<![CDATA[Forums - "Central banks are always the problem"]]> http://rightwingers.org/forums/ Thu, 16 Apr 2026 13:50:03 +0000 MyBB <![CDATA[The new Fed chairman?]]> http://rightwingers.org/forums/thread-1640.html Fri, 06 Oct 2017 19:34:51 +0000 http://rightwingers.org/forums/thread-1640.html
No qualifications and being flagrantly wrong

Quote:Back in the younger and more innocent days of January, 2006, then-President George W. Bush decided to appoint a nice-looking and well-off young man named Kevin Warsh to a seat on the Federal Reserve Board of Governors that he had no apparent qualification for. At just 35 years old, Warsh had no background in monetary policy or economics at all. He was, instead, a Wall Street lawyer working primarily on mergers and acquisitions who in 2002 had come to Washington to work in the White House on financial regulation. Or, rather, given that this was the Bush administration in the mid-aughts he came to work on financial de-regulation. And he headed to the Fed with, presumably, the same mandate — to cut through the red tape that was overburdening America’s financial system and unleash the forces of financial innovation.

A couple of years after that, of course, it turned out that these deregulatory impulses had completely destroyed the economy of the United States of America and, indeed, of much of the rest of the world. Congress and the Federal Reserve staunched the bleeding with bailouts, and then Ben Bernanke, later followed by Janet Yellen, nursed the American policy back to health with a program of low interest rates. But Warsh spent the crisis years being flagrantly wrong about the macroeconomic outlook in both public and private remarks. He excoriated the Bernanke Fed for being too aggressive in its efforts to stabilize the economy and too blind to the risks of inflation. He lauded the disastrous tenure of Jean-Claude Trichet at the European Central Bank, and eventually left the Fed to join a chorus of outside conservative critics who lambasted Bernanke and Janet Yellen for pursuing loose money policies that would allegedly debase the dollar and send prices spiraling upward (didn’t happen)..
Meet Kevin Warsh, the man Trump may tap to wreck the American economy - Vox

Quote:A generous interpretation of Warsh’s record would be that he is a shrewd, cynical partisan operator who believed that weak economic performance under Obama would boost the fortunes of the Republican Party and therefore he would advocate for anti-stimulative policies. Putting a well-networked party hack in charge as Fed chair would mark a throwback to what are now broadly considered to be the “bad old days” of how Richard Nixon ran monetary policy, but it wouldn’t be the first time Trump appeared to be using Nixon as a model.

A more troubling interpretation, however, would be that Warsh means exactly what he says. That would help explain why he was so paranoid about inflation even back during the waning days of the Bush administration, when the poor performance of the economy doubtless ended up helping Democrats secure their landslide down ballot wins in November 2008. And it would explain why in January of this year he published a Wall Street Journal op-ed on monetary issues that Tim Duy characterized as “so riddled with errors and misperceptions that it is hard to believe he was actually a governor.”
Meet Kevin Warsh, the man Trump may tap to wreck the American economy - Vox

And here there is a variety of experts weighing in, pretty embarrassingly so..

Uniquely qualified for the Republican era though:
  • Having no prior qualifications
  • Having strong convictions nevertheless
  • Which are unmovable irrespective of the evidence.
]]>
No qualifications and being flagrantly wrong

Quote:Back in the younger and more innocent days of January, 2006, then-President George W. Bush decided to appoint a nice-looking and well-off young man named Kevin Warsh to a seat on the Federal Reserve Board of Governors that he had no apparent qualification for. At just 35 years old, Warsh had no background in monetary policy or economics at all. He was, instead, a Wall Street lawyer working primarily on mergers and acquisitions who in 2002 had come to Washington to work in the White House on financial regulation. Or, rather, given that this was the Bush administration in the mid-aughts he came to work on financial de-regulation. And he headed to the Fed with, presumably, the same mandate — to cut through the red tape that was overburdening America’s financial system and unleash the forces of financial innovation.

A couple of years after that, of course, it turned out that these deregulatory impulses had completely destroyed the economy of the United States of America and, indeed, of much of the rest of the world. Congress and the Federal Reserve staunched the bleeding with bailouts, and then Ben Bernanke, later followed by Janet Yellen, nursed the American policy back to health with a program of low interest rates. But Warsh spent the crisis years being flagrantly wrong about the macroeconomic outlook in both public and private remarks. He excoriated the Bernanke Fed for being too aggressive in its efforts to stabilize the economy and too blind to the risks of inflation. He lauded the disastrous tenure of Jean-Claude Trichet at the European Central Bank, and eventually left the Fed to join a chorus of outside conservative critics who lambasted Bernanke and Janet Yellen for pursuing loose money policies that would allegedly debase the dollar and send prices spiraling upward (didn’t happen)..
Meet Kevin Warsh, the man Trump may tap to wreck the American economy - Vox

Quote:A generous interpretation of Warsh’s record would be that he is a shrewd, cynical partisan operator who believed that weak economic performance under Obama would boost the fortunes of the Republican Party and therefore he would advocate for anti-stimulative policies. Putting a well-networked party hack in charge as Fed chair would mark a throwback to what are now broadly considered to be the “bad old days” of how Richard Nixon ran monetary policy, but it wouldn’t be the first time Trump appeared to be using Nixon as a model.

A more troubling interpretation, however, would be that Warsh means exactly what he says. That would help explain why he was so paranoid about inflation even back during the waning days of the Bush administration, when the poor performance of the economy doubtless ended up helping Democrats secure their landslide down ballot wins in November 2008. And it would explain why in January of this year he published a Wall Street Journal op-ed on monetary issues that Tim Duy characterized as “so riddled with errors and misperceptions that it is hard to believe he was actually a governor.”
Meet Kevin Warsh, the man Trump may tap to wreck the American economy - Vox

And here there is a variety of experts weighing in, pretty embarrassingly so..

Uniquely qualified for the Republican era though:
  • Having no prior qualifications
  • Having strong convictions nevertheless
  • Which are unmovable irrespective of the evidence.
]]> <![CDATA[Blame the central banks!]]> http://rightwingers.org/forums/thread-1419.html Tue, 20 Sep 2016 00:48:52 +0000 http://rightwingers.org/forums/thread-1419.html Quote:THE BIGGEST, most immediate obstacle to a vigorous recovery for the U.S. and global economies is the disastrous monetary policies of the major central banks, most notably the Federal Reserve, the European Central Bank (ECB), the Bank of Japan (BOJ) and the Bank of England (BOE). Their policies of quantitative easing (QE) and zero interest rates have massively distorted global credit markets and severely hobbled recovery from the 2008–09 economic crisis. Their actions have not only stood in the way of a genuine economic revival but also persuaded governments to put off badly needed structural reforms, because stimulus from easy money would do the job instead! Reckoning For Biggest Wrecker Of U.S. Economy

This view (here expressed by Steve Forbes from Forbes Magazine) is fairly typical for many in the US financial sector, but it is profoundly wrong. We'll give you at least five reasons why:
  1. Central banks only set interest rates at the short-end
  2. There is no inflation
  3. Long rates are low because there is a global savings glut
  4. We've seen what even small interest rate rises will do (Sweden EU)
  5. Friedman: hard money caused the Great Depression
  6. Fight asset inflation with macro-prudential policies
Central banks, interest rates and inflation
Central banks control rates at the short-end of the spectrum, via the various forms and means they provide the commercial banking system with reserves. Banks need to keep reserves as a percentage of deposits, and can either get these reserves at the central bank, or from other banks (via the money market). 

In fact, there is a third way, banks can borrow wholesale, and this is what many financial institutions have been doing. This practice has given rise to the so-called shadow-bank system, but for the purposes of this article this isn't terribly relevant.

When banks lend out money, they create deposits and they need to cover part of this with reserves. Making reserves more expensive is part of monetary tightening as it is supposed to slow down this credit creation. 

Central banks tighten policy when they think inflationary risks are increasing, and as the saying goes, it's better to prevent inflation getting higher than have to bring inflation down. The latter might take serious tightening of policy, like Paul Volker did at the end of the 1970s. 

This is what the monetary discussion is all about right now in the US, should the Fed tighten policy to prevent inflation getting out of control? While this is an interesting discussion, the fact is that until now, there isn't any sign that inflation is getting out of control, and many would argue there still isn't. 

