Thursday, September 5, 2013

Fed Chair

My pick for Fed chair below. I don't have much to say on the choice between Janet Yellen and Larry Summers. Both are worthy economists, with well-discussed pluses and minuses on which I have no particular insight.

So, this post is about who else one might want to look at, and much more importantly the broader question about what makes a good Fed chair.

The press mostly  wants a soothsayer, who will foresee events the market does not see and calm the waters -- in practice,  basically operating the worlds largest contrarian hedge fund, or the commissariat of macroeconomic central planning. Such people don't exist, so that's a self-defeating job description. Let's talk about reality.

The Fed chair will not just have to pick the right course, but will also have to wade through the cacophony of advice and pressure he or she will receive, from politicians, powerful banks and businesses, outside critics – people like me – and the crosswinds of contradictory advice from Fed board members, staff and regions. And then guide a headstrong committee and a ponderous bureaucracy to those ends.

To do that, a chair needs a clear intellectual framework and a core set of principles.

He or she must deeply understand modern macroeconomics, finance, and banking. Too many policy-oriented people are mired in simpleminded 1970-era Keynesian story-telling that they learned as undergraduates, and a similarly simplistic understanding of finance. Too many academic economists are too deep into modern work, take equations at face value and do not know how to distill and apply their essential lessons, and what lessons are robust from the inevitable simplifcations of all formal models. Too many bankers have little understanding at all of cause and effect. Long practical experience in a system produces little experience of how to guide that system.

The FOMC (Federal Open Market Committee) of bank presidents and governors is now as high-powered a group as you could imagine. The academics have taken over. They know their stuff, and so does their staff. When the staff brings in or a governor cites “unique locally bounded equilibria” of the latest "new-Keynesian DSGE model," or distills the tea leaves of interest rates in “three factor affine models,” a chair must find the nuggets of gold, the grains of salt, and the remains of horses. All three are present.

There is a tendency in many quarters, reflected well in the New York Times opinion pages, to dismiss modern macro as hogwash. (Except, of course, when particular equilibria of particular new-Keynesian models produce pleasing multipliers.) Dismissing all modern thinking is as dangerous as accepting it all uncritically. If for no other reason, this is the language the FOMC and its staff speak, so a chair who doesn't understand it will simply be bamboozled.

We are at a crossroads in monetary policy,  with deeply different intellectual frameworks bounding the discussion, from monetarists, old-fashioned IS-LM Keynesians, Minnesota/Chicago dynamic equilibrium, new-Keynesian DSGE all talking past each other in essentially different languages. And I haven't started on financial views, even more disparate. The chair must be literate! And this stuff is hard. Well, I think it's hard. It's going to be hard to find someone who has not been actively contributing to this thinking who really understands what's going on.

An ideal chair has the universal admiration and respect of all in the room -- they may disagree, but everyone knows the chair deeply understands all the modeling points of view. An ideal chair also has the rare talent to explain and apply modern macroeconomics, not just push the equations around correctly.

More deeply, the fundamentals of modern macro -- thinking intertemporally, thinking about expectations, rules, institutions, moral hazards, precommitment vs. discretion, not in static terms of this year's stimulus and this year's GDP, really are important guides to a successful central bank.

That intellectual framework should be broad as well as deep. Some people have one great idea and to Washington to  implement their pet idea. Such people do not often do well when asked to guide a large institution through, inevitably, uncharted waters. Great military theorists do not make great battlefield generals.

A great Fed chair also understands history, and the legal and institutional structure of the Federal Reserve and previous central banks. Too many academics, (I include myself, though I'm trying to repair the damage)  are steeped in theory and quantitative evidence, but pretty light on the simple facts of what happened in past crises.

Nobody can know everything, however, so the Fed chair needs a few core principles. Paul Volcker had them, when the cacophony of experts said we couldn’t stop inflation. Ronald Reagan had them, when he said “tear down this wall” over the cacophony of experts. And those principles need to be right.

So, a great Fed chair is not so much smart as wise. There is a big difference. Humility is a bedrock of wisdom. The chair needs clearly to understand the limits of our knowledge, how imperfectly we understand cause and effect of the Fed’s policy tools.  A wise chair remembers how much consensus views on those matters have changed in the past, and knows how much they will change in the future.  If the Chair does a good job, ideas will change in response to the slow accumulation of experience and not in the wake of some new disaster borne of overconfidence in wrong ideas.

