Tag Archives: Federal Reserve

Mosler Endorses ZIRP. Forever.

By Stephanie Kelton

Warren Mosler, writing for US News & World Reports, makes the case that the Fed should not “normalize” rates or go back to trying to fine tune the economy by raising and lowering the overnight interest rate but, instead, just leave rates where they are.  Let’s see if Warren’s argument will top the list of reader favorites. Read the full article here.

Appointment of Summers Would Signal a Weak and Failing US

By Dan Kervick

The Federal Reserve is the central bank of what is still the world’s most important economy, and its Board of Governors is responsible for regulating and stabilizing the financial engine of US capitalism. But to much of the world, that engine now appears to be both poorly designed and overhyped. The global economy has yet to emerge from its most devastating financial failure since the Great Depression. The hub of that radial disaster was Wall Street and the United States, where a combination of botched corporate governance, derelict regulators, open corruption, unhinged greed and sheer, manic stupidity helped run much of the developed world’s economic system into the ground.  The economic model that for a brief period during the last two decades of the 20th century struck many as a shiny modern marvel of economic engineering now exhibits the corroded aspect of a shoddy and dangerous lemon hawked by fly-by-night hustlers to a world of ingenuous chumps. Continue reading

Some Thoughts on the Dual Mandate: Right Goals, Wrong Agency?

By Stephanie Kelton

The statutory objectives for monetary policy known as the “dual mandate” were imposed by Congress as part of the the Federal Reserve by Act of 1913.  The mandate charges the Federal Reserve with responsibility for achieving two broad macroeconomic goals: “maximum employment and stable prices.” Much has been made (especially by those on the left) of the benefits of having a dual mandate.  In contrast to the European Central Bank, which operates with a single mandate — price stability — the dual mandate is supposed to ensure a more balanced outcome in the public’s interest.

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The Next Chair of the Federal Reserve Must be a Regulator

By Robert E. Prasch*

If we go by the rumors circulating in the financial press, the Obama Administration is on the verge of selecting a proven failure – Lawrence Summers – to be the next Chair of the Federal Reserve System. This is the man, let us recall, whose greatest success in office was to work for the repeal of Glass-Steagall in 1999 and the nudge along the passage of the Commodity Futures Modernization Act of 2000 (which forbade any agency from regulating Credit Default Swaps). These profoundly mistaken decisions provided the nation’s largest and most irresponsible financial institutions with the bulk of the permission they needed to leverage up their balance sheets, hide the risks inherent in the mortgage-backed securities they were pushing onto unsuspecting investors, all while enabling them to become Too Big To Fail (and, as no less than the Attorney General of the United States has affirmed, Too Big To Prosecute).

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Can the Federal Reserve Really Refuse To Accept and To Credit A Platinum Coin Deposited By the US Mint?

By Joe Firestone

The issue of whether the Fed can really refuse to accept and credit a deposit of a platinum coin with its face value, is being raised frequently on blog posts about Platinum Coin Seigniorage (PCS) and the Trillion Dollar Coin (TDC). In the past, I’ve argued that the Fed cannot; and the final decision on taking the TDC off the table was actually made by the President, and not by Chairman Bernanke.

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Trillion Dollar Coin: Posts on Legality and Constitutionality

By Joe Firestone

Enthusiasm for using Platinum Coin Seigniorage (PCS) to produce a Trillion Dollar Coin, or coins totaling a few trillion dollars continues to increase. The twitterverse went mad two nights ago around #mintthecoin, a hashtag originated by MMT’s Stephanie Kelton, which by yesterday morning had become the 5th most highly trending topic on twitter.

Meanwhile, the blogosphere continued to produce more points of view on the Platinum Coin. The points of view divide into those that are very negative; either claiming that 1) using Platinum Coins would be illegal or unconstitutional, or 2) using them would be just ridiculous and financially irresponsible, and so should be avoided; and others that favor using PCS 3) either in a limited way to avoid the debt ceiling crisis, or 4) in a much more robust way, that would change the procedures underlying Federal spending, so that fiscal policies advocating austerity no longer have a political foundation in a visible and rising national debt that austerity advocates can constantly talk about fixing through “shared sacrifice.” In this post I’ll review new posts on legality and constitutionality. Continue reading

Shamanistic Economics

By Dan Kervick

The Fed did something on Wednesday: it announced a new program of open-ended quantitative easing, and it announced that it likely won’t pull back on the new round of monthly asset purchases once the economy begins to recover more strongly, but will keep the purchases going for some indefinite period of time afterward.  After what exactly was left unsaid.  The Fed apparently has a target it intends to overshoot, but hasn’t said exactly what the target is.  But whatever it is, we have been given forward guidance that the reaching of that unspecified target won’t stop the asset purchases – at least not right away.

