Thursday, March 19, 2009

Quantitative Easing and Oregon

I mused to a colleague a while back that since fiscal stimulus is hard to do well and relatively slow, perhaps we would be better off if the feds just pumped massive amounts of liquidity into credit markets.  Well the Fed appears to have decided that it needed to be more aggressive on quantitative easing.  Will it work?  There needs to be borrowers for this capital that have productive uses for it and with recession in other parts of the world this demand will probably be muted.  But I think it is well worth the risk.  The rate at which we are shedding jobs is phenomenal and bold action is what is called for.

For Oregon this strategy may have a side benefit.  The value of the dollar is declining and this will make Oregon exports more competitive.  Since Oregon is particularly dependent on exports, this decline may be some help.

As seen on this nice NY Times graph the effects are immediate: long term debt just got cheaper. This should also help Oregonians buy homes and stay in their homes as mortgage rates come down.

3 comments:

Vanessa said...

Speaking of exports, what do you think about the article in the Oregonian this morning about Mexico raising tariffs on Xmas trees 20% in retaliation for Mexican Trucks no longer being allowed in the US?

Jeff said...

Last fall it started to be the case that businesses that wanted to expand can't get credit to do so.

By now things have changed. Even if businesses COULD get more credit to expand, do they want to expand anymore?

If you were a retailer, is this the time to expand your store, or upgrade your equipment?

It's not a liquidity crisis anymore. It's more a question of whether ANYTHING is a good investment right now.

Everyone just wants to pay down their debt right now. Is there any business that really wants to invest?

Not sure that quantitative easing is going to help.... And it's also far from clear that any type of quantitative easing is going to work.

Patrick Emerson said...

Vanessa, I think that free trade benefits all participants, but this episode has shown that global capital markets need some sort of oversight. In general I don't like the creeping protectionist rhetoric.

Jeff, I think if credit is cheap enough there are always good investments and if credit is cheap enough there will be investment in general which will make individual investments pay off.