Above all, a successful chair will avoid screwing up! The Fed is a defensive institution. Like oil in the car, you don't notice it when it's doing its job well, and it mainly is in the news when it fails. It is not an institution that succeeds by leading great charges to direct the economy.

The big past screwups came when old ideas met new events, as they did in the banking crises of the great depression and the unleashing of the great inflation of the 1970s, just as on the 1914 western front and Maginot line.

An ideal chair has thought a lot about issues which are likely to be the next great crisis. Ben Bernanke was one of the great scholars of the bank runs of the Great Depression, and in part as a result the Fed did not repeat many of the mistakes of that event.

But we never fight the last war, at least right away. The chance of us having another real estate boom, a huge increase in shadow banking, a run in short term debt linked to mortgages in the next 10 years is next to zero.  So what are the challenges going forward, and what special expertise would one want in a Fed chair?

It seems obvious to me that sovereign debt, sovereign promises, an emerging period of sclerotic growth (rather than "lack of demand" recession) and how monetary policy is fundamentally affected by this set of circumstances is going to be a big issue for the Fed going forward. A chair who relies only on rules of thumb or correlations that held in a time of high trend growth and small sovereign debts is going to be taken by surprise.

An ideal Fed chair has spent a lot of time thinking about, and surveying the wide historical and cross-country experience on, the link between monetary policy, sovereign finances, and large-scale economic fluctuations. When California and Illinois default, Spain can't roll its debts, Germany refuses to recapitalize the ECB, and US long rates spike, a chair armed only with shifting around IS and LM curves and bailing out creditors will fall flat.

It also seems obvious to me that financial regulation, the temptations to financial micromanagement, and the forces of capture by the financial industry, are going to fill the Fed's plate as much or more than the mundane question of whether to raise or lower short term interest rates by a few basis points.

Financial regulation is even more about moral hazard, rules, institutions and perceptions than regular monetary policy. Chair William McChesney Martin, referring to rising interest rates, once sad the job of the Federal Reserve was to take away the punch bowl just as the party gets going. Now that the Fed is managing "financial stability,"  the chair’s job is to more to stop putting out fires soon enough that the underbrush burns out, people don’t build their houses too close to trees, and keep their own fire extinguishers loaded. At some point, you  let Bear Stearns go to send a message to Lehman Brothers.  A Fed chair that spends a lot of his time clarifying what the Fed's role will be in the next crisis rather than one who just ammasses larger and larger discretionary power, will weather that crisis much better.

Resisting capture will be a full time job. When billions of dollars are on the line for powerful Wall Street firms, the chair needs to be someone who can say no -- and who everyone knows will say no. From before the Fed’s inception, people have wanted to manipulate monetary policy and financial regulation to their ends.  They will steer subsidies and protection their way, they will use regulation to block competition, and they will steer credit their way.

We didn't have a central bank for a century, mostly because of this fear. The argument over having a central bank at all focused on the concentration of financial power and its marriage to political power, not inflation and unemployment. Now that the Fed is squarely running the financial system, and not just setting interest rates, we will start that discussion again.

Ideally it would not matter at all who the Fed chair is. Our government works well when the institutions work, not when we await the right benevolent aristocrat to run things with great power and no accountability. So a wise central banker is not one in the news every day, spouting a frenzy of new ideas. The wise central banker works within and buttresses well codified rules of behavior, thinks hard about what those rules should be, and slowly moves them over time.

Oh, and politics matter. Pick a Democrat.

So who fills that bill? I've pretty much described Tom Sargent. If you want a taste, go to his website. His latest paper "Fiscal discrimination in three wars" with George Hall is just what I would want a Fed Chair to be thinking about with state and local defaults looming. His Nobel Prize speech "US Then, Europe now" is one of the wisest set of thoughts on the Euro crisis I've seen. Some of my favorite classics: "The macroeconomics of the French Revolution" with Francois Velde. There you see how Tom can put modern macro into action, to understand real-world events. Of course his studies of the fiscal roots of hyperinflations are fundamental. He knows macroeconomic theory of all stripes inside and out. He knows the history and institutions inside and out.  He is one guy who could command hushed awe in the FOMC.

There are a few other candidates who fit the bill similarly. I don't want to get too deep in to personalities, it's the job posting that counts. You could make a similar case for, among others Ken Rogoff, David Romer, John Taylor, Mike Woodford, Greg Mankiw, and many others. (Just examples; I don't mean to insult anyone by omission). The interesting observation is that none of these are on the agenda reported in the papers.

