Fed Independence 2025. Headline: The Fed just forced mortgage servicers that got caught submitting "documents that were not properly notarized," among other sins, to cough up money towards principal reduction, for people unaffected by the notarization scandal, as well as to fund "nonprofit housing counseling organizations" and other policy objectives.
Deeper question: What will the Fed look like in 2025? How long can it stay independent as it takes on more and more power, and uses that power for these kinds of political policy actions? Act 1: Three recent news items add up to a scary picture.Item 1: Led by the White House, the state Attorneys General announced their "settlement" with banks. Here's what happened. The banks got caught robo-signing Suzie's paper work. There is a story for doing this. There are also costs. As you can guess, I think it's a rotten idea. But that's not important here. Ok, that's the kind of tough hardball that the executive branch plays. Let's put two and two together. What to do? Fed Inflation Goal Is More Politics Than Policy: Evan Schnidman. The Federal Reserve’s decision last month to set a soft inflation target is the latest in a series of steps the central bank has taken in recent years to improve policy transparency.
It’s also the most controversial among economists, and with good reason. In 2004, Frederic Mishkin, an economics professor at Columbia University who later became a member of the Federal Reserve Board, engaged in a written debate on the issue with Ben Friedman of Harvard University in the journal International Finance. Mishkin based his argument on work he had done with now-Fed Chairman Ben S. Bernanke. Friedman countered that if inflation targeting is flexible, then it can’t improve transparency, and that if instead the Fed announced a hard target, then it wouldn’t have the necessary flexibility to deal with inevitable shocks to the economy. Despite these objections, the Fed is moving forward with its targeting policy.
Wrong Answer There are policy alternatives to inflation targeting. Reasonable Arguments. The unprecedented behaviour of the central banks | Gavyn Davies | Insight into macroeconomics and the financial markets from the Financial Times. On macroeconomics Welcome. If you have yet to register on FT.com you will be asked to do so before you begin to read FT blogs. However, our posts remain free. A blog on macroeconomics, economic policymaking and the financial markets. Gavyn usually writes about a key topic of the week on Sunday. Follow Gavyn Davies on the A-List. Gavyn Davies is a macroeconomist who is now chairman of Fulcrum Asset Management and co-founder of Prisma Capital Partners. He has also served as an economic policy adviser in No 10 Downing Street, an external adviser to the British Treasury, and as a visiting professor at the London School of Economics. Gavyn Davies is an active investor and may have financial interests and holdings in any of the topics about which he writes.
To comment, please register for free with FT.com and read our policy on submitting comments. Www.bis.org/publ/cpss55.pdf?noframes=1. On the ECB’s ‘most significant non-standard measure’ La fin du « nouveau consensus monétaire » Ce texte s’inspire d’une allocution prononcée le 24 juin 2008 au Parlement européen. Le 8 novembre 2002, à Chicago, Ben Bernanke, alors gouverneur de la Banque centrale américaine, aujourd’hui son président, prononçait un discours en hommage à Milton Friedman, à l’occasion du 90e anniversaire du fondateur de la théorie monétariste. « Comme tout le monde ici présent le sait, Friedman et [Anna Jacobson] Schwartz affirment dans leur Histoire monétaire que l’effondrement économique de 1929-1933 avait été le résultat du dérèglement du mécanisme monétaire du pays.
Contredisant la vision acceptée par leurs contemporains, […] Friedman et Schwartz pensaient que ‘la contraction est en réalité une preuve tragique de l’importance des forces monétaires’. […] J’aimerais dire à Milton et à Anna : au sujet de la Grande Dépression, vous avez raison, c’est notre faute. Nous sommes désolés. Mais grâce à vous, nous ne recommencerons pas ».
L’essor et le déclin du monétarisme Les successeurs. Great Moderation. US annualized real GDP growth from 1950 to 2010, showing the years of the Great Moderation. These reductions are believed to be primarily due to greater independence of the central banks from political and financial influences which has allowed them to follow macroeconomic stabilisation such as following the Taylor Principle. In addition, information technology and greater flexibility in working and other structural changes are believed to play a part. Origins of the term[edit] Causes[edit] The Great Moderation has been attributed to various causes: Central Bank independence[edit] Since the Treasury-Fed Accord of 1951, the Federal Reserve was freed from the constraints of fiscal influence and gave way to the development of modern monetary policy. Government economic stabilization policy (roles of monetary policy)[edit] "Following the Taylor Principle means less policy instability, which should reduce macroeconomic volatility The US economic history is rife with unwelcomed financial crises.
