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Should the Fed Buy Stocks?

Apparently, Roger E. A. Farmer (who seems to have a surplus of names or maybe just initials) thinks so:

So where do we go from here? The only actor large enough to restore confidence in the US market is the US government. The current policy of quantitative easing by the Fed is a move in the right direction but it does not, as yet, go nearly far enough.

It is time for a greatly increased role for monetary policy through direct intervention of central banks in world stock markets to prevent bubbles and crashes. Central banks control interest rates by buying and selling securities on the open market.

A logical extension of this idea is to pick an indexed basket of securities: one candidate in the US might be the S&P 500, and to control its price by buying and selling blocks of shares on the open market.

Maybe if the Fed was better at their actual job of managing monetary policy, there wouldn’t be stock market bubbles and crashes. It isn’t Keynes “animal spirits” that cause bubbles, it is lax monetary policy that leads to credit bubbles. It is the monetary and banking systems that need to be repaired. Banks should have higher capital requirements and the Fed should have the single task of maintianing a stable currency. Let’s not give them any more price fixing jobs until they get the current one right.