money supply, or the price level.

In sum: The first two steps seem worth taking, but are probably too modest to have much impact. The third step can be about as big as the Fed wants it to be; it has the most potential, though as with QE1 just moving a lot of assets from the private sector onto the Fed’s balance sheet doesn’t necessarily generate a surge of private investment. The fourth step looks impossible at present, even without the inevitable political resistance to the Fed backing down on inflation.

The Fed predicts two more lean years

9 August 2011

From today’s Federal Open Market Committee announcement:

‘The Committee currently anticipates that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.’

Ouch. This was apparently supposed to be a mild monetary stimulus — the fed funds rate target is being held at 0-0.25% for two full years instead of just for a vague “extended duration” — but it’s also one more dismal forecast, from an authoritative source.

Good article here by MSNBC.com’s John W. Schoen, who lays out some of the Fed’s alternative options and seems underwhelmed by them. For example, the much-discussed “QE3” option of buying long-term T-bonds in an effort to force long-term bond rates down further has two big disadvantages: (1) Low long-term bond rates don’t seem to have sparked much investment or consumption so far, so it’s doubtful that lowering them further will make much difference; (2) Lowering them even further will reduce the already much-reduced incomes of retirees and others living on interest.

What’s a central bank to do?