So it seems that we no longer have the option of waiting around for the recovery to take hold. We need to do something to boost the economy, but what? Today’s weak unemployment report makes it more likely that the Federal Reserve will choose to go ahead with its proposed purchases of long-term bonds. That should lower interest rates. But with mortgages rates already at all-time lows, and corporations borrowing at rates of 1%, I’m not sure where this gets us. We could cut taxes, but so far tax cuts, which were a large part of Obama’s stimulus package, haven’t done much either. Whatever extra month people get seems to be going toward paying down debt, and that isn’t a boost to the economy.
So here’s what I think the best two options are. First, a second much larger batch of fiscal stimulus–one that is not a mixture of tax cuts and gradual spending, but one that tries to get all of the money into the economy as quickly as possible. With government jobs becoming the employment problem, more stimulus would stall those layoffs. What about the debt? With interest rates so low, it probably makes sense for the government to borrow more.
The second option, which is more radical, would be to increase interest rates.