Category Archives: Federal Reserve

Wolf Richter: How the Fed’s “Wealth Effect” Quack Medicine Hurts Renters and With Them, Consumption

The Fed is explicitly relying on the wealth effect to stimulate spending. It’s theory is that if asset values rise, people will feel richer and spend more. But that’s not exactly how this movie is playing out.

Randy Wray: The Greatest Myth Propagated About The FED: Central Bank Independence (Part 2)

Last time we took a historical perspective on supposed Fed independence. In this blog we look at the myth of Fed independence from its creator, the Congress and from the Treasury.

Randy Wray: The Greatest Myth Propagated About The FED – Central Bank Independence (Part 1)

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.

Diagrams and Dollars: Modern Money Illustrated (Part 1)

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.

Essays in Monetary Theory and Policy: On the Nature of Money (Continued)

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.

Wolf Richter: What Happens Next, Now That The 10-year Treasury Yield Hit The Psycho-Sound Barrier Of 3%

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?

Goodbye Price Stability, Hello Exchange Rate Volatility

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.

The Fed’s Taper and Market Fealty

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.

Tapering Talk: The Impact of Expectations of Reduced Federal Reserve Security Purchases on Emerging Markets

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.

Bubble-logic and the Fed’s “To Taper or Not to Taper”

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.

The US Economy Can’t Take QE

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.

Wolf Richter: Strung-Out Consumers, Desperate Retailers, Crummy Sales

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.

Servaas Storm: Some Remarks on “Larry Summers, Secular Stagnation and the Crisis of the New Consensus Model”

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.

Governments Will Struggle to Control Bitcoin

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.

Speculation About Whether the Fed Manipulates the Stock Market Becoming More Mainstream

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.