Category Archives: Federal Reserve

Is the Fed Going to Dial Down Its QE Taper Talk?

We’ve suggested that the Fed has drunken a bit too much of its own confidence Kool-Aid to be talking about tapering QE. The problem now, as we’ve stressed, is that the effect of QE may prove to be asymmetrical.

Nikkei Falls 6.4%, Overseas Markets Escalate Hissy Fit Over Cut in World Bank Forecasts, Fed Taper Talk

The big shortcoming being exposed by the Fed’s talk of tapering QE isn’t just that it’s premature. The central bank could have had its cake and eaten it too by using the “T” word and then in case of overreaction, sending minions out to reassure investors that it didn’t mean it, really, they just had to say it to appease the hawks (not in that formula, mind you, the mere fact of running around and looking concerned about markets having a bit of a swoon is more important than content). It’s that any QE exit subjects the Fed to conflicting objectives and Mr. Market may have finally awoken to that fact.

Mr. Market’s Temper Tantrum Over Fed Tapering Talk

Lordie, the market upset we’ve had over the past week plus over Bernanke using the T, as in “tapering” word, is escalating into a full-blown hissy fit. We now have the Wall Street Journal and other finance-oriented venues telling us how unbelievably important today’s job report is. Huh? One jobs report is just another in a long series of data points.

So why has this one been assigned earth-shaking importance?

Dan Kervick: Do Banks Create Money from Thin Air?

Yves here. This post by Kervick is LONG, but that’s because he unpacks the “creation” of money in a step-by-step manner. Your patience will be rewarded.

Richard Alford: The “Dutch Disease” and Once and Future Economic Crises in the US

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.

The term Dutch Disease refers to negative macro-economic effects on a country of a boom in commodity exports or other developments that result in large capital inflows. It may be that the Dutch Disease contributed to the recent US recession and that the prospective energy-led US economic recovery could amount to nothing more than another bout of the Dutch Disease.

Steve Keen: Is QE Quantitatively Irrelevant?

Yves here. Some readers still equate quantitative easing with “printing money”, and Keen’s post explains what (little) QE actually does and does not accomplish.

Will the Expected End of QE Lead to a Bond Meltdown?

Yesterday, bonds fell sharply due to stronger-than-expected housing price and consumer confidence reports. That reflects the belief that the economy is mending, and as a result, the Fed will deliver on its promise to dial back and then end QE. Ten year Treasury yields rose to the 2.10%-2.11% level. Various commentators claim that rates will zoom higher either right over that point or at 2.25%. How worried should we be?

The Case for 4% Inflation

Yves here. Some readers are likely to recoil at the idea that more inflation might be a good thing. But the flip side is that economists are still fighting the war of the 1970s.

The Fed Has Painted Itself in a Corner

I welcome readers telling me I’ve missed something, but looking at the Fed’s problem from 50,000 feet, it appears that the the monetary authority appears to have set boundary conditions for its QE exit that it can’t meet.

Richard Alford: The Problem of Central Banks With Multiple Goals and Few Tools

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.

Current monetary policymakers (largely economists) have designed and employed macroeconomic models and a policy framework that allow only one goal for central banks: price stability. They did not solve the problem of how to allocate scare resources (in this case limited policy tools) in pursuit of competing ends, e.g., stable prices, full employment, sustainable growth, financial stability, external balance.

Russia’s Plan For The BRICS To Dismantle The Dollar System

The status of the US dollar as the world reserve currency gives the US tremendous advantages. Among them: it allows the Fed to export inflation, while the Federal Government can run a huge deficit with impunity. But now an angry Russia has had enough!

Bank “Zombie Title” Rises, Hurting Communities and Borrowers, as OCC and Fed Sit Pat

We’ve written before about the perverse phenomenon known as “zombie title.” Kate Berry of American Banker provides an update.

Dan Kervick: Bitcoin’s Deflationary Weirdness

Yves here. Some readers questioned the discussion of Bitcoin’s deflationary qualities in a recent post, so this discussion is a useful follow-on.

Independent Foreclosure Review Fiasco: OCC and Fed Decided Not to Find Harm

The last few days have had more and more ugly revelations emerge about the botched OCC and Fed Independent Foreclosure Review settlement, with some particularly important ones coming out of the hearings in Robert Menendez’s Senate Banking subcommittee today.