tag:blogger.com,1999:blog-582368152716771238.post8274413702152178318..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: The Real Fed IssuesJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-582368152716771238.post-18711892300798416832017-07-02T20:04:22.641-05:002017-07-02T20:04:22.641-05:00Given some of your comments here, I thought the la...Given some of your comments here, I thought the last 2 charts in this link are relevant. The US corporate sector seems to be coming out of its own recession. Y/Y profits are now on the plus side after 5 quarters of minus y/y numbers and cap ex has (for 1 qtr) gone positive in a big way. Hope the Fed doesn't nip this in the bud....<br />https://app.hedgeye.com/insights/60223-3-charts-the-u-s-economy-is-heating-upAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-43385136956243484732017-03-21T02:34:35.623-05:002017-03-21T02:34:35.623-05:00I gather the Fisher effect revived lately by Willi...I gather the Fisher effect revived lately by Williamson is what is being referred to by JC's "eccentric view [hat] it would be possible for the Fed to keep interest rates low, if everyone thought that would last basically forever, but then we would have to tolerate deflation"<br /><br />I suppose that is true, eventually. But to get from here to that low-rate-of-nominal-return, deflationary equilibrium, what has to happen? Prices must rise (especially equity and house prices, so they are "overvalued" enough that people expext prices to go down, down, down). But goods prices, too. In other words, low rates will result in INFLATION NOW if they are to cause deflation (much much later).Uberdavenoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-50615400967960105582017-03-19T16:52:47.047-05:002017-03-19T16:52:47.047-05:00Anonymous,
Ah...the trouble with statistics...cor...Anonymous,<br /><br />Ah...the trouble with statistics...correlation is not sufficient to establish causality.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-84472911991255569092017-03-19T15:20:09.606-05:002017-03-19T15:20:09.606-05:00Ben,
There is a distinct difference between havin...Ben,<br /><br />There is a distinct difference between having a central bank to begin with, and letting that central bank dictate fiscal policy.<br /><br />Reagan (and Regan) fell victim to their own prejudices / misunderstandings of both finance and Constitutional law. In spite of a government deficit, the Congress is under no Constitutional obligation to either borrow or print money. The U. S. Constitution lists borrowing and coining money as plenary powers that can only be exercised by the Congress not must be exercised by the Congress.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-91751814447098194902017-03-19T15:09:18.251-05:002017-03-19T15:09:18.251-05:00Ben,
"What say do the citizens of Greece hav...Ben,<br /><br />"What say do the citizens of Greece have in their economic future?"<br /><br />They control their own fiscal policy and that is enough. Governments (all of them) have all fallen under the spell cast by central bankers telling them they must either borrow (sell bonds) to finance deficits or print money (as you seem to suggest).<br /><br />When they (Greece) figures out that deficits can be financed with the sale of equity claims against future tax revenue, they will regain their economic future.FRestlyhttps://www.blogger.com/profile/09440916887619001941noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-24688439617720639602017-03-18T08:55:58.012-05:002017-03-18T08:55:58.012-05:00Isn't it more likely that 'velocity' &...Isn't it more likely that 'velocity' 'went down' because of (and/or, in tandem with) the increase in reserve balances associated with the LSAPs? It's a measured/inferred quantity whose denominator was increased dramatically.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-17302830333532243052017-03-17T12:28:46.955-05:002017-03-17T12:28:46.955-05:00Dr. Cochrane,
I do not disagree with the majority...Dr. Cochrane,<br /><br />I do not disagree with the majority of your blog but there is one section I do not agree with.<br />You wrote:"I didn't think the balance sheet did any stimulating on the upside, and don't think keeping a big balance sheet does any harm on the downside. I think the Fed is a bit victim of its own marketing. By saying a roughly symbolic measure saved the world with great stimulus, it's awfully hard to turn around and say it isn't doing anything. But that's another big, not-about-interest rates issue to watch."<br /><br />Tthe Federal Reserve Bank (FRB) vastly increase the supply of narrow money / monetary base (M0). Between September 2008 and September 2014 the supply of M0 quadrupled from 950 BUSD to 4,084 BUSD [4] through the Large Scale Asset Purchase (LSAP) programme. This increase in narrow money created intense inflationary pressures. This was important as monetary velocity was decreasing quite rapidly at the time [1] as was Nominal Gross Domestic Product[2]. These were indicators of intense deflationary pressures [3]. However, by creating these inflationary pressures through the LSAP the FRB were able to counter-balance the deflationary pressures. While inflation remained tepid at best, there was little outright deflation.