1. Consolidation. "The fourth cost is the possibility that the Fed could incur financial losses on its enlarged balance sheet. Bernanke simply dismisses this cost altogether when it is viewed in the overall context of the national balance sheet. To date the Fed has earned extraordinary profits from quantitative easing. The Treasury also has gained both from lower borrowing costs and from higher tax revenues. The Treasury’s gains far exceed any possible losses to the Fed. And private citizens receive further benefits to the extent that quantitative easing has boosted employment." [emphasis added]
2. Setting price rather than quantity. "But the Fed could address this problem by announcing adjustable daily targets for the yields of the securities it is buying. To hit these targets it would accelerate or decelerate its rate of purchase within the day." [emphasis added]
WCEG — The Equitablog
Joe Gagnon Responds to Michael Woodford, Ben Bernanke, and Others on the Risks and Power of Quantitative Easing: Friday Focus (December 20, 2013)
Brad DeLong