That's why short-term rates were so low for so long. For much of the post-financial crisis years, there was hardly any inflation and little risk of it accelerating considering the large slack in the economy and deleveraging households. 

In fact, there was considerable risk of deflation, or at least of inflation which is so low that it makes debt dynamics especially problematic. 

When there is hardly any inflation and little real growth, nominal GDP is hardly growing, and with large outstanding debts this tends to increase the debt/GDP ratio in and by itself (the so-called denominator effect, ask the Italians). 

So there wasn't really any reason for the Fed to raise rates, at least not until now (and even that is debatable). Lots of slack in the economy, no risk of inflation accelerating, awkward debt-dynamics, deleveraging households. Raising rates in such an environment could rapidly backfire, as the eurozone found out in 2011 and the Swedes a little later, and both had to make embarrassing about-faces. 

Indeed, hard money people like Steve Forbes want higher interest rates, but they not only ignore the experience of Sweden and the eurozone, they might want to re-read Milton Friedman and Anna Schwartz 'A Monetary History of the United States,' a book which blames the Great Depression on the hard money policy of the Fed. 

Bond yields
While central banks control money market rates, they do not control the longer end of the spectrum. The bond market sets interest rates via supply and demand. Yes, it's true that a number of central banks have interfered in that process, via so called quantitative easing (QE) policies, buying bonds and thereby exerting some downward pressure on bond yields.

However, by all accounts, these efforts, spectacular and unprecedented as they might have been, have not moved bond markets very much. The end of QE bond purchases by the Fed has gone almost completely unnoticed in the bond markets, in fact, yields tended to move down, not up. 

Why are bond yields so low? This has little, if anything to do with central banks. We basically live in a world of excess savings, savings exceed investment, and the surplus is seeking safe assets, hence low bond yields. This is an international phenomenon. 

Secular stagnation
There are many possible reasons for the global savings glut, by no means mutually exclusive:
  • Rising income inequality has shifted income (and wealth) from low to high savers
  • Demographics, the need for significantly higher savings to fund retirement
  • Decreasing cost of capital goods
  • Decreasing capital intensity of production
  • Slowing pace of innovation
Whatever the cause (or, more likely, mix of causes) it manifests itself in excess savings over investment and hence very low interest rates. Many proponents of this view, which goes under the name of secular stagnation (here is a short introduction) even argue that the rates necessary to equate savings and investment might actually be negative. 

The upshot here is that central banks have little, if anything to do with the low bond yields, over which they have little influence anyway. 

The downside
Whilst there is virtually no risk of accelerating inflation and central banks are not to blame for historically low bond yields, their easy monetary policies do have risks though. Two in particular:
  • Asset price inflation
  • Capital inflows to emerging economies
Asset prices, like stocks and houses (and previously commodities) can get a filip by cheap money. But the question here is whether central banks should tighten policy (and risk lowering already tepid growth or even throwing the economy into a recession and/or deflation) just because Wall Street can't contain itself?

We don't think so, basically because there are other means of containing asset price inflation, so-called macro-prudential policies. Stuff like mortgage standards (requiring down-payments, limit mortgage in relation to incomes, etc.), limits on leverage, increasing bank capital, regulating derivatives markets, etc. are probably a better bet.

But funny enough, these kind of policies are often seen as an encroachment of the free market by hard money types like Steve Forbes.]]> Quote:THE BIGGEST, most immediate obstacle to a vigorous recovery for the U.S. and global economies is the disastrous monetary policies of the major central banks, most notably the Federal Reserve, the European Central Bank (ECB), the Bank of Japan (BOJ) and the Bank of England (BOE). Their policies of quantitative easing (QE) and zero interest rates have massively distorted global credit markets and severely hobbled recovery from the 2008–09 economic crisis. Their actions have not only stood in the way of a genuine economic revival but also persuaded governments to put off badly needed structural reforms, because stimulus from easy money would do the job instead! Reckoning For Biggest Wrecker Of U.S. Economy

This view (here expressed by Steve Forbes from Forbes Magazine) is fairly typical for many in the US financial sector, but it is profoundly wrong. We'll give you at least five reasons why:
  1. Central banks only set interest rates at the short-end
  2. There is no inflation
  3. Long rates are low because there is a global savings glut
  4. We've seen what even small interest rate rises will do (Sweden EU)
  5. Friedman: hard money caused the Great Depression
  6. Fight asset inflation with macro-prudential policies
Central banks, interest rates and inflation
Central banks control rates at the short-end of the spectrum, via the various forms and means they provide the commercial banking system with reserves. Banks need to keep reserves as a percentage of deposits, and can either get these reserves at the central bank, or from other banks (via the money market). 

