Category Archives: Federal Reserve

The New Normal of Monetary Policy

Yves here. This post describes the “new normal” of the role bank reserves play in hitting short-term policy rate targets in the US. The author ends on a cheery note about how the abnormal-looking situation we have, in particular super-low interest rates, could persist for a very long time. The author contends that the way one reacts to these new procedures and their results will reflect your monetary aesthetics, as in your beliefs about the way central bank balance sheets and reserves should look. However, given the way that negative short-term real interest rates are stoking financial speculation at the expense of real economy investment (a trend that was already well underway even before the crisis containment program turbo-charged it), one can hardly see a continuation of the new normal of low growth and redistribution to top earners as a positive development.

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Fed Whistleblower Carmen Segarra, Snowden, and the Closing of the Journalistic Mind

The financial press has been awash with coverage of This American Life’s broadcast of key section of 46 hours of tapes made in secret by former New York Fed bank examiner Carmen Segarra. The broadcast and related reporting at ProPublica show how utterly craven the central bank was when it came to matters Goldman.

Now you might say, isn’t this media firestorm a great thing? It’s roused Elizabeth Warren and Sherrod Brown to demand hearing. The Fed has been toadying up to Wall Street for years. Shouldn’t we be pleased that the problem is finally being taken seriously?

Actually, no.

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STILL 1.4 Million Fewer Full-Time Jobs Than in 2008

Yves here. Despite his many faults, Bill Clinton at least recognized that the first responsibility of a Democratic president is to create jobs. Of course, Obama is a Democrat in name only, but until recently, just as the nobility understood its duty was to protect the peasants, the powers that be understood that providing for enough employment at at least adequate wages was one of their major responsibilities. Sadly, the idea of having responsibilities is sorely absent among today’s elites.

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Publish or Be Damned – Or Why Central Banks Need to Say More About The Path of Their Policy Rates

In the wake of the crisis, forward guidance has become a prominent tool of monetary policy. This column argues that central banks should go a step further, communicating to the public the internal policy debate that goes into monetary policy formation – especially regarding uncertainty. Since policy is determined contingent on a range of possible outcomes, forward guidance would become more effective by explicitly communicating how policy would respond along this uncertain path.

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Deconstructing Fed Chair Janet Yellen on Unemployment and the Unemployed

I would have liked to see some table pounding and shouting about pseudo-scientific constructs like the “Natural Rate of Unemployment” — what’s “natural” about it? — or a heartfelt plea for a well-funded study to find out how the permanently disemployed actually eat, and find shelter, and stay alive — System D? — or even a dim recognition that regulating the economy by throwing people out of work is just as barbaric and inhumane as the medieval remedy of bloodletting.

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Philip Pilkington: Taxation, Government Spending, the National Debt and MMT

The other day my friend Rohan Grey — a lawyer and one of the key organisers behind the excellent Modern Money Network (bringing Post-Keynesian economics to Columbia Law School, yes please!) — directed me to an absolutely fascinating piece of writing. It is called ‘Taxes For Revenue Are Obsolete’ and it was written in 1945 by Beardsley Ruml. Ruml was the director of the New York Federal Reserve Bank from 1937-1947 and also worked on issues of taxation at the Treasury during the war.

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Does the Central Bank Control Long-Term Interest Rates? A Glance at Operation Twist

Although less prevalently talked about today many economists assume that while the central bank has control over the short-term rate of interest, the long-term rate of interest is set by the market. When Post-Keynesians make the case that when a country issues its own sovereign currency the rate of interest is controlled by the central bank and that the government never faces a financing constraint some economists deny this and point to the long-term rate of interest which they claim is under the control of the market. They say that if market participants decide to put the squeeze on the government they can raise the long-term rate of interest.

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Rather Than Prosecutions, Fed Pressuring Banks to Pay Miscreants Less

Your humble blogger must confess to being partly wrong about the Fed’s recent realization that banksters had learned the right lesson from the crisis: crime pays. We were incredulous that the central bank had missed the fact that financial firm employees were unrepentant and their executives saw no reason to make real changes (hence all the howling about reform measures that are pretty minor relative to the damage done). From a recent post:

This story would be funny if it weren’t so pathetic.

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