Bernanke left the Fed 5 years ago this coming January. That’s quite an economic theory you have there.
No argument about the spendthrifts in Washington, but the Federal Reserve is very clearly trying to keep inflation stable and near 2.0% while letting the economy expand.
Or is your claim that 0.0% would be a smarter target for inflation?
The Moody’s Seasoned Aaa Corporate Bond Yield is 4.14% — quite low: it was around 8% in the 1990’s, though below 4% during most of the 1950’s. I would feel happier about the economy if yields were higher while employment remained robust — and I suspect Fed economists would also — but let’s not confuse cause and effect. A sharp interest rise now would plunge the economy back into recession.
Yes he started the boom by his unprecedented intervention. Yellen continued, then started to wind down. Powell continued Yellen’s trajectory. You disagree that the current expansion started under Bernanke? Of course you called Powell a “hawk” which is significant context for your other opinions. I gotta hear this.
Who said sharp? The Fed seems to be backing off even the modest trajectory it set over the past few years. I wouldn’t characterize the rate increases in the last few years as “sharp”. Rather they are paltry. So what could we call rate increases less than paltry? Anemic?
Powell seems to be buckling.
Even Volcker has questioned the 2% mantra. It is both a target and a limit? Sounds like BS to me.
I think he’s reasonably intelligent when he’s not being led around by his dick, or being driven by one of his many personality/ego bugaboos, such as insecurity, narcissism, having to proclaim that his stuff is “the best”, etc…
Problem is, those things seem to drag him this way and that without much real recognition on his part. A dispassionate thinker he most definitely is not.
“Started the boom by unprecedented intervention” == QE1, QE2 to fight the financial crisis. Economy recovery drags out over about 8 years.
Fed slows stimulus in 2013, leading to Taper tantrum.
Yellen: Took over Fed in Feb 2014. First rate increase in late 2015, followed by quarterly rate increases starting around early 2017.
Core PCE inflation is currently at 1.8% and falling, below the 2% target. Mortgage applications are in decline. This isn’t tight enough for you.
Sure you could raise rates to nuke the stock market, destroying the economy in order to save some sort of psychological attachment to sound money, whatever that is.
Your indicators for how tight the policy was are the consequences of the intervention.
My indicator is the policies pursued. They were simply unprecedented by a very large margin. A huge money-printing spree.
There will never be policy that is loose enough by your indicator because the realities of the economic situation in a downturn. Credit is slow to be extended not because we didn’t go into negative rates, but because there are no identified profitable investments to be pursued. The malinvestment liquidation is trying to proceed, but confusing signals are being sent by suppressed interest rates.
The Fed did not yield. Yet.
That is some egg I welcome upon my face for now.
I have to hand it to Powell for that. Of course the national anti-Trump tone has given him some shelter. Who knew it would be beneficial to have a president so reviled? Besides every libertarian who ever lived…
Measure for Measure, do you have an example where there was loose policy that led to a quick turn around.
There is simply no good story for the inflationists to tell. Their preferred policy has never been pulled off. Huge attempts at credit expansions have always delayed the recovery, while liquidations hasten it.
Japan- failure. Great Depression-failure. Great Recession-failure.
At this point, you may as well just recognize the Fed as a fourth branch of government, though one not concerned with legislation or commanding the military or interpreting the constitution, but in stabilizing the national economy. So it’s not democratic or whatever, big deal. None of the members of SCOTUS were voted in by the public, either.
Still not clear on the premise of why you think the fed would have “yielded”, as you phrased it. They are an independent institution who is more usually known to push back when a nervous President gets too demanding about rates.
If anything, the Fed ‘yields’ to the stock market trends. But having said that, I’m surprised they raised rates this week since all the indices are down for the month, week, quarter, and year.
I suspect that they are (optimistically) hoping that the current mess will inspire a few Congressional Republicans to grow a pair and start restraining the Yam That Walks Like A Man, enabling the market to get back on its normal course.
I can’t speak to Japan’s economy, but if I’m interpreting your post correctly, you seem to be misidentifying causation of the Great Depression and Recession.
The Great Depression had several root causes, but it wasn’t caused by cheap credit. As I’ve pointed out on at least one other thread, cycles inevitably bust. That’s just the way economics works. What matters is how financial institutions respond, and the Fed and the United States government simply didn’t respond before 1933 as it has learned to since that time. Money supply actually choked starting in 1928 or 1929, which came before the worst of the Depression. It needs to be pointed out that the Depression wasn’t the market crash of 1929 - for one thing the market actually went lower in 1931-32, but for another there was time for policy makers to intervene and stop the bleeding. Instead they made the problem worse, but it wasn’t by expanding money supply; the exact opposite happened.
The Great Recession was probably caused, at least in some part, by greater money supply, though better legislative and regulatory mechanisms might have prevented the worst of the fallout from that crisis. But just to be clear, inflation was never a major threat before 2007. The Fed wasn’t printing money so quickly that there was an inflation threat; the problem was that it was essentially underwriting speculative investment practices.
What we’ve learned from both crises is that putting more and more money into the hands of fewer and fewer people…is a baaaaad way to run an economy. It’s bad because you give plutocrats more economic power, and by virtue of that, more political power as well. The rest of the economy depends more and more on their decisions on how to spend their money. Actually, I’d argue it’s our money, but in any event, when wealth is concentrated, when policies encourage the concentration of wealth, government tends to move away from sound macroeconomic policy and instead tends to be more concerned with addressing the rich man’s problem: how do people who already have money use that money to make even more than they already have? Since more of the population has less money, the population as a whole tends to borrow more to live the middle class lifestyle, which means lower interest rates. If interest rates are lower, the rich man’s problem is that he can’t make money on lending the way he used to. So he needs to get a little creative. He needs to balance the political optics of giving the bourgeoisie access to capital while getting creative, and thus, taking on more risk to make money from the money he already has. That’s a recipe for a financial disaster.