There is perhaps two good reasons why such candidates are not on the table. First,  the Fed chair runs a large organization. The talents of corralling a bureaucracy, herding the opinionated cats on the board of governors, keeping the staff in line, working within the legal and institutional structure of the Fed, keeping one’s mouth shut so as not to roil markets and cause scandals, (or perhaps talking so much that markets stop paying attention? That's what would happen if I were Fed chair!) while furthering the Fed’s admirable quest of transparency are crucial.

Second, the chair has to make hard decisions in real time. This is incredibly hard.

Most academics don't have these skills. I don't know if Tom does. Perhaps some trial of running a large organization is a needed requirement.

And of course, the chair needs to persuade one person he or she will be good at the job, the president. Ben Bernanke served on George Bush's council of economic advisers, and undoubtedly impressed Bush. Tom impresses me, but I'm not in charge.

You may object that I'm thinking too narrowly. I'm a university academic, so I'm pushing other university academics. But in this case, I think that's warranted. The academics really have thought long and hard about central banking, and they have taken over from the bankers. The FOMC is a great debating club of monetary and financial policy. An industry economist or banker will get eaten alive.

By the way, I think when the dust has settled, history will be kind to Ben Bernanke. He fits most of my job description. Inflation is stuck at 2%, the world did not melt down, and we’re all gradually coming to the realization that if $2 trillion bucks of stimulus and zero interest rates didn’t bring our economy out of the doldrums, there really is nothing more that a central bank could do. The Phillips curve has been screaming "this is supply, not demand" for a few years now. Like any great general, we can argue with specific decisions, and much of the direction of Fed policy, and I have. But we have not lost the war.

Yet. The next chair could easily make Mr. Bernanke’s term look even better.


  1. Most of the criticisms I hear about bernanke have really been after the fact stuff. Some have jumped on him for not reacting soon enough or not doing enough or not being even more unorthodox with his approach. Its amazing, especially since most people probably never imagined a world of QE as late as 10 years ago. Of course, even he would probably admit his own mistakes, but this, along with everyone else's, comes entirely with the benefit of hindsight. Will history recognize this? I doubt it.

  2. "The Phillips curve has been screaming "this is supply, not demand" for a few years now."

    Wasn't this your view when the unemployment rate was 10%? If so, how do you square it with the decline in unemployment sense then? And would it be detrimental to your view, if the unemployment rate continued to fall?

    I guess, you have in mind a big supply shock that has gradually eased as time has gone by, perhaps, banking or housing? But at other times, you seem to be thinking along the lines of Casey Mulligan-policy changes, ACA, capital taxation... Those policies don't seem to fit the bill as they haven't eased over the last few years. If unemployment rising to 10% was a supply shock, it should stay at 10% unless there is a counter-veiling supply shock.

    1. Charlie,

      The unemployment rate can be a misleading indicator. Instead look at employment to population ratio:

      2007: 63%
      2009: 60%
      2011: 58%
      2013: 58.5%

    2. What is the difference? In the short run demographics have hardly changed, but unemploymebt has moved a lot

    3. In the short run, demographics have hardly changed, but people's marginal perferences for work and welfare/retirement/"disability" have changed greatly. If you were 55 and on the bubble for welfare/retirement/"disability" 5 years ago, the recession hit, and now you are 60 and saying screw it I'm done here.

  3. I don't think Tom Sargent would accept the job offer. Also, I'm not sure he's familiar enough with recent empirical research.

    Also, confronted with the NK Philips curve, I'd rather reject the NK models than the demand driven recession, especially given Mian and Sufi evidence. What do you think of their results?

  4. What if the Fed, given its track record, does more harm than good? Then does the new Fed chair merely become the captain of the wrecking crew?

    Would a new Fed chair, that recognizes the wrecking crew track record, become the Fed chair that dismantles the Fed? A new and much, much smaller Fed with no duel mandate and a Fed that sheds many of its other functions such as community affairs, liaison for grant writers, etc.

    The Fed has been depicted by many as “the new central planner”. The new Fed chair would need to end the central planner role. Maybe a Fed that merely [Friedman] sets money supply growth targets and steps aside.

    Ah, George Selgin comes to mind.

  5. "The chair must be litereate! And this stuff is hard."-- John H Cochrane.

    Ahem. Did you mean "literate"?

    And, moreover, this stuff is not that hard.

