- “The Fed’s current policy is grossly inadequate, logically bizarre, and slightly — but only slightly — encouraging,” Paul Krugman says. By maintaining the balance sheet’s size rather than shrinking it, the central bank “has gone from a completely crazy policy of monetary tightening in the face of massive unemployment and incipient deflation, to a policy of standing pat in the face of same,” Krugman says. “Whoopee.”
- Fed’s decision to reinvest proceeds of maturing MBS into Treasurys signals the central bank’s “continued willingness to throw money at the flagging economy,” Yves Smith writes at naked capitalism. “The problem, of course, is that with the Fed having failed to clean up bank balance sheets, all these efforts to throw money at the economy look an awful lot like pushing on a string.”
- When analyzing the “flash crash” and what should be done to prevent it in the future, NYT’s Floyd Norris says the solution is to fix markets, not tell investors they need to protect themselves against bad markets. “Markets are fragmented and depend on ‘liquidity providers’ who have no obligation to hang around when the going gets tough. We have somehow taken markets that worked and substituted markets that do not.”
- “It is important to remember that the Fed did not ease monetary policy yesterday,” former Dallas Fed chief Bob McTeer writes. “It acted to limit the tightening that would automatically have taken place with the run-off of mortgage backed securities.” And he cautions that the central bank’s recent actions may not be enough. “We need gradual growth in the balance sheet to support gradual growth in the money supply.”
- Google’s (GOOG) holding press event tomorrow where it will “unveil a couple of cool new mobile features,” which prompts All Things D blogger Kara Swisher to wonder what GOOG has up its sleeve. Some speculate integrated video calling will be released, but according to Swisher’s sources, that won’t be the case.
- That surging trade deficit number “was simply so awful that almost no one in the mainstream was ready for it,” Josh Brown writes at The Reformed Broker. “The implications of this number will work their way into GDP calculations and recalculations and the end result will not be pretty.”
- The Fed is failing in two aspects: Policy is too tight and it’s communication has been miserable, Ryan Avent says at The Economist’s Free Exchange blog. Stocks and commodities tumble, while safe havens, like the dollar, rise. Perhaps FOMC members are realizing they have “reinforced the economy’s disinflationary, pessimistic mood,” Avent adds. “The question is: come September, what are they going to do about it?”
- “I don’t buy the idea that so many of the unemployed are stupidly and stubbornly holding out for a higher wage than they can get, while at the same time they can be reemployed by a mere bit of money illusion,” Tyler Cowen writes.
- “Part of what propels stocks is confidence that they will do better than other investments,” Stephen Gandel notes. “That’s what created the equity premium in the 1980s and 1990s. And that has slowly slipped away. That’s bad news for the stock market. But it might not say anything about the economy.”
- WSJ’s Juliet Chung writes about “the shrinking second home” as the affluent turn to smaller, less expensive homes.