Monetary policy: Today in central banking. THE Bank for International Settlements, often called the central banker's central bank, is a bastion of conservatism and policy orthodoxy. Unsurprisingly, the BIS is not particularly comfortable with the central bank policy interventions that have been adopted as a response to demand-side weakness at the zero lower bound. And unsurprisingly, the BIS (which demanded in June that "growth must slow") is laying out an intellectual framework to help justify inaction. Here is Claudio Borio: There is considerable cross-country evidence that banking crises tend to be preceded by unusually strong credit and asset price booms (see below), that those crises go hand-in-hand with permanent output losses (BCBS (2010)), and that subsequent recoveries tend to be slow and protracted (eg Reinhart and Rogoff (2009), Reinhart and Reinhart (2010)).
It's a neat little story, but there is remarkably little substance to it. Creditors will resist this, of course. Instrument rules, target rules, NGDP, complexity and learning. At one extreme you have pure discretion. The central bank does whatever it thinks is best. At the other extreme you have an instrument rule. The rule specifies exactly how the central bank should set the monetary policy instrument, conditional on the indicators (i.e. conditional on its information). The Taylor Rule is an example of an instrument rule*; it specifies the exact setting of the interest rate as a function of recent data on output and inflation. Somewhere in the middle you have a target rule. The central bank announces a commitment to a target, but uses its discretion on how to set the instrument, given all the information provided by the indicators, to hit that target.
All inflation targeting central banks, AFAIK, fall into this category. This post is not about pure discretion; it's about instrument rules vs target rules. This post is also, in part, a response to John Taylor's post on NGDP targeting. For example, you could believe any one of these: 1. 2. 3. 4. 1. 2. Is there a credit channel? An important argument at the moment is whether or not the so-called credit channel exists. When central banks carry out quantitative easing, and even more so in the case of a “credit easing” policy like the one George Osborne announced recently, a major reason for it is that they are trying to reduce the price (i.e. the real-terms interest rate) and increase the supply of loans to businesses.
This being their effective cost of capital, this should encourage them to invest, and thus to increase aggregate demand. This is the New Keynesian account; the monetarist one is that creating an expectation of future inflation creates a disincentive to hold onto cash. But there is a criticism of the credit channel that works like this: as banks actually create credit, they are only loosely constrained by its supply.
Instead, they supply just as much as their customers demand. Here is a data point: the refusal rate for British SMB loans tripled from 2007 to 2010. The debt crisis: Clean-up problems. La « malédiction des gratte-ciels » frappe l’Europe. Publié le 21 octobre 2011 Les gratte-ciels sont la manifestation la plus visible d’un vaste processus de construction qui se trouve à la première phase du boom. Par Daniel Luna La construction à Londres de l’édifice le plus haut du continent confirme la relation entre les projets architecturaux grandioses et les crises économiques.
Entre avril 1930 et mai 1931 furent construit à New York trois des premiers gratte-ciels modernes : le n°40 de Wall Street, le Chrysler Building et l’Empire State Building. Chacun d’eux succéda au précédent comme l’édifice le plus haut du monde. Ces années-là commença la Grande Dépression : le chômage aux États-Unis grimpa jusqu’à des niveaux jamais vus et le commerce international diminua de moitié.
Quarante ans après, également à New York, les Tours jumelles établirent un nouveau record mondial avec 410 mètres, 30 de plus que l’ Empire State, et cédèrent leur place quelques mois plus tard à la Tour Sears, à Chicago, avec 440 mètres. Les causes. The trouble with central bankers… Milton Friedman on the Euro and QE3. Helicopter Drops Are FISCAL Operations. Market Monetarism « Modeled Behavior. From the depths of the recession which began in 2007, and severely intensified in 2008:Q3, there has been an ever-growing chorus of (minority) opinion in the blogosphere regarding the nature of the recession, the causes, and the proper prescription for returning the economy to growth.
The practitioners of this style of macroeconomics have since been dubbed the “quasi-monetarist” school, of which I consider myself a member. “Quasi-monetarism” has always been a somewhat unsatisfactory title for this group of thinkers, but it has stuck — so far. Lars Christensen, however, seeks to change that in a new working paper entitled “Market Monetarism: The Second Monetarist Counter-Revolution“, in which he lays out the core tenets of the quasi-monetarist market monetarist view.
I will lay out some of the quotes from the paper here, also check out his post at Marcus Nunes’ blog. The Birth of Market Monetarism Markets Matter Against Neo-Wicksellian Analysis Interest Rates are NOT the Price of Money P.S. Les théories monétaristes à l'épreuve de la crise financière. La crise que le monde connaît depuis juillet 2008 pose encore de nombreuses énigmes. Comment en est-on arrivé là alors que les mécanismes semblent relativement simples et auraient pu être anticipés ?
