The recession may be over, but that doesn't mean governments should stop pouring trillions into their economies.
A pair of policymakers from both sides of the Atlantic want to keep those stimulus dollars (and euros and pounds) rolling. James Bullard, the St. Louis Fed president who's had an awful lot to say these days, wants to see the Fed's ability to buy mortgage-backed securities and bonds continue. IMF chief Dominique Strauss-Kahn agrees that it is way too early to give up on stimulus policies.
"I think it is still too early for a general exit," Strauss-Kahn said today. "Exit should instead await a sustained recovery in private demand, as well as entrenched financial stability." Oh, is that all?
"We recommend erring on the side of caution, as exiting too early is costlier than exiting too late."
In particular, Strass-Kahn focused on the British in his London speech, which is just as well, since they're lagging behind the rest of us. The U.K. will need to continue its stimulus policies for "some time," he said, declining to speculate on which decade the Brits could safely exit stimulus.
Bullard--who has emerged as a chief defender of the Fed's rights and privileges against those who think it does a crappy job--wants to hold on to its new fiefdom allowing it to buy mortgage-linked assets in an effort to inject liquidity into the mortgage markets. The $1.45 trillion program is set to expire in March, and the Fed itself said it would complete its purchases of $1.25 trillion in mortgage-backed securities and $175 billion in agency debt by then--but Bullard "would like to keep them active at a very low level instead of saying, 'we're shutting down, shutting down permanently.'"
Moving from the laggards to the leaders, the Chinese are moving to ensure that they don't meet the same fate as their Western friends as the Chinese economy booms. The country's banking regulators have asked its banks to raise more capital to keep capital-adequacy rations from falling. That way, when the inevitable economic shock hits the country, it might not cost them quite so many trillions to keep their economy from collapsing. Cute idea, China.
Bullard Says Fed Should Keep Asset Program Past March [Bloomberg]
IMF Chief: Late Stimulus Exit Better Than Early [DJ via WSJ]
China Asks Its Banks to Slow Down [NYT]