And here’s the fun part. Wealth inequality is probably as bad as it has been since around 1913. So we know what’s coming next: the mother of all financial meltdowns that even the FDIC and Congress won’t be able to save us from. It’s not a matter of if, but when.
Oh? I’d gathered the practice of easy margin investing had been a significant element. It’s not “credit” in the sense of taking out a bank loan to buy a business, house or car, but it did let low-collateral investors get really dug in on overpriced securities.
I would have to disagree with your comfort level about the ability of not being fired to safeguard us from this presidents influence on the fed. Trump seems to know how to apply pressure; he sets someone in his sights and examines them until he finds a weak spot he can exploit. I would never underestimate anyone so unabashedly unscrupulous as Trump.
Remember they are all heads of banks and as such will have vulnerabilities stemming from that. I believe these vulnerabilities alone will cause them to cave.
Well the Fed did raise rates.
I wasn’t clear – my error.
Obviously, there was risky lending that occurred in the market, which is a common occurrence during periods of economic expansion. In a capitalist market operating on largely l’aissez faire principles, people who miss a market’s early expansion want to join the party. It’s a market demand. The investment institutions respond to this demand, but not by offering value investing; rather, they do this by trying to capitalize on that short-term demand, the here and now. They do this in various ways, such as by offering creative, unclear, often deceptive financial instruments which add to the financial institution’s bottom line, but ultimately increase the quantity of risk in the aggregate, and decrease the value of the investment. Economic policy is doing its job when it prefers stability and low to moderate growth over instability and wild, speculative growth.
By referring to cheap credit, I was addressing economic policies of the time. WillFarnaby seems to be arguing (I could be wrong) that money supply is a) always bad and further, that money supply expansion played a role in three financial crises, including the Great Depression. As far as I know, there’s no evidence of that. In fact, some right-leaning economists such as Milton Friedman and economists at the CATO Institute have argued that it was Fed contraction that hurt the economy. Ben Bernanke, who has studied the Depression extensively, agreed.
Wait do we really know that? I don’t want to know that.
This is also my understanding, and AFAIK it’s the well-accepted narrative. Business cycles need not be followed by a crisis of the financial system. The contributing factors are (a) to what extent has investment risk infiltrated the balance sheets of the banking system, and (b) is there sufficient political will to loosen the money supply to create stimulus.
In 1930, loose money wasn’t really a concept yet, in fact the gold standard was still in effect. So the knock-on effects were much worse than they needed to be.
In 2008, the banking system was shot through with systemic risk from exotic securities that turned out to be really hard to quantify. I speculate that had McCain been elected, the stimulus spice would have flowed freely and curtailed the recession. But instead, Obama got elected and half the country suddenly got fanatical about government spending at exactly the worst possible time.
I doubt there’s much conversation to be had with tight-money people. They point out (I think rightly) that the tighter money is, the sooner asset prices can return to signaling productive investments. But personally I side with flexible money because I agree that the collateral damage to productivity and systemic stability easily wipes out the informational benefit of realizing losses.
Agreed, and I don’t see how the market avoids excessive investment or taking on risk, which is what people want to delude themsleves into doing from time to time. People, be they CEOs of multi-billion dollar hedge funds or some car salesman turned day trader, want to believe that they’re smarter than the market. And they don’t want to miss an economic wave. Maybe the financial system could one day integrate AI and weave it into the economy so that it be even better at predicting risky financial activity and which sectors of the economy its coming from, and how to avoid having smaller amounts of risk snowball into something else.
First of all, McCain literally had no idea what his plan was - he had no comprehensive plan. George W Bush, as negligent and out to lunch as he had been for much of that decade, actually had more of an economic plan than John McCain, and he helped implement the first wave of a coordinated response between the Executive and Legislative branches. Ben Bernanke turned out to be a genius hire, and unlike the moron we have now, the president let the Fed Chair do his job. And what needs to be remembered is that one bad move, one mistake, one perceived error by Bernanke’s Fed - even had it not actually been his fault - could have crushed confidence in him. And yet bitter irony is that as low as confidence in government was at that point, we needed a minimal amount of confidence in the institutions who were in the best position to act. Bush succeeded. Obama continued to succeed by recognizing the need to implement TARP 2, and thank fuck he had Democrats to work with. If he’d had to get the consent of the Freedom Caucus, we could have well gone from deep recession to possible financial collapse.
John McCain would have been a disaster as president, and he would have been so almost from the beginning. He would under pressure from his increasingly angry base on the right to make very bad decisions, like not supporting the automotive industry. I don’t think we can assume that there would have been a fiscal stimulus. I basically like McCain and he had his moments as a senator, but he never demonstrated he had the capacity to be president in any form other than his military background. Remember: this is the guy who winked and nudged the right wing nuts in his party by picking Sarah Palin. He advocated troop surges, and with it, increased military spending at a time when Lehman was melting down. We were very, very lucky that people elected Obama and the Democrats in 2008.
Flexible money, insofar as monetary policy occasionally cools down speculative behavior and with a strong regulatory apparatus in place (the latter is badly missing I’m afraid, though it’s admittedly hard to argue that the US economy is unregulated). But I think the real underlying problem we have is wealth inequality, and the only solution that makes sense is fairer taxation and then using the revenue on things that the public can use like low-cost (not necessarily free) education and training programs, affordable housing, access to quality healthcare and food.