Category Archives: Federal Reserve

Michael Hudson: QE3 – Another Fed Giveaway to the Banks

In this Real News Network interview, Michael Hudson gives a high level discussion of why the Fed’s claim that QE3 will help employment needs to be taken with a fistful of salt.

So How’s That QE3 Working?

Obviously, it’s a little early to reach a verdict on QE3, but market pundit love reading the tea leaves early and often, so we figured we’d join the fun and look at early reactions.

Central Banks Versus the People

By Delusional Economics, who is determined to cleanse the daily flow of vested interests propaganda to produce a balanced counterpoint. Cross posted from MacroBusiness.

As you are surely aware by now, the US Federal Reserve has announced a new round of quantitative easing which like the ECB’s outright monetary transactions (OMT) is a new program of large scale asset purchases by a central bank. I thought I’d spend a bit of time today talking about these programs because once again I have noticed some large misconceptions in the media about what these operations are, and more importantly, what the likely outcome of them is.

Is QE3 Yet Another Stealth Bank Bailout?

It’s difficult to puzzle out what Bernanke thinks he is accomplishing with QE3. The level of bond buying, as various commentators have pointed out, is much lower than in the earlier QE programs. And pulling out bigger guns in the past was not terribly productive. As we wrote in April 2011 in a post titled “Mirabile Dictu! Economists Agree All the Fed Has Done is Goose Financial Markets!“:

Eugene Linden: In a World of Underpriced Risk, What Could Possibly Go Wrong?

By Eugene Linden, a journalist and author of seven books who has written extensively about animal behavior, environmental issues, and markets

On a recent conference call, the strategist of a major international bank (it was an off-the-record call for clients only) laid out the bare bones of what he called the world’s “giant experiment” in debt and interest rates. Never before have so many countries maintained such low base rates for so long; never before in peacetime have so many countries had such huge deficits and debt burdens; never before in U.S. history had long term rates been so low; never before has the U.S. gone so many decades without deflation following inflation. Because we live in these unprecedented times, it’s easy to lose sight just our strange they are… and how dangerous.

Dan Kervick: Shamanistic Economics

By Dan Kervick, who does research in decision theory and analytic metaphysics. Cross posted from New Economic Perspectives

The Fed did something on Wednesday: it announced a new program of open-ended quantitative easing, and it announced that it likely won’t pull back on the new round of monthly asset purchases once the economy begins to recover more strongly, but will keep the purchases going for some indefinite period of time afterward.

This announcement has greatly pleased all of those people who have been calling for the Fed to do something….

The Fed’s QE3: No Exit

The Fed’s launch of QE3 looks more than a tad desperate. If you believe the central premise of the Fed’s action, that propping up asset price gains would have enough effect on consumptions to lift the economy out of stall speed, it would seem logical to sit back a bit and let the recent stock market rally and the (supposed) housing market recovery do their trick. But the Fed has finally taken note of the worsening state of the job creation in an already lousy employment market and has decided it needed to Do Something More.

Andrew Ross Sorkin’s Bad Math on AIG

Memo to Andrew Ross Sorkin: if you are going to try to discredit someone, it’s more effective if you are less obvious about it.

Where Are the Feds? NY Banking Superintendent: Standard Chartered a “Rogue Institution,” Made $250 Billion of Illegal Transfers With Iran

The New York Superintendent of banks dropped a bombshell today, filing an order against Britain’s Standard Chartered Bank. It charges the bank with having engaged in at least $250 billion of illegal transactions with Iranian banks, including its central bank, from 2001 to 2010, and of engaging in similar schemes with Libya, Myanmar and Sudan (those investigations are in progress). It threatens SCB with the loss of its New York banking license and termination of access to dollar clearing services. The latter alone is as huge deal. You are not a real international bank unless you have dollar clearing. Sumitomo Bank looked at giving up its US banking license in 1985 when it was examining deal structures for making an investment in Goldman, and ascertained that giving up access to Fedwire would cost it over $100 million a year and considerably weaken its position in Japan. SCB is certain to be a much more active dollar player than Sumitomo was and the volume of international transactions has grown hugely since then.