    Right now, the Fed is running below inflation and growth/unemployment targets.

    The Fed should print more money.

    There is a lot of excess capacity in the economy. More demand will result in more output, not inflation...for a while, and then some inflation. If we are lucky to get that much monetary stimulus.Well, that is what Milton Friedman said.

    Next problem.

    1. It truly boggles my mind when people think "printing money" solves anything.

      IF ANYONE should get printed money, why doesn't the Fed cut checks to all adult citizens? Why do bondholders get to reap the benefits of newly printed money. And if I hear the truly stupid response of "well regular people would just pay down debt and that doesn't help the economy" I will go postal.

    2. So when you want to tighten monetary policy, do you send a bill to all adult citizens? "Pay $500 at the nearest IRS office or else, comrade"?

    3. When inflation is above target the CB stabilises the money supply. Money is neutral so contracting the supply has no real benefit anyway. Even in an extreme event like a depression where real gdp falls 10% the price level only goes up by 10% if the supply of money is stable.

      Also if money supply is stable and inflation persists then pressure will be on gov to act and causation of problem is transparent (assuming inflationary pressures aren't being caused by natural disasters etc...).

  6. I think history will be kind to Bernanke because he pulled every possible rabbit out of his hat trying to temporize until congress got its fiscal act together. He missed his moment of greatness when Schumer said, "Get to work Mr Chairman."

    Bernanke should have pointed his finger in Schumer's face and said, "No, YOU get to work."

  7. This is what Tom is doing, and much prefers it, I'm sure, to the Fed:

  8. Has Tom Sargent ever run anything?

    Maybe he has but not that I have heard.

    Bernanke didn't have much administrative experience prior to becoming Chairman, but at least he was a member of the Board for 3 years.

    Most of the others had serious experience making operational, day-to-day decisions and being in charge of lots of other people. William Martin, Alan Greenspan, Paul Volcker certainly did.

    It's hard to imagine someone as intensely academic as Sargent trying to run an entire institution.

  9. No disrespect, but all the academic economists mentioned are "mainstream" economists who revolve around some form of equilibrium models or another. The track record of any of these models to foresee the financial crisis is dismal, to put it mildly. Bernanke himself was rather clueless about the housing and credit crisis before 2008. Personally, I find that ideas like the Phillips curve are part of the problem, not of the solution. The idea that one can stimulate employment by tweaking interest rates has proven very weak at best.

    Academic economists have indeed been too mired in their math to include some developments in non-equilibrium economics (a la Minsky) and alternative monetary theories (e.g. MMT).

    History will be kind to Bernanke, especially if written by some happily retired bankers or corporate CEOs who benefited the most from his policies.

    Unfortunately, the chance that a real outsider innovator be picked for the Fed post is slim. The Fed is very much rooted into conventional economic thinking.

    1. To quote another "mainstream" economist: "[...] the futility of trying to deal with crises and recessions by finding central bankers and regulators who can identify and puncture bubbles. If these people exist, we will not be able to afford them."

    2. Thank you Google... I wish I could write this clearly:

  10. First, i want to thank you for talking more about QE:

    "He fits most of my job description. Inflation is stuck at 2%, the world did not melt down, and we’re all gradually coming to the realization that if $2 trillion bucks of stimulus and zero interest rates didn’t bring our economy out of the doldrums, there really is nothing more that a central bank could do. The Phillips curve has been screaming "this is supply, not demand" for a few years now. "

    This is all levels of bad and inaccurate. First of all, nominal gdp growth has been running at a low 2.5% for a while now, the lowest since the GD. Inflation is also below target, and unemployment is 7.4%, and the true unemployment rate is much larger. The Philips Curve is screaming for more stimulus.
    Second, interest rates dont' really tell you much of anything. They can be low for a variety of reasons, the "flight-to-safety effect" and low inflation and grwoth being one of them.

    Third. two trillion is peanuts compared to the size of our capital markets.

    Fourth, Look at Abenomics, it seems to be working, NGDp grwoth is at 3.5%, and the unemployment rate is coming down fast.

    Fifth,Humility? There are two kinds of humility. Being humble in the sense of being open to new information and new experiences, (like inflation hawks being wrong and doves being right, at least according to the journal) is a good thing. But the type of humility you are talking about is pure pessimism and defeatism.

