Two campaigns ended this week. In one, a hostile electorate reshaped Congress, to create a foil to Barack Obama's policy ambitions. In the other, the Federal Reserve has spent the past few months trying to convince investors that it retains relevance even after its policy rate has lingered at zero for two years. Now the campaign season is over, further swift actions are needed to boost the fitful recovery of the American economy.

All campaigns are full of inflated promises. The build-up to the Fed's latest quantitative easing has been no exception. The problems overshadowing expansion will not be lifted by inflating the Fed's balance sheet. In particular, the hard job of addressing the unresolved problems in the mortgage market remains unaddressed.

Financial authorities have to end the charade that the problematic loans made as the real-estate bubble inflated will be repaid. Those loans and the securities using them as collateral had dicey prospects when first made and have only gone further south. After all, since the balloon popped, real estate prices have fallen 35 per cent on average, and unemployment is near 10 percent. . . .

This article is available in full from the Financial Times.

Vincent R. Reinhart is a resident scholar at AEI. Carmen Reinhart is a senior fellow at the Peterson Institute for International Economics.

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