SCB squealed like a stuck pig, claiming that only $14 million of transactions were out of compliance. But the bank has nowhere to go.

Robert Shiller Questions Whether Housing Has Bottomed, Sees Possible Bubbles

Robert Shiller of the Case Shiller Index, spoke to Fox Business earlier this week (hat tip Ed Harrison). In this short chat, he stresses that the rise in housing prices so far this year look very encouraging, but could prove to be seasonal. He also points out that he is seeing what may be early bubble behavior in San Francisco and Phoenix, and even in Chicago and Atlanta.

If that is indeed happening, it’s not a bug but a feature.

Matt Stoller: Democratic Leaders Again Whipping Against Audit of the Federal Reserve

Matt Stoller is a political analyst on Brand X with Russell Brand and a fellow at the Roosevelt Institute. You can follow him at http://www.twitter.com/matthewstoller.

Yesterday, on the House floor, there was a furious debate over the prospect for HR 541, Ron Paul’s bill to audit the Federal Reserve. The Republicans are by and large supportive of this bill, seeking to hamstring the ability of the Federal Reserve to act in secret. Democratic members, were they left to their own devices, would be split. But on votes on bills like this, party leaders can choose to endorse a position, or not endorse a position. Some votes are what’s called “whipped”, and some aren’t. There’s an intricate system of whips and assistant whips and staff networks who encourage members to vote a certain way, so when the party takes a position on an issue, it has a big impact on the final vote count. This is a whipped vote, which means that this is one of those times where the Democratic leadership – Steny Hoyer, Barney Frank and Nancy Pelosi – are putting their stamp on an issue. They have come out firmly for Fed secrecy.

Dan Kervick: Want Jobs? Forget the Fed!

Yves here. Late in the afternoon, after three days running of Mr. Market being in a bad mood, the Wall Street Journal sent a news alert titled “Fed Sees Action if Growth Doesn’t Pick Up Soon.” The message:

Federal Reserve officials, impatient with the economy’s sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring.

Since their June policy meeting, officials have made clear—in interviews, speeches and testimony to Congress—that they find the current state of the economy unacceptable. Many officials appear increasingly inclined to move unless they see evidence soon that activity is picking up on its own.

As I sputtered by e-mail:

This would be funny if it weren’t pathetic and real people weren’t being hurt.

The state of the economy is “unacceptable”? Really? Where were you when bank reforms were needed and the Obama administration was too chickenshit to go for bigger stimulus?

And the Fed has already tried every confidence fairy and central bank trick on offer. But Bernanke refuses to believe that loanable funds is a fallacy. Putting borrowing on sale is attractive to speculators, but not to real economy types who don’t see opportunity and/or have legitimate worries re repayment.

The post below is a longer-form treatment of what passes for policy thinking at the Fed. Oh, and it roughs up on Matt Yglesias too.

Philip Pilkington: The New Monetarism Part II – Holes in the Theory

By Philip Pilkington, a writer and journalist based in Dublin, Ireland. You can follow him on Twitter at @pilkingtonphil

In the first part of this piece we looked at the Thatcher government’s monetarist experiment in the early 1980s. It did not end well. So we must ask: did the Thatcher government and the monetarists believe in what they were doing or were they cynically using monetarist policy as a device to destroy large parts of British industry in order to destroy the trade union movement?

Quelle Surprise! Fed Economists Side Firmly With Bank Criminality Over the Rule of Law

Although Dave Dayen already gave a well-deserved shellacking to a remarkable piece of bank PR masquerading as “insight” at Reuters, “Evidence suggests anti-foreclosure laws may backfire,” it merits longer-form treatment as a crude macedoine of anti-homeowner messaging.

Can the Fed Really Do More?

By Stephanie Kelton, Associate Professor of Economics at the University of Missouri-Kansas City. Cross posted from New Economic Perspectives.

I’ve grown increasingly frustrated by the near universal cry for more action from the Fed. My friend and fellow blogger Marshall Auerback has quipped that it’s as if every mainstream progressive received the same White House memo. I imagine it looked something like this: