A Federal Government Fix

Our friend James Pethokoukis of U.S. News and World Report recently asked me to provide my thoughts on a federal government bailout to “fix” the housing market and stabilize the economy. You can read my thoughts here (along with those of Russ Roberts, Dean Baker, Don Luskin, Craig Newmark, John Tamny, and Daniel Mitchell).

What Can the Fed Do?

Paul Krugman wonders:

So: is it even possible for the Fed to cut interest rates enough to create a renewed housing boom? (The Fed can cut the overnight rate all the way to zero, but even large changes in the overnight rate can have only modest effects on mortgage interest rates, if the market perceives those changes as temporary.) If it can’t, how much can the Fed really do to help the economy?

Those aren’t rhetorical questions. I’m actually not sure how bad things will get — remember, we still have help from booming exports. But it’s not too hard to tell stories in which monetary policy doesn’t have enough mojo to deal with our current problems.