In the comments on Pete's last post, I have been called a "staunch supporter of QE1." As this is coming from one of our commenters who regularly misrepresents my views, I thought I would take a minute to, once again, set the record straight.
It's clear this commenter is using "QE1" as a synonym for any increase in the monetary base the Fed might have or did undertake in 2008. Unfortunately, that only reveals his confusion about what exactly QE1 was. According to most sources, it refers to the expansion undertaken by the Fed beginning in late November of 2008, the core of which was the purchase of GSE debt and mortgage-backed securities and then, in March of 2009, some longer term Treasury securities, to the tune of well over $1 trillion in total.
These were radically new and different policies adopted by the Fed that required it unilaterally taking on powers it did not previously possess. That is why it is called "quantitative easing" not "expansionary monetary policy" or some other standard term. It is also why the recent purchases were termed QE2 as they too involved longer-term bonds and other strategies not part of the Fed's traditional toolkit.
So now that we all understand what QE1 was about, let's be clear: I was NEVER in favor of it. You can read through anything I've written or said about the crisis and recession and not find me supporting what the Fed did. In fact, I've explicitly said that the taking on of new powers and the particular ways the Fed went about expanding the base were wrong and dangerous.
What I have said is that in the heat of the crisis in September of 2008 (note, two months before QE1 was put into place), the responsible thing for the Fed, or any central bank, to have done was to follow the traditional practice for such banks during a crisis: which is to be prepared to create liquidity to match the need for it by lending to sound banks. That's Bagehot's rule and that's all I've ever defended. (And, it goes without saying, this is all in the world of the second best. Given a central bank, this is what sound monetary economics says, in my view, it should have done.) As I've pointed out on multiple occasions, the Fed did precisely the opposite of that by lending to distressed banks and then compounded the problem with the strategies of QE1 and QE2.
Now some may say this is splitting hairs, but I think there are crucial issues at stake here. To say I am a "staunch defender" of QE1 is to say that I was in agreement with the size of that expansion, the securities that were purchased, and the dangerous powers the Fed unilaterally seized. And all of those would be false as the written and spoken record would clearly reveal. I have explicitly said that the Fed could have done what was necessary with its existing powers following its long-standing practices. And I have explicitly said that the size of QE1 was excessive as well. QE1 was a large mistake in all the ways noted above.
As we've gone over and over again on this blog, there are legitimate disagreements with the position I actually took, but that's a far cry from the false claim that I was a "staunch supporter" of QE1.
Before people shoot their mouths off, it would behoove them to know what they are talking about. In this case, it would be helpful to know exactly what QE1 was and what I've actually said about what the Fed should and should not have done.