Tag Archives: central banking

Accommodative monetary police is encroaching on fiscal policy

Source: Cobden Centre

"We believe that the ECB is presently using monetary policy in effect to conduct fiscal, as well as monetary policy. Elected politicians should be up in arms; that they are not would imply either that they do not understand this or that they simply accept it. This may provide an interesting pointer as to the future of the EU itself." (04/21/17)


The Fed's inflation fixation

Source: Independent Institute
by Randall Holcombe

"Despite arguments about the perils of deflation, the United States had a long-term decline in prices from 1865 until the Federal Reserve was established in 1913, at a time in which the industrializing economy was growing more rapidly than it ever had before. As to the argument that people will wait to purchase goods when they anticipate falling prices, computer prices have been falling for half a century, along with the prices of other high-tech goods, and those markets have seen rapid growth. Deflation is not bad for the economy, and deflation that represents increases in productivity produces prices that give a more accurate representation of real cost of goods and services. There is no good reason for the Fed to deliberately try to create inflation." (04/19/17)


Atlanta and NY Fed cut US first quarter GDP view after weak data

Source: Reuters

"The Atlanta and New York Federal Reserve banks downgraded their outlook for U.S. economic growth for the first quarter after disappointing data on retail sales and consumer prices in March. First-quarter gross domestic product was on track to grow 0.5 percent, which was lower than the 0.6 percent growth rate calculated on April 7, the Atlanta Fed said. The New York Fed said on Friday its first-quarter GDP forecast was 2.09 percent, down from 2.56 percent a week earlier." (04/17/17)

Fed gets small, realignment begins

Doug French

Source: Mises Canada
by Doug French

"In economics we learn, more supply with static demand equals lower prices. Not so with the U.S. Treasury market and hungry central banks. 'The supply of publicly-held Federal debt soared from $2.4 trillion to $14 trillion between 1988 and 2017, but prices did not fall; they marched steadily higher — causing yields to steadily decline toward the zero bound,' [David] Stockman writes (and emphasizes). Politicians, not strong in economics anyway, figured they could keep doing this forever. Not hardly. 'So the real meaning of B-Dud’s bomb is that the law of supply and demand will soon be back in operation in the government bond pits. The long central bank financed holiday is over,' says Stockman. So when B-Dud and Yellen start getting small, traders will be way ahead of them and the idea of a nice, smooth increase in rates managed by the PhD Fed army is fantasy." (04/05/17)


The next step in Europe's negative-interest-rate experiment

Source: Ludwig von Mises Institute
by Thorsten Polleit

"The European Central Bank (ECB) pushed its deposit rate to minus 0.4 percent in April 2016: Since then, euro area banks must pay 0.4 percent per annum on their excess reserves held at ECB accounts. This, in turn, has far-reaching consequences. To start with, banks seek to evade this 'penalty rate,' especially by buying government bonds. That inevitably pushes bond prices up and lowers bond yields. Moreover, the ECB keeps monetizing government debt as well. The result is a tremendous downward pressure on the yield environment." (04/06/17)


"Nowhere to go but up" survives because the Fed refuses to be honest about its assessment of the output gap

Source: Cobden Centre
by Jeffrey P Snider

"The Federal Reserve under Ben Bernanke committed several unforgivable mistakes during his tumultuous tenure, but cumulatively they could be easily summarized as “they really don’t know what they are doing.” Time and again whoever followed monetary policy and the conventions built upon it were led either off a cliff or somewhere just less dramatic. Federal Reserve actions are at best a reaction to what already occurs, and most often just plain irrelevant. Yet for all the mountains of evidence establishing just that sort of relationship, it remains 1999 for so many, especially those in the media." (04/05/17)


Richmond Fed president Lacker resigns, admitting role in leak to analyst

Source: Los Angeles Times

"The president of the Federal Reserve’s Richmond, Va., regional bank resigned Tuesday after acknowledging he had improperly discussed confidential monetary policy deliberations with a financial analyst and then initially failed to disclose his conversation during an internal leak review. … Lacker announced in January that he would retire on Oct. 1. But he said Tuesday he would step down immediately. The bank, one of 12 regional Fed institutions, said that its board of directors 'took appropriate actions' once it 'learned of the outcomes of the government investigations.'" (04/04/17)


Yellen's balance sheet baloney

Source: Cobden Centre
by George Selgin

"Before the crisis and LSAPs, the Fed didn't use rate changes instead of balance sheet changes for monetary control. It relied on balance sheet changes, a.k.a. open-market operations, to achieve whatever fed funds rate target it set. In other words, it had decades, dating back to the 1930s, of experience using balance sheet asset purchases (or sales) as, not only 'a' policy tool, but as its principal policy tool! Rate change announcements, on the other hand, though they did indeed serve to 'communicate the [Fed's planned] stance' to the public, were incapable by themselves of implementing that stance." (04/03/17)


The problem with the "Loonies," part 1

Source: Mises Canada
by Caleb McMillan

"Canadian 'Greenbackers' are those people who believe the government should force interest-free loans through the nation's central bank, the Bank of Canada. Presumably, this would entail something similar to what happened in the Great Depression, where governments essentially forced private banks to end the 'credit famine.' 'Greenbackers' is an American term so I prefer the term, 'Loonies' since that’s the name of the Canadian dollar and because these ideas are sheer lunacy." (03/31/17)


Further unanchoring is not strictly about inflation

Source: Cobden Centre
by Jeffrey P Snider

"The defining mantra for monetary policy is that it is better to have 2% inflation than risk 1933. But how does one get 2% inflation? In truth, by Greenspan's own words, and not just those of this one speech, they didn't really know. FOMC deliberations no longer tied to money meant considerations about a great deal of economic as well as financial indications and prices. It was a 'best judgment' regime, where policymakers determined well in advance when pressures, either toward inflation or its opposite, were detected. " (03/22/17)