In fact, there is a third way, banks can borrow wholesale, and this is what many financial institutions have been doing. This practice has given rise to the so-called shadow-bank system, but for the purposes of this article this isn't terribly relevant.

When banks lend out money, they create deposits and they need to cover part of this with reserves. Making reserves more expensive is part of monetary tightening as it is supposed to slow down this credit creation. 

Central banks tighten policy when they think inflationary risks are increasing, and as the saying goes, it's better to prevent inflation getting higher than have to bring inflation down. The latter might take serious tightening of policy, like Paul Volker did at the end of the 1970s. 

This is what the monetary discussion is all about right now in the US, should the Fed tighten policy to prevent inflation getting out of control? While this is an interesting discussion, the fact is that until now, there isn't any sign that inflation is getting out of control, and many would argue there still isn't. 

That's why short-term rates were so low for so long. For much of the post-financial crisis years, there was hardly any inflation and little risk of it accelerating considering the large slack in the economy and deleveraging households. 

In fact, there was considerable risk of deflation, or at least of inflation which is so low that it makes debt dynamics especially problematic. 

When there is hardly any inflation and little real growth, nominal GDP is hardly growing, and with large outstanding debts this tends to increase the debt/GDP ratio in and by itself (the so-called denominator effect, ask the Italians). 

So there wasn't really any reason for the Fed to raise rates, at least not until now (and even that is debatable). Lots of slack in the economy, no risk of inflation accelerating, awkward debt-dynamics, deleveraging households. Raising rates in such an environment could rapidly backfire, as the eurozone found out in 2011 and the Swedes a little later, and both had to make embarrassing about-faces. 

Indeed, hard money people like Steve Forbes want higher interest rates, but they not only ignore the experience of Sweden and the eurozone, they might want to re-read Milton Friedman and Anna Schwartz 'A Monetary History of the United States,' a book which blames the Great Depression on the hard money policy of the Fed. 

Bond yields
While central banks control money market rates, they do not control the longer end of the spectrum. The bond market sets interest rates via supply and demand. Yes, it's true that a number of central banks have interfered in that process, via so called quantitative easing (QE) policies, buying bonds and thereby exerting some downward pressure on bond yields.

However, by all accounts, these efforts, spectacular and unprecedented as they might have been, have not moved bond markets very much. The end of QE bond purchases by the Fed has gone almost completely unnoticed in the bond markets, in fact, yields tended to move down, not up. 

Why are bond yields so low? This has little, if anything to do with central banks. We basically live in a world of excess savings, savings exceed investment, and the surplus is seeking safe assets, hence low bond yields. This is an international phenomenon. 

Secular stagnation
There are many possible reasons for the global savings glut, by no means mutually exclusive:
  • Rising income inequality has shifted income (and wealth) from low to high savers
  • Demographics, the need for significantly higher savings to fund retirement
  • Decreasing cost of capital goods
  • Decreasing capital intensity of production
  • Slowing pace of innovation
Whatever the cause (or, more likely, mix of causes) it manifests itself in excess savings over investment and hence very low interest rates. Many proponents of this view, which goes under the name of secular stagnation (here is a short introduction) even argue that the rates necessary to equate savings and investment might actually be negative. 

The upshot here is that central banks have little, if anything to do with the low bond yields, over which they have little influence anyway. 

The downside
Whilst there is virtually no risk of accelerating inflation and central banks are not to blame for historically low bond yields, their easy monetary policies do have risks though. Two in particular:
  • Asset price inflation
  • Capital inflows to emerging economies
Asset prices, like stocks and houses (and previously commodities) can get a filip by cheap money. But the question here is whether central banks should tighten policy (and risk lowering already tepid growth or even throwing the economy into a recession and/or deflation) just because Wall Street can't contain itself?