<br />While one might argue that this was not an outright monetary stimulus it did provide an important amount of support to economic growth.<br /><br />[1] http://bit.ly/29gv8rZ<br />[2] http://bit.ly/2n6xi3S<br />[3] http://bit.ly/2mDFEN0<br />David de los Ángeles Buendíahttp://daviddelosangelesbuendia.tumblr.com/noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-22789097513701296502017-03-17T09:43:26.371-05:002017-03-17T09:43:26.371-05:00Raising or lowering in increments of 0.25% adds mo...Raising or lowering in increments of 0.25% adds more volatility to the economy than the Fed could possibly remove through market timing. <br /><br />If the Fed were serious about reducing volatility, they would adjust their target every day, in increments of single basis points or smaller. Just like big-boy asset managers do. Fish Goldsteinhttps://www.blogger.com/profile/13864053986442147618noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62034730466972092392017-03-16T22:13:27.634-05:002017-03-16T22:13:27.634-05:00Ralph:
Well, as they say, democracy is crummy way...Ralph:<br /><br />Well, as they say, democracy is crummy way to run a country, until you try the second-best way. <br /><br />Sovereign nations must have their own central banks, and those banks must be accountable to the voting public. <br /><br />The ECB is horrible. What say do the citizens of Greece have in their economic future? They should be printing drachmas to the moon. <br /><br />So, we trust a President with his finger on global nuclear war, but not with monetary policy? <br /><br />You know, inflation above 5% is worse than getting nuked. Just ask any central banker. <br /><br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-42526008670152578122017-03-16T18:03:15.258-05:002017-03-16T18:03:15.258-05:00So the Fed played no part in the build-up to the c...So the Fed played no part in the build-up to the crisis? I think that idea is perverse. Between interest rate policy and numerous statements that there was no bubble/ any issue would be contained they absolutely failed.The Donkhttps://www.blogger.com/profile/14153840277624094270noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-202882640274552592017-03-16T12:34:20.059-05:002017-03-16T12:34:20.059-05:00Benjamin, The evidence seems to support you: i.e. ...Benjamin, The evidence seems to support you: i.e. there does not seem to be much relationship between central bank independence and inflation. Scroll down to the first chart here: http://bilbo.economicoutlook.net/blog/?p=9922<br /><br />The obvious exceptions are Robert Mugabe and Weimar. <br /><br />But if there was a referendum on the subject, I think I'd still vote for central bank independence.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-2760036484702562982017-03-16T10:44:29.467-05:002017-03-16T10:44:29.467-05:00the real question is whether "The Fed" i...the real question is whether "The Fed" is there to protect the "economy" or the "crony banks". My vote is they are there to enrich a select few mega banks....who are reckless! Why are rates at zero when banks have record profits? Why are there still CEO there at banks that would surely have failed but for the gratis of unlimited FREE MONEY!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-57575198434696668932017-03-16T10:02:02.547-05:002017-03-16T10:02:02.547-05:00"After all, central bankers failed to prevent..."After all, central bankers failed to prevent the most devastating financial crisis in generations— looking on idly, at best, while financial institutions peddled shady bonds to fuel a housing bubble of gargantuan proportions." This is perverse. The Fed fail was AFTER the crisis broke. They failed to vigorously prevent a massive increase in unemployment even as they allowed the price level to drift farther and farther off target, validating expectation s that they would not 'do what it takes" to keep inflation on track. Unknownhttps://www.blogger.com/profile/04661459590343267145noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-27311364774372892552017-03-16T09:04:29.478-05:002017-03-16T09:04:29.478-05:00It's a balance sheet, excess reserves come off...It's a balance sheet, excess reserves come off automatically as Treasury securities roll offAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-89012563946078028722017-03-15T22:02:59.318-05:002017-03-15T22:02:59.318-05:00Ronald Reagan proposed making the Fed part of the ...Ronald Reagan proposed making the Fed part of the U.S. Treasury. <br /><br />http://www.nytimes.com/1982/09/18/us/reagan-suggests-tighter-control-of-central-bank.html<br /><br />Reagan was echoing sentiments of Donald Regan, his Treasury Secy who also made such proposals. The Reaganauts were at war with