tag:blogger.com,1999:blog-582368152716771238.post3566687631807665780..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: Yellen at Jackson HoleJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-582368152716771238.post-72128508768600814872017-09-06T03:04:06.484-05:002017-09-06T03:04:06.484-05:00Further to my previous comment. From today's (...Further to my previous comment. From today's (09/06) FT: <br />Quote: "Bottom Line: Brainard is making a push to slow the pace of rate hikes. I am not sure she will be as successful as her last effort to change the course of policy. But she still has two important takeaways for investors. First, if you think interest rates will rise sharply, think again. The neutral rate of interest is too low to expect much more tightening – we need much faster growth to justify a higher estimate of the neutral rate. Second, assuming she is right and the Fed doesn’t take her advice, her colleagues are positioning themselves for a substantial policy error that would both bring the expansion to an end sooner than later and further entrench disinflationary expectations. And that would only make the Fed’s job harder in the future.<br />Brainard’s argument confronts a framing challenge. “The economy and financial markets are in bad shape and we should prevent them worsening” is an easier sell than “the economy is fine but could be much better”, especially given the dogmatic fear of asset bubbles and of future blame for falling behind the curve of an inflationary spike. Fear of loss is proving to be a more powerful motivator than the hope of an uncertain gain." <br />End of quote. <br />Now my question: is it just me? Or is this noisy and confusing? <br />First: "the dogmatic fear of asset bubbles". Were not everybody, and I mean here all central bankers, all academics, and the entire general public, fearing some sort of End of Civilization just eight years ago, due to the effects of an asset bubble?<br />Second: "The neutral rate of interest is too low". What? After eight years of unprecedented monetary stimulus? And the appropriate policy response to this problem would be "more unconventional monetary stimulus"? How about "the stimuls did not stimulate?".<br />Third: "we need much faster growth to justify a higher estimate of the neutral rate" Yes, right. And we need much more faster growth to explain current (unprecedented) valuations of financial assets.Valter Buffo, Recce'd, Milannoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-8143715008976018842017-09-04T17:16:50.964-05:002017-09-04T17:16:50.964-05:00Dr Cochrane, brilliant essay as usual, but a coupl...Dr Cochrane, brilliant essay as usual, but a couple of points might be too subtle for the non specialists among your readers (like myself). In particular this one,<br /><br />"That assets under management have decreased is not a good sign. Money market funds are easy to fix -- float NAV, change to ETF structure, or add equity cushions. Capital and fixing run-prone liability structures substitutes for intrusive asset regulation, a point that seems to be missed entirely."<br /><br />Makes me think that I will have to spend many hours researching just to get a handle on what you are saying. It would be really excellent if you could write a blog or two on the most important points, targeted for us more pedestrian readers!<br />Anonymoushttps://www.blogger.com/profile/18057956810675580275noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-49063118675848458492017-08-31T17:09:30.543-05:002017-08-31T17:09:30.543-05:00John / Peter,
"So, if we're going to mak...John / Peter,<br /><br />"So, if we're going to make debt tax deductible (less important) and offer creditor guarantees including deposit insurance, bailouts, and the Fed propping up bond prices, we need to force banks to issue more capital and less short term debt."<br /><br />There are several problems with approaching this problem from a "regulate the banks" perspective:<br /><br />1. Define a bank - do we include / exclude insurance companies, mutual funds, vendors that offer financing? Are banks limited to anyone that initiates a loan agreement or do we also include firms that buy, hold, and sell debt securities 2nd hand?<br /><br />2. What is the correct amount of equity shares relative to debt outstanding (ratio of liabilities)? What is the correct amount of equity shares relative to assets held (ratio of assets)?<br /><br />3. You need a majority of 435 Representatives and 100 Senators to vote for changes in banking regulations.<br /><br />4. You then need a majority of central banks / governments around the world to agree to common banking regulations (see Basel I, II, & III). The reason is that large banks typically operate on an international basis and will shop for the best deal available. Capital adequacy requirements are too high for banks in the U. S? No problem, banks can get a better deal in Europe or Asia.<br /><br />The only thing we need to do is prevent the federal government from issuing debt of it's own.<br /><br />That would solve the bailout problem, that would inject more equity and less debt into the economy, that would lessen the total amount of creditor guarantees, that would prevent the Fed from propping up bond prices.<br /><br />1. Unlike trying to define what a bank is / is not, we all know what the federal government is and there is only one federal government.<br /><br />2. The correct amount of government debt is $0.00. The correct amount of government equity can either be limited or be set by market demands.<br /><br />3. The issuance of government equity is not a power delegated to the Congress by the U. S. Constitution. It could be initiated by the U. S. Treasury / Executive Branch of government without Congressional approval.<br /><br />4. There would not be international concerns of forum shopping. Federal government equity would only be used by the public to extinguish a tax liability in the future. As such, it would have no value to overseas buyers.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84388002948060481192017-08-31T15:18:56.987-05:002017-08-31T15:18:56.987-05:00My understanding is that in Westeros 1st names are...My understanding is that in Westeros 1st names are assigned, whereas last names follow a fairly rigid (and at times nonsensical) set of rules. So I think the first name stays, while the last name changes. Or not. I guess we'll find out in 2019.<br /><br />Either way, immediately after I posted the above I regretted it, realizing I may have just inadvertently created the most unlikely location for "GOT spoiler" in the history of GOT spoilers (most people probably figure an econ blog is safe). So while this was amusing (at least to me), you should probably delete these entries.