Edward Harrison here. The post by Randall Wray below is an interesting one because it points out how the world has changed since the end of the gold standard and why the sovereign debt crisis is centered in the euro zone. While I have an Austrian bias overall, for me, MMT is the best way […]
Read more...Yves here. It has been striking how little commentary a BIS paper by Claudio Borio and Piti Disyatat, “Global imbalances and the financial crisis: Link or no link?” has gotten in the econoblogosphere, at least relative to its importance.
As most readers probably know, Ben Bernanke has developed and promoted the thesis that the crisis was the result of a “global savings glut,” which is shorthand for the Chinese are to blame for the US and other countries going on a primarily housing debt party. This theory has the convenient effect of exonerating the Fed. It has more than a few wee defects.
Read more...By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller. Cross posted from New Deal 2.0
The FOMC is far more secretive than most government agencies, and after reading the transcripts of its meetings, it’s not hard to see why.
Read more...By Matt Stoller, the former Senior Policy Advisor to Rep. Alan Grayson and a fellow at the Roosevelt Institute. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller.
Two weeks ago, Bloomberg released a significant story on the actions of the Federal Reserve as the lender of last resort during the crisis and the extent of that lending. The article, an homage to the late great reporter Mark Pittman, revealed lending and guarantees of roughly $8 trillion, and estimated government-granted profit garnered by the big banks of $13 billion.
More disturbing were inconsistent statements by Bernanke publicly claiming he was lending only to sound institutions when the Fed’s internal assessments of those same banks showed otherwise. This article prompted a remarkable back-and-forth between Bloomberg and the Fed, in which neither side backed down while coming close to calling the other a liar. Bloomberg essentially argued that the Fed gave ill-gotten profits to money center banks through facilities set up to flood the system with liquidity. The Fed responded that it charged “penalty” rates to these banks, that it was fulfilling a well recognized function of central banks by serving as the lender of last resort.
I side with Bloomberg, and I’ll explain why.
Read more...It’s telling that the Fed was dumb enough to try upping the ante in its ongoing fight with Bloomberg News over the central bank’s refusal to disclose many critical details about its emergency lending programs during the crisis. Any poker player will tell you you don’t raise with a weak hand when the other side is pretty certain to call your bluff.
For those who have been too preoccupied with Europe to keep track of this wee contretemps, Bloomberg last week released a news story that received a great deal of follow through in the media and the blogosphere on the latest information it extracted from the Fed under duress.
Bernanke sent a letter that is pissy by the standards of Fed discourse to Tim Johnson, Richard Shelby, Spencer Bachus, and Barney Frank (the big dogs of banking in Congress). Given that Obama had to whip personally to get Bernanke reappointed, and that antipathy towards the central bank is a rare bipartisan cause, writing an aggrieved letter to powerful Congresscritters is not an obvious way to win friends and influence people.
And particularly a letter like this one. Get a load of how it begins:
Read more...By Richard Alford, a former New York Fed economist. Since then, he has worked in the financial industry as a trading floor economist and strategist on both the sell side and the buy side.
In “Lombard Street” published in 1873, Bagehot specified the purpose of a Lender of Last Resort (LOLR) as forestalling bank panics in fractional reserve banking systems. Bagehot also provided criteria that define LOLRs, which remain relatively unchanged. In fact, the Bagehot criteria have become something of a mantra: Lend freely at penalty rates against good collateral to illiquid but solvent banks. Given Bagehot’s purpose and definition, has the crisis of 2008 provided a test of the Fed as an LOLR? If so how well did the Fed perform? What are the ECB’s responsibilities as the LOLR in Europe in 2011?
Read more...Yves here. There has been a lot of press, deservedly so, on the information that Bloomberg managed to pry out of the Fed on its emergency lending programs during the crisis. The Fed again is in crisis mode, again in a controversial and arguably compromised position in extending currency swaps to the ECB to provide dollar liquidity to European banks. They are having difficulty securing funding because US money market funds are no longer keen about parking money with them and US regulators have been discouraging banks from extending credit lines to them. As a consequence, another set of important revelations about Fed conduct, namely, the release of the results of a GAO review of crisis related Fed operations, is not getting the attention it warrants.
Read more...I’m in the middle of a serous shredding which is taking longer than I’d like. But for your viewing pleasure in the meantime, Mark Ames has found this tidbit:
Read more...By Philip Pilkington, a journalist and writer living in Dublin, Ireland
JK Galbraith, remarkably, regards the Federal Reserve as a largely powerless institution; he dismisses the idea that the Fed can end a recession by cutting interest rates as a “quasi-religious conviction” that “triumphs over conflicting experience.”… Because Galbraith believes monetary policy cannot increase demand, however, he has a sort of Depression-era vision of an economy in which anything that increases spending is good… And so Galbraith is oblivious to the most serious problem facing modern liberalism: reconciling social justice with full employment.
As the above, rather embarrassing quote from Paul Krugman’s review of JK Galbraith’s classic book The Affluent Society shows, neoclassical economists and neoclassically-trained central bankers have long been enamoured with monetary policy – and are generally angered when it subject to questioning. Why? Well, there are a variety of reasons, some of these are ideological (monetary policy doesn’t stink too badly of nasty government interference with the Holy Market), some of these are purely functional (the central bank has independent control over rates) and some simply have to do with making economists’ silly toy-models work (monetary policy gives neoclassicals a feeling of power over the economy they would otherwise lack).
Anyway, in the present crisis – just as in the great depression – monetary policy has proved completely ineffective. This has caused some – myself included – to question the real efficacy of monetary policy altogether, but it has others continuing the search for that silver bullet.
Read more...I’m still mystified as to the market reaction on Wednesday to the coordinated central bank effort at waving a bazooka at the escalating European financial crisis. But as readers pointed out in comments, the big move was overnight, in futures, when trading is thin, and there was no follow through when markets opened. And volume was underwhelming.
Read more...Any of you who are market oriented no doubt are all over the news of central bank coordinated liquidity efforts. This is from the Federal Reserve’s announcement:
Read more...I’ve deliberately waited a bit before examining the remark of one Jason Barker, an employee of the New York Fed, on a New York Post article the day after the November 17 Occupy Wall Street protests. My initial negative reaction to his comment still holds.
The Post piece itself presented itself as a celebration of police bloodlust…
Read more...This Real News Network interview with economist Bob Pollin of the Political Economy Research Institute in Amherst, Massachusetts focuses on the deficit cutting impasse in Washington and what is needed to create jobs.
Read more...Our headline at odds with the media reports on the newest confidence-bolstering ploy by the Federal Reserve, that of new, improved stress tests for the six banks at the apex of the US financial services industry looting operation: Bank of America, Citi, Goldman, J.P. Morgan, Morgan Stanley and Wells.
There’s a noteworthy gap between the scenarios employed in the 1.0 version, which took place in early 2009, when the banks were told to get more capital or else, and the ones about to be implemented.
Read more...A key German finance leader is talking tough about financial reform. But will his peers follow?
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