I have a very high opinion of Matt Yglesias and very much enjoy reading his blog. I think this post is brilliant.
But I have to learn to skip posts on monetary policy. I have learned a new rule -- don't read any post with the word "Bernanke" in it. The latest is a post on what Bernanke can do based on complete indifference to the law. Yglesias proposes that Bernanke print up a bunch of dollars and give them to Cyprus. Why pick on Bernanke ? I propose that Yglesias print up a bunch of dollars and give them to Cyprus. It would be just as legal for him to do it as for Bernanke to do it.
I think I finally understand why you are convinced that the Fed can save the US economy. You have decided to ignore the Federal Reserve Act and have decided that US monies may be disbursed without regard for the law (that is you have decided to ignore the consitution too).
The policy you describe would be an impeachable offense. It would be a felony called misappropriation of funds. Dollars do not belong to Bernanke and he can't give them away. The Fed can loan to depositary institutions, it can buy US government issued securities and, during a financial crisis, it can loan to entities other than depositary institutions. It Can Not give.
I should have guessed from all of your references to "helicopter Ben" that you actually believe that a helicopter drop of money would be legal. Nope. Bernanke has no more legal right to just print up money and give it away than you do.
If he tried it, Ron Paul would sue claiming to be harmed because his dollars were diluted. And he would win, because the law is clear and anyone who owns a dollar has standing.
For years we have been arguing about whether monetary policy can do it or whether fiscal policy is needed. I finally understand that your view is that giving money away is monetary policy. The key difference is that a shift in fiscal policy requires Congressional assent and can be blocked by Republicans in Congress. A helicopter drop of money is a combined monetary policy (it expands the high powered money supply not that this matters at all at the moment) and fiscal policy (it increases Federal Government liabilities without increasing Federal Government assets creating the illusion of wealth which is just what we need right now).