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Who is Steven Krystofiak

By William K. Black

“My name is Steven Krystofiak, President of the Mortgage Brokers Association for Responsible Lending.”  That is how Krystofiak began his written statement to the Federal Reserve concerning mortgage fraud.  It is a follow-up to his oral testimony at a Federal Reserve hearing on June 16, 2006 at the FRB San Francisco entitled: “Responsible Lending and Informed Consumer Choice, Public Hearing on the Home Equity Lending Market.”  Continue reading

Krugman’s Flashing Neon Sign

By Scott Fullwiler

Update: Paul Krugman has posted a reply to this post that is a straw man.  He and Nick Rowe are viewing this all through the lens of the old Monetarist/Keynesian debates in which there was a choice b/n interest rate targets and monetary aggregate targets; the Monetarist critique assumed the Keynesians were going to keep interest rates at the same level forever and not change them.  Once John Taylor came up with his “rule,” everyone agreed an interest rate target could work. 

What we are talking about here is operational tactics–the CB can only target an interest rate.  It cannot target a reserve balances or the monetary base directly.  But that is different from strategy–that is, WHERE the CB puts its target and WHEN it chooses to change the target.  There is NOTHING in anything I’ve ever said or anything any PK’er, MMT’er, etc., has ever said that suggests the CB can’t set the target wherever it wants whenever it wants.  The point is that whatever the target is, THAT is what its daily operations defend directly, not a monetary aggregate, not the monetary base, not reserve balances.  There is nothing in anything I’ve said that would preclude the CB from running a Taylor’s Rule type strategy, for instance, that responds at any point in time endogenously to the state of the economy.  That is, the target rate is an exogenous control variable (i.e., it is necessarily set by the CB) that it sets endogenously in response to economic events.

The debate between Paul Krugman and my friend Steve Keen regarding how banks work (see here, here, here, and here) has caused me to revisit an old quote.  Back in the 1990s I would use Krugman’s book, Peddling Prosperity (1995), in my intermediate macroeconomics courses since it provides a good overview of what were then contemporary debates in macroeconomic theory as well as Krugman’s criticisms of various popular views on macroeconomic policy issues from that era.  One passage near the very end of the book has always remained in the back of my mind; in it, Krugman critiques a popular view that was and still is highly influential regarding productivity and trade policy.  He writes: “So, if you hear someone say something along the lines of ‘America needs higher productivity so that it can compete in today’s global economy,’ never mind who he is or how plausible he sounds.  He might as well be wearing a flashing neon sign that reads:  ‘I DON’T KNOW WHAT I’M TALKING ABOUT.’” (p. 280; emphasis in original)

In his latest post in this debate (which Keen replied to here), Krugman demonstrates that he has a very good grasp of banking as it is presented in a traditional money and banking textbook.  Unfortunately for him, though, there’s virtually nothing in that description of banking that is actually correct.  Instead of a persuasive defense of his own views on banking, his post is in essence his own flashing neon sign where he provides undisputable evidence that “I don’t know what I’m talking about.”

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Where Did the Federal Reserve Get All that Money?

By Stephanie Kelton (h/t Matthew Berg)

Federal Reserve Chairman Ben Bernanke gave his fourth lecture at George Washington University yesterday. Buried in the lecture, beginning at about 19:18 in the video, Bernanke explained where the Fed got the money to “pay for” the assets it purchased as part of its Quantitative Easing (QE) policies.

I remember when the Fed announced the first round of QE. Those who don’t understand Fed operations – think most mainstream economists – went nuts. Many worried that the Fed would be unable to “unwind” its positions (i.e. divest itself of the assets – MBS, Treasuries, etc. – it had purchased) because banks would refuse to swap their nice safe cash for riskier instruments when the economy recovered. Others insisted that QE was “stuffing the market full” of too many dollars and that this, inevitably, would result in hyperinflation.

John Carney just wrote a very nice piece, showing that not only was the Fed able to find buyers for its assets but that markets actually bought them back at a premium. Bernanke addresses the second objection in his remarks below – idle balances don’t chase any goods – but it’s the financing of the asset purchases that I want readers to understand, because this is fundamental to understanding Modern Monetary Theory (MMT).

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