Cette crise marque-t-elle l’échec des politiques monétaires des années 1980 et est-ce le retour des politiques keynésiennes de relance ? L’École d’économie de Paris a organisé un séminaire exceptionnel réunissant huit spécialistes de la crise, académiques et professionnels, pour éclairer le débat. Extraits vidéo. Les éléments de la crise financière commencent à être connus : recherche de l’accession à la propriété, prêts inconsidérés à des ménages non solvables, titrisation et diffusion dans l’économie des prêts les plus risqués voire insolvables, retournement du marché immobilier américain et effet boule de neige du manque de confiance entre agents financiers et en particulier entre les banques, assèchement des prêts interbancaires et du crédit dans l’économie.
Sommaire des interventions : Monétarisme. Un article de Wikipédia, l'encyclopédie libre. Description[modifier | modifier le code] Selon la théorie monétariste : l'offre de monnaie est exogène (déterminée par la banque centrale) ;la demande de monnaie est stable ;l'inflation est « partout et toujours un phénomène monétaire », due à l'augmentation trop rapide de la masse monétaire (moyens de paiement mis en circulation) ;les agents font des anticipations adaptatives qui diminuent à long terme l'effet des politiques conjoncturelles ;il existe un taux de chômage naturel en dessous duquel l'économie ne peut pas descendre durablement.
Taux de chômage naturel[modifier | modifier le code] La courbe de Phillips aux États-Unis dans les années 1960 La courbe de Phillips est une constatation empirique d'une corrélation entre le chômage et l'inflation à court terme uniquement. Deux conséquences : Politique monétaire[modifier | modifier le code] M. Contestations du monétarisme[modifier | modifier le code] Voir aussi[modifier | modifier le code] La fin du « nouveau consensus monétaire » The Role of a Central Bank in a Bubble Economy - Part I. Abstract: In recent years, price bubbles appear to have developed in the real estate markets in several developed economies, including the United States, Australia, the United Kingdom, the Nordic countries and Japan. Often these price increases in land have been accompanied by rapid run-ups in the price of equity securities in the domestic market.
Because of the importance of real estate and equity security prices to economic activity, real estate and share price bubbles can damage the economy if they break and lead to price crashes. These bubbles pose an intriguing question of political and economic organization, and raise questions about the efficacy of central bank intervention. By tightening monetary policy and raising interest rates, the central bank can inhibit or even destroy a bubble. On the other hand, there are a variety of factors -- legal, political, and technical -- that make it difficult for central banks to intervene effectively in bubble economies. Author: Dr. Où va la FED ?
La Fed promet de maintenir sa politique et de ne plus relever ses taux jusqu’à la mi-2013. Comment interpréter ce fait sans précédent? Par Gerald O’ Driscoll, depuis les États-UnisArticle publié en collaboration avec UnMondeLibre Aux USA la réunion le 9 août du Federal Open Market Committee, qui élabore les politiques de la Fed, était largement pressentie comme un non-événement. Et pourtant. Au lieu de cela, la Fed a publié un communiqué, dans la foulée de la réunion, qui a pris même ses plus fins observateurs au dépourvu, et qui est révélateur de l’état de turbulences dans lequel se trouvent l’économie américaine et les marchés financiers.
La Fed a maintenu le taux des « fonds fédéraux » au même niveau de 0 à 0,25%. La réunion du comité doit avoir été envahie par un brouhaha, parce que 3 des 10 membres votants ont contesté. Qu’est-ce que cela signifie ? Promettre de maintenir les taux d’intérêt bas pendant deux ans lie les mains du Federal Open Market Committee. —-Sur le web. The Moral Hazard of Modern Banking: How Banks Create and Destroy Money. Robert Bonomo, Contributing WriterActivist Post Much has been said about both the moral hazard of banks being bailed out and people bailing out of mortgages. The major question raised was, Would this ‘bailout’ contagion infect the integrity of our economic and political system? But far more interesting and much less discussed are the mechanics of modern banking and their moral implications.
During the housing boom trillions were loaned out in mortgages creating a housing bubble and the eventual collapse of the financial markets. But where did all that money come from? The Mechanics of Fractional Reserve Banking The mechanics of modern banking are opaque, misunderstood and arguably dishonest. The money never existed before Jack signed his IOU. How does this differ from how other things that are borrowed or leased? What is special about banks that allows them such profitability? Money is human labor transferred to a store of value, like dollars, euros, gold or silver. The Lure of Sub-prime. The dark side of the ECB. L’illusion de la monnaie fiduciaire. Monetary policy: The mandate problem. The continued embarrassment that is European monetary policy … economists?