    You'd fit right into the crowd at the Fed from 1929-1933

    1. The Phillips curve comment: if you plug in steady 2% inflation into any Phillips curve it says output = potential, so the (I agree) disastrously low level of output and employment are not "demand." The standard new keynesian phillips curve

      inflation = beta * expected inflation - coefficient * output gap

      says that to get a big output gap you need big deflation that is rapidly decreasing in absolute value -- inflation today negative, expected inflation a lot less negative

      I'm curious to see what Phillips curve you have in mind -- or what model more generally -- that produces steady 2% inflation with output stuck 7% below potential.

      The rest .. I won't respond, you're on the edge of insulting that causes comments to be deleted here.

      For now, though, let's get back to the Fed chair.

  11. Anonymous,

    "It truly boggles my mind when people think "printing money" solves anything.

    IF ANYONE should get printed money, why doesn't the Fed cut checks to all adult citizens? Why do bondholders get to reap the benefits of newly printed money. And if I hear the truly stupid response of "well regular people would just pay down debt and that doesn't help the economy" I will go postal."

    It boggles my mind when inflation hawks, after being wrong COUNTLESS TIMES in this environment, think printing money will cause hyperinflation, when "liquidity preference" of corporations and households is till very high. And the Fed and the Treasury SHOULD do what you suggested facetiously

  12. I think a big liquid Treasury market is what underpins the global economy and to consider it 'debt' is totally missing the point of it all. Banks print money, not Treasuries. Investment creates savings, not the other way round. All this moaning about Treasury 'debt' has unnecessarily crippled this nation's growth. And by the way that was a major argument Keynes made. I'm not even an economist and I understand this. Why don't economist?

  13. "The rest .. I won't respond, you're on the edge of insulting that causes comments to be deleted here. "

    I apologize for that. I feel frustrated at our slow recovery. I don't like defeatism.

    Look, you're a much smarter man than me, Dr. Cochrane, I'm just a freelance writer and beginning journalist, and you're a Professor at a distinguished university. But in this issue, in this instance, I am right and you are wrong. I follow other intellectual firepower on my side. Like Milton Friedman, and Scott Sumner, now. And Christy Romer.

    But as for the rest-

    I disagree with the standard NK model. Im a market monetarist. And Akerlof, Dickens, and Perry showed that stable inflation can hide a persistent output gap.

    I'm curious, what is so sacred about 2%, our modern gold standard? If inflation falls by 4% during a financial crisis, you would have to have 4% tacked on to inflation (I prefer NGDp growth) just to get back to trend before the recession. And it beggars the mind that conservative, very serious people, central bankerly types think that 1.5% real growth and 1% inflation is somehow better than 4% inflation and 6% real growth.

  14. "For now, though, let's get back to the Fed chair."

    The Fed chair needs to be a monetary dove. I'm praying, hoping for Janet Yellen

    1. No knock on Janet Yellen, but picking a Fed chair for what you want her to do right now is like picking a spouse based on whether he or she wants to go out for Chinese food on the first date.

    2. I'm also as dovish as the next market-monetarist, but I agree with John here. General framework is what's important, and the reason NGDP level targeting appeals to us is because we think it responds best to both recessions and booms. It also helps that someone more hawkish like John Taylor prefers Yellen to Summers due to a preference for rules over discretion, so I don't need to experience dissonance over short-run vs long-run preferences!

    3. Wonks Anonymous,

      Let's say the central bank's nominal GDP growth rate target is 5%.

      Condition: 0% inflation, 7% real growth

      The nominal growth rate is above the central bank's target. Should the central bank act to restrict real growth when it is above the central bank's target?

      Condition: 6% inflation, -3% real growth

      Should the central bank act to push up inflation when real growth is pulling nominal growth down?

    4. Frank Restly,

      Absolutely "yes" in both cases. The first case is an unsustainable boom, the second case is a supply-side recession that requires higher prices to incentivize producers.

      (Inflation targeting, price level targeting and money supply targeting all give the same answer.)

  15. Professor, your description of what a Fed Chair has to do makes me wish that there wouldn't be any Fed at all, Its just too much power.
    Abolish the Fed!

  16. Thomas Sargent is a peculiar choice. Why should someone who has become famous for his "policy-ineffectiveness proposition" become chairman of the Fed? When he believes his own research the Fed would be essentially useless to do much more than act as a clearinghouse. John Cassidy from the New Yorker sums it up pretty well:

    1. Well, I'd want someone who believes in efficient markets to manage my stock portfolio. The most important thing is "A man's gotta know his limitations."

