Despite my dismay at the Feds unwillingness to take dramatic action I really do think we have a variety of quasi-conventional means at our disposable to create monetary stimulus. As always an explicit price level target would be a good start.
However, it doesn’t end there. The Fed can buy up all sorts of government debt, including the debts of Fannie Mae and Freddie Mac. And, and in the end there is always the helicopter option – that is just tossing money from a helicopter.
Paul Krugman worries that the helicopter option wouldn’t be strictly “legal” as they say. The Fed has no authority to just hand out cash. Matt Yglesias says the Fed can just issue $1000 loans with a pair of socks as collateral. If people are “happen” to default on the loan the Fed will just refuse to return their socks.
However, its really even easier than that.
The Fed can purchase bonds backed by consumer credit. In the same way that Wall Street takes your mortgage and bundles it into a set of bonds, firms also take your credit card payments and bundle them into bonds.
The Fed can buy those bonds and to my knowledge there is no limit on the price they can pay. Bond prices are inversely related to interest rates. So, if the Fed pays a high enough price for the bonds, the effective interest rate would be negative.
This in turn would mean that the consumers would make money simply by borrowing money.
I don’t envision lots of credit card offers that say “–3% APR” However, I can imagine offers that say “0% APR for life on new purchases and 10% cash back”
For super nerds, notice that such a temporary credit facility would create de facto inflation. That is, if you get 10% back for buying something today. Then in effect it will be 10% more expensive tomorrow. This will balance against the actual deflation that is building.