Actually, I had seen Mishkin squirm like that before. At the very beginning of the US financial crisis (April 2007)—when most still did not see it coming—Mishkin as member of the BOG gave a dinner speech. There was no indication in his speech that he “saw it coming”—he predicted moderate growth, emphasized some strong data in housing as well as low unemployment, and said the Fed would keep its interest rate target at 5.25. While it is hard to believe now, the Fed and most of the press was still worried about inflation at that time—even though anyone who was paying attention could see the economy was beginning to collapse into what would obviously be the worst crisis since the Great Depression. Still, commodities prices were being driven by a speculative boom coming mostly from pension funds—a story for another day. So Freddie was peppered with questions from the media present asking whether the Fed would be able to prevent an inflationary burst. Mishkin’s response was eerily similar to the response he gave in the video—you’ve got to trust the central bank. Do not worry, the Fed has ample ammunition to kill inflation.
When he returned to our table, we grilled him a bit more on that topic, and some of us also argued that the real danger facing the US was a financial crisis and deflation—not inflation. Let me interject that I liked Mishkin. He was a pleasant conversationalist, not at all arrogant, and even somewhat self-effacing. But when he gave his pat answer, “don’t worry, we are the Fed and we know what we are doing”, Jamie Galbraith pressed him for details: what are you going to do about inflation? And, if you raise interest rates now, when debt loads are so high, won’t that cause a wave of delinquencies on mortgages and consumer debt? That’s when we saw the same transformation you just witnessed in the video—from an easy, affable, confidence to sheer horror. Mishkin had been found out and was looking for the exits.
I must say that it was never clear exactly what that horror was. At the time I did not believe that Mishkin’s heart was in the inflation story. Surely he could not have believed, then, that the real danger was inflation. He’d been coached at the Fed about what he ought to say—and the Fed was riding the inflation story to divert attention away from the real danger. The Fed needed to keep the speculative bubbles going as long as possible—an election was around the corner and Republicans needed help. I was sure that he was actually afraid that we were right: the economy was going bust. And the Fed had nothing up its sleeve to prevent Armageddon.
Shortly thereafter, Mishkin left the Fed (August 2008—the second-shortest term ever served). That looked suspicious—and although I never tried to find out why, it fit with my interpretation that he knew what was coming, and so like Greenspan jumped the sinking ship before the Fed would be exposed as the impotent Wizard of Oz behind the curtain.
However, since then, Greenspan has publicly admitted that he had been clueless. His whole approach to economics was dangerously wrong. He never saw nothing coming. And after viewing this video, I am not so sure Mishkin had any clue, either.
Maybe his term at the Fed, like his research for Iceland, was nothing but marketing, too.
Columbia professor? Check.
NBER researcher? Check.
FDIC researcher? Check.
Highly paid consultant for international research? Check.
Vice President of NYFed? Check.
Former BOG member? Check.
Top selling money and banking textbook author? You betcha.
All he needed was a few months at the helm of the central bank, something he could add to the textbook blurb, to ramp up those sales.
The link to Tyler Durden’s commentary doesn't seem to be working
Professor Wray,Slightly off topic… I would invite you to read some ecological economics literature before interpreting any increase in commodity prices as speculative mania. A cornucopian view of natural resources does not serve the MMT camp well in my view. Labour is not the only resource subject to scarcity. It seems to me that MMT/Post Keynesian is unfortunately succumbing to the same growth paradigm as the neoclassical school. Otherwise, thanks for the post. In a sense, we perhaps should have pity on Mr Mishkin… the mainstream economic educational complex really messes up our hearts and minds.
I'm getting a page not found error for the video link…
I have to say this readis like one angry rant.I would like to see more lecture-like expositions of why MMT has a better explanation, this is sorely missing in the opublic domain.
Whats the source on the original video? The link here just links to another site with the same cut. Where did the whole interview come from?
All: I suspect the link is overwhelmed simply due to interest in watching Freddie squirm. Try again.Tyler Durden does not supply the link to the whole video; sorry I do not have more.Rant? Yes. You do not have to if you do not want to. I find the video deeply disturbing–especially given that this guy was "rewarded" for the fluffing with a position controlling US monetary policy–and, again, never saw nothing coming. Shameful.Succumbing to growth? Yes and No. Big issue for another day. I like Madonna downloads as the source of green private sector growth. LRWray
Same ambivalence about the guy personally, except I know him only from Squawk Box etc. So what bugs me: The paper is dated May of 2006. Why should anybody care what the fuck he's got to say since maybe … Iceland went broke?But hey, I was trained in philosophy, and now I grow grapes, so …. I do less damage, I guess.Comrade Raithel
After reading this, I silently discarded Mishkin's textbook from my library. I have never felt more ashamed of being called an economist! Is there no dignity left in this profession?
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