  17. Replies
    1. :-) love it. Maybe the Old Wizard is what we need.

      I would add to Professor Cochrane's list of desirable qualities: (1) experience at being lied to; (2) a well functioning bovine waste product detector; (3) a recognition that there are mechanisms and channels in the real world that are beyond the knowledge or models of the academics.

  18. I, too, don't really understand the claim that the Phillips Curve is "screaming" supply. Core inflation seems to have been persistently somewhat below 2%, which screams "sticky wages" to me... I find Richard Koo's balance sheet recession view (if not his somewhat restrictive solurions) fairly persuasive. Basically a shortfall in aggregate demand driven by a fun-up in household debt and a heavy shift to paying down that debt once the housing bubble burst. The rather even distribution of unemployment across industries also supports the general demand shortfall story over the supply shock story to me... A higher inflation target, then, would actually accelerate recovery quite a bit by alleviating those household balance sheet issues faster.

    And if there's any evidence that a 4% inflation target is somehow more dangerous than a 2% inflation target, I'd love to see it, since I definitely haven't to this point...

    1. "the claim that the Phillips Curve is "screaming" supply. Core inflation seems to have been persistently somewhat below 2%, which screams "sticky wages" to me..."

      The difference is more apparent than real. A right winger who thought that wages of American workers need to fall say 10 to 20% to adjust for competition from China and automation would call that a supply (of labor) problem and you would call it sticky wages. If you want to balance the American economy, you either need some structural changes or you need the "average" consumption per person to fall by about 10%. So far most of the adjustment has fallen on the working poor, and on the middle and lower middle class.

    2. There are a few things wrong with that; first, the debt overhang households face (a la Koo) is in nominal dollars; a drop in wages makes that debt overhang worse. Second, there's no real reason we "need" to compete with China (or India or Bangladesh or whoever) for manufacturing jobs; outsourcing it is perfectly natural. And if we did want to "compete" for those jobs, deflating real wages would be a godawful way to do it; a more logical way would be to follow what the Chinese have been doing and go out and acquire foreign currency reserves. Which, of course, would be (accurately) termed currency manipulation.

      The idea that we need consumption to FALL also strikes me as silly; to the extent that we have a demand problem, taking more demand out of the economy is kind of the opposite of what we need, which seems especially troublesome given that business investment, at least at the outset of the recession, was depressed pretty much because of poor sales. Now, if you look at the numbers, business investment has actually recovered pretty nicely to this point. What's really dragging the recovery is... government investment, which is still far below peak. If government went back to hiring workers, unemployment would almost certainly be quite a bit lower. You can dispute the multipliers on government hiring, but a decent bet is that we could have shaved a full point off the unemployment rate at a cost of 5-10% more debt relative to GDP, which is a tradeoff I think most would take in a second.

    3. "Second, there's no real reason we "need" to compete with China"

      Competition with the labor force in China (and Mexico) etc is tearing the labor markets in North America and Europe apart. It is far from certain what a sustainable equilibrium would look like.

      You build up foreign reserves by running trade surpluses and saving money. As the world's favorite reserve currency that is unlikely to be a feasible strategy for the US dollar. Perhaps the politicians who advocated a default on Federal debt were playing a very deep game seeking to end the dollar's role as a reserve currency and reduce its value.

    4. Labor force competition isn't "tearing apart" labor markets... lack of hiring is tearing apart labor markets, at least in the US. In Europe, the Euro is destroying labor markets in the peripheral countries (Greece, Spain, Italy somewhat), but there wasn't some switch that flipped in the American labor market in 2008 that made American workers unemployable...

      Honestly, I don't even think it's clear that the dollar is overvalued-- our current account balance actually improved when the economy tanked, though as far as I remember that was more of a collapse in imports than a boom in exports. Either way, to the extent that the dollar is "overvalued" relative to the renminbi, that's a product of Chinese currency manipulation over the last few decades more than the dollar's role as a reserve currency (which, when quantified, is actually a fairly weak effect).

      To the extent the Fed can engineer a recovery using unconventional monetary policy, though, there's no conflict-- the Fed influencing expected inflation would theoretically both boost domestic demand and have the side effect of weakening the dollar; I tend to think the first effect would be more substantial than the second. Of course, that kind of unconventional policy would lead Ron Paul, Paul Ryan and friends to scream like their hair is on fire about "currency debasement" and whatnot.

  19. a substantial test of any healthy organization is succession planning--why should the Fed be any different?


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