Greg Ip

Unlike any since the Depression

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Monetary policy

[Greg Ip] IN MY many years of reporting on the Federal Reserve, I have turned more times than I can count to Allan Meltzer. Volume One of his history of the Federal Reserve (he’s still working on Volume Two) is one of the most thumbed books on my shelf, and I consider him one of the leading authorities on 20th century economic history. Naturally I was intrigued by his criticism of comparisons between the current period and the Great Depression in the Wall Street Journal.

It’s a fascinating piece but I have several qualms with it. Read the rest of this entry »

The original article is linked here.

GREG IP

An academic background stood the chairman of the Federal Reserve in good stead during his first term. Political skills may be more important in his second

AP

AS THE financial crisis gathered force in August 2007, Jim Cramer, a hyperbolic market commentator on cable television, hurled the worst epithet he could muster at the chairman of the Federal Reserve: “Bernanke is being an academic. It is no time to be an academic!” By August 25th this year, when Barack Obama nominated Ben Bernanke to a second, four-year term, what had once been an epithet had become a source of strength. Read the rest of this entry »

The original article is linked here.

By Greg Ip

Politics stops the Fed from expanding an asset-purchase scheme

BACK IN 2002, before he became chairman of the Federal Reserve, Ben Bernanke claimed that if short-term interest rates fell to zero, a central bank still had the ultimate weapon: printing money by purchasing government bonds. Having now actually tried quantitative easing himself, Mr Bernanke is discovering its limits. Read the rest of this entry »

The original article is linked here.

Jul 21st 2009 | WASHINGTON, DC
From Economist.com

The Fed’s chairman talks up the economy

AP

IT HAS been a long time since comments on the economy by an official of America’s Federal Reserve comments could be described as cheerful. Yet there was no denying the upbeat tone of Ben Bernanke’s testimony to Congress on Tuesday July 21st.

Markets have experienced “notable improvements,” the Fed’s chairman told Congress. The fear of investors has “eased somewhat,” and “many markets are functioning more normally.” As for the economy, consumer spending has been stable, the drop in the housing market has moderated and many “of our trading partners are also seeing signs of stabilisation.” His fingers may be crossed but it is clear that Mr Bernanke thinks the recession, if not over now, soon will be.

That is a far cry, though, from seeing a threat from inflation and Mr Bernanke made it clear that the federal funds target rate, now near zero, will remain there for a long time. Read the rest of this entry »

The original story is linked here.

Congress threatens the central bank’s independence

WHEN Ron Paul ran for president in 2007, he was gratified to hear students at one of his rallies start chanting “End the Fed”, while setting dollar bills alight. Though the Texas congressman’s pursuit of the White House ended in failure, his campaign against the central bank is gaining some adherents.

Mr Paul has introduced a bill that would give the Government Accountability Office (GAO), the non-partisan investigative arm of Congress, the right to inspect the Federal Reserve, including its conduct of monetary policy, its lending and its relations with foreign central banks, all of which are now off-limits. Sixty percent of the members of the House of Representatives have signed on as co-sponsors. Read the rest of this entry »

The original article is linked here.

Economics focus

Put out

Uncertainty over the size of the output gap complicates the task of central banks

HAVING raised the alarm on deflation, the Federal Reserve has now begun to sound the all clear. The statement it released after its policy meeting on June 24th notably omitted the warning from its three prior meetings that “inflation could persist for a time below rates that best foster economic growth and price stability”. To be sure, with the economy gradually finding a bottom and the rate of decline in home prices slowing, the chances of a downward spiral of deflation and economic activity have diminished. Yet it seems premature to write off the threat as long as a large output gap persists. Read the rest of this entry »

The original article  is posted here.

Barack Obama’s plan for regulatory reform is not bold enough

AFP

FINANCIAL regulation in America has two problems: there is both too much of it and too little. Multiple federal agencies oversee the financial system: five for banks alone, and one each for securities, derivatives and the government-sponsored mortgage agencies. They share these duties with at least 50 state banking regulators and other state and federal consumer-protection agencies. Yet all these regulators failed to anticipate and prevent the worst financial crisis since the Depression, because risk-taking flourished in the cracks between them. Toxic subprime mortgages were peddled by lenders with little federal oversight and shoved into off-balance-sheet vehicles. The greatest leverage accumulated in firms that avoided the capital requirements of banks.

On June 17th Barack Obama took aim at these weaknesses (see article). Read the rest of this entry »

The original article is available here.

The Federal Reserve weighs plans to unwind its unconventional stimulus

Illustration by S. Kambayashi

A FIREFIGHTER’S first rule of survival is “know your way out”. The same can be said of financial firefighting. Though it has no intention of exiting soon, the Federal Reserve is planning its path out from the extraordinary measures it has taken to free credit markets and boost demand. Read the rest of this entry »

The original article is available here.

William Dudley, president of the Federal Reserve Bank of New York, speaks with The Economist about quantitative easing and exit strategies

Q: Treasury yields are up sharply in the past few weeks. Why?

A: The economy is looking less dark so people are taking away the Japanese deflation scenario. Basic financial conditions have generally eased quite a bit in the last six weeks. If you thought the equilibrium funds rate was wildly negative six weeks ago, it’s not so negative anymore. I don’t know if the economy has turned out better than forecast, but the adverse tail has diminished significantly. The risk of the banking system melting down, the deflation outcome, has very much diminished. And supply is enormous. Another thing of course is the mortgage market, which has its own dynamics: rates go up, duration extends. The third reason is some uncertainty by some people about the whole exit from all these programmes and the possible inflationary consequences of that. Read the rest of this entry »

The original story is linked here.

Inflation is bad, but deflation is worse

MERLE HAZARD, an unusually satirical country and western crooner, has captured monetary confusion better than anyone else. “Inflation or deflation,” he warbles, “tell me if you can: will we become Zimbabwe or will we be Japan?”

How do you guard against both the deflationary forces of America’s worst recession since the 1930s and the vigorous response of the Federal Reserve, which has in effect cut interest rates to zero and rapidly expanded its balance-sheet? Read the rest of this entry »