Thursday, June 21, 2012

Buying Time, at a Price

I like this post (registration required) at an FT blog by Mohamed El-Erian of PIMCO. Commenting on the Federal Reserve's extension of "Operation Twist" yesterday, he writes, "[I]n continuing to act on its own, all the Fed will do is buy some time that will again be wasted by the country's politicians. Meanwhile, collateral damage will mount, making the next policy steps even more excruciating."

He continues later in the post, "Whether you are worried about insufficient demand or the economy's sluggish supply response, it is hard to argue that what ails the US is in the domain of Fed tools."

To use another metaphor, large doses of financial medicine have side effects, and make the body politic feel queasy.

The whole piece is worth reading.