Fed Chair Volcker (initially a Carter appointee) who they felt was too tight. <br /><br />I think placing the Fed under executive branch control makes sense. <br /><br />First, democracies should always err on KISS---keep it simple stupid. <br /><br />The voting population cannot be expected to dissect and extract why the economy is floundering, be it too tight monetary policy, or Trumponomics. There needs to be accountability. <br /><br />If inflation is too high or growth too low, the public needs a mechanism to register its sentiments. <br /><br />As it stands, this is a possible scenario: Trump actually does things right, and cuts corporate income taxes, say. His border tax is small enough to not matter much. The rest is a wash. So, for sale of argument, let's say Trump is a positive. <br /><br />But the Fed over-tightens, and we hit the skids.<br /><br />The public will blame Trump, may even conclude, "See? Tax cuts for the rich again, tickle-down blah, blah. Never again."<br /><br />I give the scenario about a 25% chance of happening. <br /><br />Secondly, does it make sense to have an insular body like the Fed conduct macroeconomic policy? The Fed has been staffing up through thick and thin. Hiring more and more economists. The Dallas Fed HQ is a country club, with sculpture gardens and a cafeteria regarded as the best in Texas. Superb pension and benefits. The other Fed campuses may be as nice, but that is the only one I know. <br /><br />Recently, Cochrane posited economic incentives drive people. Fed staffers do better in a deflationary economy than the population--after all, they are paid in step-grades, they keep their salaries, their campuses are comfy. Housing become cheaper and they can buy. <br /><br />A real estate developer, a restauranteur, any business guy might get gutted in a deflationary recession. Not Fed staffers. They gain. <br /><br />If we say economic incentives matters, how are Fed staffers incentivized? <br /><br />In the private sector, we try to incentivize management to align with shareholders. <br /><br />At the Fed, the opposite arrangement is in place. What if Fed staffer pay was closely tied to real GDP growth? <br /><br />I gather the establishment consensus is "We believe economic incentives matter except when they don't."<br /><br />Maybe the Fed should be abolished, and the Treasury given the reins on monetary policy. <br /><br />Reagan had a point. <br /><br /><br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62069177577154132822017-03-15T17:37:54.213-05:002017-03-15T17:37:54.213-05:00The next sentence in his post answers your questio...The next sentence in his post answers your question. He's talking about the interest the Treasury pays the Fed.The Donkhttps://www.blogger.com/profile/14153840277624094270noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-66548559629407440142017-03-15T15:56:14.384-05:002017-03-15T15:56:14.384-05:00"Don't be fooled -- every cent of that co..."Don't be fooled -- every cent of that comes from you and me in the end."<br />A large chunk of it comes from MBSs. And many of us don't have mortgages. So that statement looks a bit fishy to me. Or am I missing something?<br />-LK BelandAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-22249202753570250102017-03-15T13:21:03.652-05:002017-03-15T13:21:03.652-05:00"The Committee is maintaining its existing po..."The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction,"<br /><br />I disagree with rolling over the agency debt and mortgage backed securities. If they want to tighten slightly the first thing to do would be to stop the rolling over. Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-3398809204846626392017-03-15T13:13:28.090-05:002017-03-15T13:13:28.090-05:00Personally, I think that the Commercial Paper Fund...Personally, I think that the Commercial Paper Funding Facility https://en.wikipedia.org/wiki/Commercial_Paper_Funding_Facility was a sensible program at the time. Would the world have ended without it - perhaps, perhaps not. It certainly seemed to be in line with Bagehot's famous prescription.<br /><br />On the other hand, I think the intervention in the housing market through QE3 went over the line. Congress had decided to bring in the sequester. It really was not the place or mandate of the Fed to try to pre-emptively save the country (and the politicians) from the natural consequences of that political bargain. <br /><br />It would be ironic if the Republicans, after complaining for so long that the Fed was artificially suppressing rates, started complaining if the Fed lets rates rise. The Fed should be letting its holdings of longer dated, non Treasury, securities "roll-off". A roll-off would presumably steepen the yield curve while leaving short term rates near zero. A roll-off would change the composition of the Fed balance sheet but not its size. To reduce the size, there needs to be a withdrawal of the excess reserves. Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.com