Grasping Reality on TypePad, by Brad DeLong

…and beg for expansionary economic policies to reduce unemployment.

Specifically, Morgan Stanley's economic forecasters like Richard Berner and David Greenlaw have long been advocates of a Housing Jubilee: use of the government's power and resources in the housing market for a reduction in the burdens of mortgage debts. Now Goldman Sachs's forecaster Jan Hatzius calls for the Federal Reserve to buy bonds and expand its balance sheet to $3, $4, $5 trillion--whatever it takes--to target nominal GDP to its pre-Lesser Depression path.

Joe Weisenthal reports:

Goldman Advises The Fed To Go Nuclear, And Set A Target For Nominal GDP: In his latest US Economics Analyst note, Goldman's Jan Hatzius offers up his suggestion for the next phase of Fed policy:

With short-term interest rates near zero and the economy still weak, we believe that the best way for Fed officials to ease policy significantly further would be to target a nominal GDP path… indicating that they will use additional asset purchases to help bring actual nominal GDP back to trend over time.  The case would strengthen further if deflation risks reappeared clearly on the radar screen…. The specific path in Exhibit 1 is calculated as the level of nominal GDP in 2007 extrapolated forward at a rate of 4½% per year.  We can think of this number as the sum of real potential GDP growth of 2½% and inflation as measured by the GDP deflator of about 2%.  The specific numbers matter less than the Fed’s willingness to a target path that is anchored at a point like 2007, when the economy was near full employment, and that they indicate that they will pursue this target aggressively…

Or, to paraphrase, in the words of Dr. Ray Stantz:

CROSS THE STREAMS!!