Changing Minds

... happens gradually. Here's what former Fed Vice Chairman Alan Blinder said recently:

Oct. 22 (Bloomberg) -- Federal Reserve policy makers are improvising as they debate embarking on a second round of unconventional monetary stimulus, said Alan Blinder, former vice chairman of the U.S. central bank.

“They are making it up as they go along,” Blinder, a Princeton University economist, said in an interview with Bloomberg television’s “Surveillance Midday” with Tom Keene.

After lowering interest rates almost to zero and buying $1.7 trillion of securities, the Fed is considering expanding its balance sheet further by purchasing more Treasury securities, as well as strategies to boost inflation expectations, according to the minutes of its Sept. 21 Federal Open Market Committee meeting.

Blinder said he doesn’t project the central bank will undertake a “shock and awe” approach after its Nov. 2-3 meeting, or one designed to quickly influence the market through big asset purchases. Instead, the Fed will “dribble it out” by buying in smaller increments, he said.

I suspect that they're recalibrating their mental models. What conventional wisdom said would work to arrest and reverse the recession - Keynesian stimuloids - didn't work at all. Dribbling out their purchases of government debt with printed money I think indicates uncertainty in their minds. I'm sure they're watching Japan continue to flounder despite monstrous debt and stimuloids and Japanese Central Bank purchases of debt. Maybe a new economic consensus, one built around savings rather than debt, will come out of all of this.