So the nation's sink is clogged up. Usually pouring more liquidity down the sink will get rid of the clog, but not now. So what to do? First, get rid of the excess liquidity. How about instead of buying up government bonds, thus providing excess liquidity, selling them instead. This would also shrink the Fed's balance sheet a little bit, giving it more ammunition in the future if needed. Yes, this would take money out of the system, increasing its value. Let's get interest rates raised a little bit, which would provide more income to savers, making them more willing to take risks. Yes, the interest rate paid by the Almighty US Government would raise a little bit, worsening the deficit, but this would force us to put our house in order.
It's worth a try. How about the Fed selling $100 billion of bonds each month for 6 months, just to see what happens?
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