The Federal Reserve needs to inject up to $7 trillion into the U.S. economy if it wants to see any meaningful growth, says Marc Sumerlin, a former economic adviser to President George W. Bush.
The United States also needs to extend Bush tax cuts beyond 2010 to avoid falling back into recession, Sumerlin tells CNBC.
“U.S. households have $70 trillion in assets,” Sumerlin says.
“And the Fed essentially needs to buy enough Treasuries and mortgages that you can get a bid on all those other assets. And when you have leakage in the international system it takes a pretty big amount to be successful," he told CNBC. "To me, it starts to get interesting at six to seven trillion dollars.”
Many expect the Fed buy up more debt in the credit markets to help spur the economy on top of the over $1 trillion spent since early 2009 keeping credit markets liquid — a move known as quantitative easing.
Financial markets are already prepping for the Fed to carry out its quantitative easing program, simply described as when the Federal Reserve prints money to buy government debt held by private banks in order to get those banks to lend again.
The move is seen as an alternative when interest-rate cuts and stimulus spending fail to right an ailing economy.
“Fed leadership has all but run out of patience with economic data it believes is not propelling the U.S. recovery sufficiently to dent the unemployment rate,” according to a report written by hedge fund adviser Medley Global Advisors obtained by Reuters.
“Policy makers are no longer willing to wait for the pace to pick up unaided. Unemployment is just too high,” according to the report.
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