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-37407849205946087252017-08-31T10:57:39.488-05:002017-08-31T10:57:39.488-05:00Fully agree. I'd like to see a model showing ...Fully agree. I'd like to see a model showing exact numbers on genuine asset-side (of balance sheet) regulatory compliance cost reduction. Peter R.https://www.blogger.com/profile/04372206909859812798noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-34118351671319791292017-08-31T10:10:38.284-05:002017-08-31T10:10:38.284-05:00The banks are right. If you lever up, you raise ea...The banks are right. If you lever up, you raise earnings per share and mean returns. You also raise the volatility of returns, so there is a bit of a fallacy here. If you want more earnings per share and more volatility, you can leverage up an investment outside the bank too.<br /><br /> With tax deductible interest and bailout guarantees, leverage is great for the individual bank. It is not so great for the banking system and society as a whole. So, if we're going to make debt tax deductible (less important) and offer creditor guarantees including deposit insurance, bailouts, and the Fed propping up bond prices, we need to force banks to issue more capital and less short term debtJohn H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-63124537204892814762017-08-31T09:59:03.142-05:002017-08-31T09:59:03.142-05:00John, excellent, thoughtful and much needed econom...John, excellent, thoughtful and much needed economic analysis of what is wrong with Dodd-Frank. Question: the large regionals and universal banks remain opposed to higher equity capital requirements because models show that a preferred equity raise would destroy earnings per share (assuming those proceeds are used to pay down 90% of long-term debt). What say you? Peter R.https://www.blogger.com/profile/04372206909859812798noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-14881370804285808712017-08-31T08:45:46.772-05:002017-08-31T08:45:46.772-05:00Actually, that's Aegon Targaryen, right? Oh, t...Actually, that's Aegon Targaryen, right? Oh, the dangers of Game of Thrones references... John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-27024193868212949992017-08-31T08:43:10.571-05:002017-08-31T08:43:10.571-05:00Thanks! Fixed. And in retrospect, how presumptuous...Thanks! Fixed. And in retrospect, how presumptuous of me to think the WSJ fact checkers would get something so obvious wrong. John H. Cochranehttps://www.blogger.com/profile/04842601651429471525noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-38293363364742420062017-08-31T08:00:29.534-05:002017-08-31T08:00:29.534-05:00Unfortunately your post contained one critical blu...Unfortunately your post contained one critical blunder that irreversibly spoiled what would have otherwise been impressive commentary: "out of forthright Jon Snow-like irrepressible honesty[.]" <br /><br />The man's name is John Targaryen! Your Lannister-esque bullying of those with nontraditional family backgrounds is unacceptable. You should be ashamed of yourself.<br /><br />Seriously though, this was a great/thoughtful piece.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-37145070631049327992017-08-31T05:11:13.821-05:002017-08-31T05:11:13.821-05:00Glad to have such a substantial commentary. One s...Glad to have such a substantial commentary. One small quibble: in early 2008 Geithner was President of the Federal Reserve Bank of NY. Yellowleaveshttps://www.blogger.com/profile/11108671108617794465noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-78604237779289621642017-08-31T01:44:50.803-05:002017-08-31T01:44:50.803-05:00I think proper planning and govt. taking initiativ...I think proper planning and govt. taking initiative in most beginning is all need.IBSsingaporehttp://www.consultibs.sg/noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-34657180822022110282017-08-30T14:32:37.626-05:002017-08-30T14:32:37.626-05:00The sooner this big government control freak goes,...The sooner this big government control freak goes, the better for the country.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-71122748223307684702017-08-30T12:23:04.896-05:002017-08-30T12:23:04.896-05:00Good to have you back. "Credit default swaps...Good to have you back. "Credit default swaps for the large banks also suggest that market participants assign a low probability to the distress of a large U.S. banking firm." Of course they assign a low p to this event. They know from past experience, taxpayer wealth and income will bail them out. Reasonable policy change Ms. Yellen. Tell the markets they are on their own. TBTF is no more. As for "discretion" versus rules based, Fed decisions seem ~ N(0,dt).David Seltzernoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-56939710585319988782017-08-30T11:55:07.958-05:002017-08-30T11:55:07.958-05:00Thank you John, in my view this piece is a great c...Thank you John, in my view this piece is a great contrubution to the understanding of these topics: which, as you say, is not always full, even at the highes decisional levels. Just one brief comment: you write "Hundreds and hundreds of papers find that the central bank can affect this or that by buying securities, changing bank regulations, changing financial regulations. They, and conference participants, segue into "policy conclusions" that central banks should use this dandy new tool. Practically nobody stops to ask, just because the central bank can affect the economy through its regulatory or asset purchase powers, should it do so? The question, "do we really want an independent central bank routinely dialing up and down levers of cash-out refinancing, with an eye to raising or lowering stimulus" just never occurs to anyone." I would add a few questions: WHO gets the "refi money"? Why them, and not others? Why MBSs and not other categories of debt? Why now and not then? When does an Institution become of "systemic" relevance, and why?Valter Buffo, Recce'd, Milannoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-46130909912730771132017-08-30T11:05:23.214-05:002017-08-30T11:05:23.214-05:00"Practically nobody stops to ask, just becaus..."Practically nobody stops to ask, just because the central bank can affect the economy through its regulatory or asset purchase powers, should it do so? The question, "do we really want an independent central bank routinely dialing up and down levers of cash-out refinancing, with an eye to raising or lowering stimulus" just never occurs to anyone."<br />Thank you for an incredibly penetrating piece. But it is also incredibly depressing. The above quote from your piece hits the nail on the head. Unfortunately the answer is: these are complicated and abstract matters that discourage serious attempts by political policymakers to understand the problems created by excessive regulation. The few that try are often reluctant to take the bull by the horns as the chances of success are slim. Regulations have never been and never will be substitutes for robust capital. But as long as the banks are among the biggest campaign contributors it is hard to see substantive progress in the future.<br />Just more boom and bust and boom and....George Christyhttps://nationaldebtprimerplan.blogspot.com/noreply@blogger.com