Category Archives: Federal Reserve

Market Rout Continues, Proving Abject Failure of Fed’s Forecasts and Policies (Updated)

In case you missed it, it’s ugly out there. US markets swooned as an unexpectedly weak manufacturing report, the ISM, was so bad it couldn’t be attributed solely to bad weather and deepened investor funk.

Former IMF Chief Economist, Now India’s Central Bank Governor Rajan Takes Shot at Bernanke’s Destabilizing Policies

As Bernanke is about to take leave of office, attacks on his policies are becoming louder, thanks to financial markets turmoil resulting from the Bernanke/Geithner approach to the crisis: do whatever it takes to restore as much of status quo ante as possible. The problem, of course, is that status quo ante is what got us in this mess in the first place.

Mr. Market is Getting Frazzled Over the Fed’s Neglect of Its Pet Wishes

A brief surge of optimism, in the form of a short-lived rally in the belegured Turkish Lira and South African rand after their central banks raised interest rates to try to halt the plunge in currency values, has fizzled. And the Fed reducing its dosage of market tonic, in the form of QE, only soured investors’ already bad mood.

The Emerging Markets Rout Abates….for Now

Journalists and laypeople tend to use stock markets at their proxy for economic and financial market conditions. The performance of US stock markets looked like an encouraging return to a semblance of normalcy after last week’s squall, until a wave of selling in the final hour, with 600 million shares of volume, pushed the major indexes solidly into negative territory. As of this writing, that barometer is still a bit wobbly. Australia was down 1.26% overnight and the Nikkei off .17%. But Chinese and the Singapore markets are up, as are European and the S&P and DJIA indices.

But some of the explanations are less persuasive than others.

Will China Stop Taper?

That is the question today. Let’s first ask markets.

Steve Keen: Bye Bye, Bernanke

Yves here. With this the last week of Bernanke’s tenure as Fed chairman, it will be necessary to brace yourself for a barrage of unwarranted encomiums. Steve Keen provides a useful counterpoint, that Bernanke failed even in his own terms.

Global Dollar-Based Financial Fragility in the 2000s (Part I)

Yves here. It’s been frustrating to see orthodox economists continue to invoke the Bernanke “saving glut hypothesis” as a significant driver of the crisis. That view was rebutted in gory detail in a 2010 paper by Claudio Borio and Piti Disyatat of the BIS, “Global imbalances and the financial crisis: Link or no link?” (see Andrew Dittmer’s summary here). Not surprisingly, the orthodoxy has chosen to ignore this paper.

A new working paper by Junji Tokunaga and Gerald Epstein, “The Endogenous Finance of Global Dollar-Based Financial Fragility in the 2000s: A Minskian Approach,” builds on the perspective of the Borio/Disyatat paper. Readers should find this summary to be a straightforward, persuasive discussion of an important topic.

How Bitcoin Plays Into the Hands of Central Bankers and Will Facilitate the Use of Negative Interest Rates

Bitcoin enthusiasts like to present it as a “power to the people” form of money, stressing its apparent lack of ownership (the “Napster for finance“). They stress the lack of need for a “trusted party” like a bank or broker to verify that a payment has been made. And many clearly relish the idea of launching a currency outside the control of central banks (plus this beats Cryptonomicon in geekery).

If you believe the hype, you’ve been had.

Are Banks About to Win on Commodities Trading After Their Success in Watering Down Basel III Capital Rules?

You know it’s bad when Bloomberg’s editors attack the banks’ win against regulators, in this case, their success in watering down already-too-generous Basel III capital requirements. And they look primed to score a twofer on pending rulemaking on trading in physical commodities.

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.