Now a liquidity trap — created by his failure to coordinate fiscal policy with monetary policy from the Federal Reserve — may make recovery harder for the economy.
As the accompanying image from The Wall Street Journal shows, Americans have been refinancing fewer mortgages due to a recent jump in interest rates from Obama’s liquidity trap.
Not only do more expensive mortgages hurt the U.S. housing market, still struggling four years after the crisis. Higher interest rates also hurt the economy with less refinancing activity, otherwise expected to increase aggregate demand through consumer spending.
Necessary and Expedient Measures
We will recommend fiscal policy to Congress that complements monetary policy from the Federal Reserve to grow the economy, as explained in the highly acclaimed Handbook of Government Budgeting:
The Fed largely adapts to the constraints imposed by fiscal policy because its policy decisions are more frequent, more flexible, and less constrained by political considerations … The fiscal and monetary policy mix that results from their independent but coordinated actions has major implications for both economic stabilization and economic growth.
We can’t afford four more years without a president with an understanding of the economy for more Americans to achieve their dreams of middle-class dignity.
The first year of a Grey administration will focus not on a distraction like health spending but on a solution to related problems in jobs and housing markets still struggling in the last year of Obama’s disappointing term — join me
Viral V. Acharya, Guaranteed to Fail: Fannie Mae, Freddie Mac, and the Debacle of Mortgage Finance (Princeton: Princeton University Press, 2011).
Graham Bannock, R. E. Baxter, Evan Davis, and Graham Bannock, Dictionary of Economics (New York: John Wiley & Sons, 1998).
Kathleen C. Engel and Patricia A. McCoy, The Subprime Virus: Reckless Credit, Regulatory Failure, and Next Steps (New York: Oxford University Press, 2011).
Van Doorn Ooms, Ronald S. Boster, and Robert L. Fleegler, “The Federal Budgert and Economic Management,” in Handbook of Government Budgeting, ed. Roy T. Meyers (San Francisco: Jossey-Bass, 1999).