We don't think so, basically because there are other means of containing asset price inflation, so-called macro-prudential policies. Stuff like mortgage standards (requiring down-payments, limit mortgage in relation to incomes, etc.), limits on leverage, increasing bank capital, regulating derivatives markets, etc. are probably a better bet.

But funny enough, these kind of policies are often seen as an encroachment of the free market by hard money types like Steve Forbes.]]> <![CDATA[The Fed will cause hyperinflation!]]> http://rightwingers.org/forums/thread-153.html Sat, 14 May 2016 04:22:11 +0000 http://rightwingers.org/forums/thread-153.html Hawks, Doves, and Ostriches

August 14, 2013 4:10 pm

More than four years ago Allan Meltzer issued a dire prediction: the Fed’s policy of expanding its balance sheet will lead to high inflation. We’re still waiting for that to happen. So it might behoove Meltzer to admit that he was wrong and ask where his analysis went wrong.

OK, you can stop laughing now. What Meltzer does, instead, is complain that the Fed has undermined his perfectly fine analysis. You see, those dastardly officials are paying interest on reserves – a hefty 0.25 percent – and this has led to something totally unexpected:

The US Federal Reserve Board has pumped out trillions of dollars of reserves, but never have so many reserves produced so little monetary growth. Neither the hawks nor the doves (nor anyone else) expected that.

So the money supply broadly defined hasn’t taken off – a complete surprise! – and hence no inflation.

Except that this isn’t at all a surprise; it’s exactly what those of us who had analyzed the liquidity trap predicted would happen when you expand the monetary base in an economy at the zero lower bound. From my 1998 paper on the subject (pdf):

Quote:The point is important and bears repeating: under liquidity trap conditions, the normal expectation is that an increase in high-powered money will have little effect on broad aggregates …

Nor was it just theory. Meltzer claims support from the lessons of history; but the relevant history is of other liquidity-trap episodes. Consider, in particular, the case of Japan’s quantitative easing in the early 2000s:

[Image: 081413krugman1-blog480.png]

Unlike the Fed, the Bank of Japan didn’t pay interest on reserves. Nonetheless, a huge increase in the monetary base just sat there, mostly in the form of increased bank reserves – the same as what happened in America later.

We might add further that if the Fed can neutralize the supposedly awesome inflationary effect of quantitative easing by paying ¼ percent interest on reserves, it should be very easy to contain the inflationary threat in future.

Anyway, I do get kind of annoyed here. Some of us came into the global crisis with a well-worked-out theory of monetary and fiscal policy in a liquidity trap; the predictions of that theory have been completely consistent with actual experience. People like Meltzer chose to disregard all of that, insisting that terrible inflation (and high interest rates) were just around the corner. You almost never get that clear a test of rival economic views, and the results should be considered decisive.

Instead, the usual suspects stick their heads in the sand and pretend that they have been right all along.

PS: A further count against the claim that interest on excess reserves explains everything is the fact that public holdings of currency have also surged, even though the Fed isn’t paying interest on dead presidents:

[Image: 081413krugman2-blog480.png]

Again, this is exactly what liquidity-trap models, like my 1998 paper, predicted.]]> Hawks, Doves, and Ostriches

August 14, 2013 4:10 pm

More than four years ago Allan Meltzer issued a dire prediction: the Fed’s policy of expanding its balance sheet will lead to high inflation. We’re still waiting for that to happen. So it might behoove Meltzer to admit that he was wrong and ask where his analysis went wrong.

OK, you can stop laughing now. What Meltzer does, instead, is complain that the Fed has undermined his perfectly fine analysis. You see, those dastardly officials are paying interest on reserves – a hefty 0.25 percent – and this has led to something totally unexpected:

The US Federal Reserve Board has pumped out trillions of dollars of reserves, but never have so many reserves produced so little monetary growth. Neither the hawks nor the doves (nor anyone else) expected that.

So the money supply broadly defined hasn’t taken off – a complete surprise! – and hence no inflation.

