Friday, October 8, 2010

Fed Needs to Punp Another $6T or $7T To Have Any Meaningful Impact

Marc Sumerlin, former Bush economic adviser and co-founder of  The Lindsey Group, says the Federal Reserve needs to pump at least $6 trillion to $7 trillion more into the U.S. economy to have any meaningful impact on sluggish growth. He was interviewed by CNBC.

"U.S. households have $70 trillion in assets [...] And the Fed essentially needs to buy enough Treasurys and mortgages that you can get a bid on all those other assets. And when you have leakage in the international system it takes a pretty big amount to be successful. To me, it starts to get interesting at six to seven trillion dollars."

Raoul Pal, global macro analyst for the Global Macro Investor, appeared with Sumerlin on CNBC,  questioning the wisdom of further easing. "There is no evidence that it's ever worked in the past, so there is no real evidence that it will work now," "So I think it's a high risk thing for them to try and do. I also don't believe you can get the money in the system. Even if it's $6 trillion, I don't think it's going to get in the system because there is no velocity of money. So all you end up doing is buying the Treasurys off the banks who will keep the money at the Fed."

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