It has been commonplace to speak of central bank independence — as if it were both a reality and a necessity. In the case of the Fed, this notion does not stand up to scrutiny.
Read more...Yves here. I continue to get requests to explain Modern Monetary Theory. It isn’t easily done in a few words, but fortunately, the academics and writers associated with the New Economics Perspectives blog keep publishing primers of various sorts. This one takes a different approach in using visuals to help illustrate the difference between how most people believe the money system operates versus how it really works.
Read more...Yves here. I thought this essay on money was useful in and of itself, and it also contains a useful primer on the views of major schools of thought in orthodox economics.
Read more...Yves here. As Wolf describes, in our brave new work of super-low interest rates, the 10 year Treasury breaching 3% was regarded with fear and loathing by the officialdom. Now with the Fed’s reassurances that the Fed funds rate will remain at just about zero for the foreseeable future, the stock market has popped the Champagne. But will the impact of the withdrawal of support for bond prices impact stocks sooner than the current rally would have you believe?
Read more...Yves here. This post makes a deceptively simple but important observation. Despite claims otherwise, central banks are giving top priority to interest rate stability, over that of other mandates they have been given explicitly, such as the health of the financial system, price stability, and full employment. This is further confirmation of the idea that central banks are desperate to keep asset prices aloft.
Read more...The Fed’s announcing the taper was supposed to be an earth-shaking event. But that actually sorta happened last summer when Bernanke first used the “t” word and interest and mortgage rates made an impressive upward march in a short period of time.
From my considerable remove, what was noteworthy about the Fed’s announcement yesterday is how terrified it seems to be of creating an upset.
Read more...Yves here. This post is important because even though the Fed is focused on the impact of QE (and hence the taper) on the domestic economy, it’s been getting enough of a hard time from central bankers of leading emerging markets economies that it least has to feign concern credibly.
The Eichengreen/Gupta paper summarized in this post concludes that, quelle surprise, the countries most vulnerable to changes in Fed policy (which really means hot money in and outflows) are those with the biggest financial markets relative to GDP. Curiously, Eichengreen and Gupta fail to note that this means the orthodox advice to developing economies, that financial “deepening” is a Good Thing and therefore should be supported by government policy, in fact reduces financial stability and makes them even more vulnerable to the moods of fickle foreign investors.
Read more...One of the amusing things right now is that there isn’t much debate in equity-land as to whether to be long or not.
Read more...Yves here. This post gives a good recap of where QE is and isn’t having an impact on the economy, and the “isn’t”s clearly prevail.
Read more...During this festive time of the year, the whole world is intensely focused on American consumers, watching their every move under a digital microscope to parse if the universe is going to live or die. Retailers and the media joined forces to create hoopla and excitement and frenzy and the perception of once-in-a-lifetime deals. Stores opened on Thanksgiving, stayed open late at night, and opened early in the morning. And consumers dove right into this extravaganza.
Read more...It is truly ironic to see Lawrence Summers and Paul Krugman promote sustaining asset price inflation as the only viable option left to get away from secular stagnation.
Read more...Yves here. I was extremely puzzled to see various US regulators make cautiously positive remarks about Bitcoin in Congressional hearings. But I now have a guess as to what happened.
Read more...Even during the pre-Lehman days of the financial crisis (yes, Virginia, there were three acute episodes before the Big One), blogs and professional investors in my various e-mail conversations would discuss the idea that the Fed had a “plunge protection team” which would intervene to stem market routs.
Read more...Should everyone with a Social Security number have an account at the Fed?
Read more...A report issued by McKinsey Global Institute last week on the real world impact of QE warrants more scrutiny than it has gotten so far.
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