Except that this isn’t at all a surprise; it’s exactly what those of us who had analyzed the liquidity trap predicted would happen when you expand the monetary base in an economy at the zero lower bound. From my 1998 paper on the subject (pdf):

Quote:The point is important and bears repeating: under liquidity trap conditions, the normal expectation is that an increase in high-powered money will have little effect on broad aggregates …

Nor was it just theory. Meltzer claims support from the lessons of history; but the relevant history is of other liquidity-trap episodes. Consider, in particular, the case of Japan’s quantitative easing in the early 2000s:

[Image: 081413krugman1-blog480.png]

Unlike the Fed, the Bank of Japan didn’t pay interest on reserves. Nonetheless, a huge increase in the monetary base just sat there, mostly in the form of increased bank reserves – the same as what happened in America later.

We might add further that if the Fed can neutralize the supposedly awesome inflationary effect of quantitative easing by paying ¼ percent interest on reserves, it should be very easy to contain the inflationary threat in future.

Anyway, I do get kind of annoyed here. Some of us came into the global crisis with a well-worked-out theory of monetary and fiscal policy in a liquidity trap; the predictions of that theory have been completely consistent with actual experience. People like Meltzer chose to disregard all of that, insisting that terrible inflation (and high interest rates) were just around the corner. You almost never get that clear a test of rival economic views, and the results should be considered decisive.

Instead, the usual suspects stick their heads in the sand and pretend that they have been right all along.

PS: A further count against the claim that interest on excess reserves explains everything is the fact that public holdings of currency have also surged, even though the Fed isn’t paying interest on dead presidents:

[Image: 081413krugman2-blog480.png]

Again, this is exactly what liquidity-trap models, like my 1998 paper, predicted.]]> <![CDATA["Draghi has ruined Europe"]]> http://rightwingers.org/forums/thread-115.html Thu, 07 Apr 2016 23:55:41 +0000 http://rightwingers.org/forums/thread-115.html
Draghi Has Ruined Europe

Submitted by Tim Knight from Slope of Hope on 04/07/2016 11:44 -0400

Well, the central bankers are really beginning to fail in a very public way. Kuroda has obviously made a complete shitshow out of the senior citizens colony known as Japan. Yellen has, so far, been given a free pass by the blinkered, pig-ignorant American public, who are too busy watching the Kardashians, but trust Tim on this, she will have her comeuppance.

Draghi, though, has become an embarrassment beyond my powers of elocution. Exhibit A is Deutsche Bank, shown below. As you can plain see, the stock price is - - and please let this sink in - - far lower than it was during the worst depths of the Financial Crisis. Try to imagine Goldman Sachs or JP Morgan being a single-digit stock these days, and you get the picture (of course, Yellen would never let that happen to the tribe. But I digress).

In any event, Draghi has mortgaged the future of his grandchildren, great grandchildren, and further descendents (his own infertility and/or impotence notwithstanding........stay with me on this one) in exchange for the brief illusion of recovery. He. Will Fail.

[Image: 0407-db-640x838.png]]]>
Draghi Has Ruined Europe

Submitted by Tim Knight from Slope of Hope on 04/07/2016 11:44 -0400

Well, the central bankers are really beginning to fail in a very public way. Kuroda has obviously made a complete shitshow out of the senior citizens colony known as Japan. Yellen has, so far, been given a free pass by the blinkered, pig-ignorant American public, who are too busy watching the Kardashians, but trust Tim on this, she will have her comeuppance.

Draghi, though, has become an embarrassment beyond my powers of elocution. Exhibit A is Deutsche Bank, shown below. As you can plain see, the stock price is - - and please let this sink in - - far lower than it was during the worst depths of the Financial Crisis. Try to imagine Goldman Sachs or JP Morgan being a single-digit stock these days, and you get the picture (of course, Yellen would never let that happen to the tribe. But I digress).

In any event, Draghi has mortgaged the future of his grandchildren, great grandchildren, and further descendents (his own infertility and/or impotence notwithstanding........stay with me on this one) in exchange for the brief illusion of recovery. He. Will Fail.

[Image: 0407-db-640x838.png]]]>