Consider this list of possible actions from Paul Krugman -- citing Chairman Bernanke:
Back then, Mr. Bernanke suggested that the Bank of Japan could get Japan’s economy moving with a variety of unconventional policies. These could include: purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down); an announcement that short-term interest rates would stay near zero for an extended period, to further reduce long-term rates; an announcement that the bank was seeking moderate inflation, “setting a target in the 3-4% range for inflation, to be maintained for a number of years,” which would encourage borrowing and discourage people from hoarding cash; and “an attempt to achieve substantial depreciation of the yen,” that is, to reduce the yen’s value in terms of other currencies.Let's take these in order presented:
1.) purchases of long-term government debt (to push interest rates, and hence private borrowing costs, down): The Fed has already done this, and I believe it did help to keep rates down. But right now, the market is already pricing the 10 year at 2.12%. Realistically, how much lower to rates have to go before people start borrowing? In short, I think that Ben thinks the market is already engaging in QEIII with no prodding from the Fed.
2.) "an announcement that short-term interest rates would stay near zero for an extended period:" Done -- in the last Fed statement.
3.) "an announcement that the bank was seeking moderate inflation, “setting a target in the 3-4% range for inflation, to be maintained for a number of years:" while the Fed hasn't done this explicitly, it is implicit in their statement that rates would stay low for several years.
4.) "an attempt to achieve substantial depreciation of the yen:" The dollar is already very cheap -- as evidenced by the importance of exports in the latest expansion. And -- we need trading partners to see enough growth to purchase our exports. Considering the Indian and Brazilian yield curves have completely or partially inverted recently, this might not be happening.
In short, by Ben's own statements, he's already done a lot -- more or less everything he can do.
That means all that's really left is fiscal policy. And given the current tenor in Washington, that's not going to happen.
