Tag Archives: central banking

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)


The Fed’s half-hearted attempt a monetary tightening

Source: Ludwig von Mises Institute
by Thorsten Polleit

“The slowness with which the Fed is bringing rates back up suggests that they are certainly not in a hurry to put an end to ongoing debasement of US-dollar money balances and US-dollar denominated debt. There is, however, a reason why the Fed might actually be quite keen to keep real interest rates into negative territory: If the interest rate borrowers have to pay on their debt is lower than the economy’s growth rate, the economy’s overall debt-to-GDP level comes down over time; or the debt-to-GDP ratio increases at a slower pace even if borrowers keep running into even higher debt.” (03/21/17)


Federal Reserve raises benchmark interest rate by 0.25%

Source: CBS News

“The Federal Reserve raised its benchmark interest rate by a quarter percentage point Wednesday, part of a planned series of upcoming interest rate increases. The central bank’s program of gradually increasing short-term interest rates, if it continues, will increase what Americans pay on everything from home mortgages to credit cards. ‘The simple message is that the economy is doing well,’ Fed Chair Janet Yellen said in remarks after the announcement, underlining why the central bank sees it as a good time to increase rates. ‘We have confidence in the robustness of the economy and its resilience to shocks.’ The Fed’s benchmark, called the federal funds target rate, now climbs to a range of 0.75 to 1 percent.” (03/15/17)


How the Fed operates — and why it’s a problem

Source: Ludwig von Mises Institute
by Frank Shostak

“We are often asked about the mechanisms by which the US Federal Reserve Board (the Fed) influences the level of US interest rates and whether these mechanisms also influence the level of the US money supply. It has long been regarded that the Fed no longer inflates and contracts the money supply but rather simply acts to target interest rates. The purpose of this brief paper is to clarify how the Fed works and the impact that its operations have on the money supply.” (03/15/17)


The fateful date

Source: Cobden Centre
by Alasdair MacLeod

“Caesar: What sayest thou to me now? Speak once again. Soothsayer: Beware the ides of March. Caesar: He is a dreamer; let us leave him: pass. This famous advice, according to Shakespeare, was ignored with fatal consequences for Julius Caesar. Markets may be being similarly complacent ahead of this anniversary date next week. The Fed has signalled that it will raise interest rates at the FOMC’s March meeting, timed for the same day. It so happens that this fateful date coincides with the end of the suspension of the US debt ceiling. Dare Janet Yellen raise rates at such a sensitive juncture?” (03/14/17)


Can Yellen keep the boom going?

Source: Ludwig von Mises Institute
by Brendan Brown

“Yellen, like notorious previous Fed chiefs including Strong, Martin, and Greenspan, can now claim success in having prolonged and strengthened an asset price inflation which otherwise may well have been about to enter its severe end phase. If history is any guide, the result of that success is to be feared.” (03/06/17)


Fed may raise US rates “fairly soon”

Source: BBC News [UK state media]

“Federal Reserve officials have said they may need to raise interest rates ‘fairly soon’ if the economy stays strong, minutes of their meeting show. The first meeting of the Fed since Donald Trump took office as president discussed the possibility of a rate rise as early as March. Most economists have been forecasting a rise in June. However, Fed officials appear divided on the timing of a rise amid uncertainty over Mr Trump’s policies.” (02/22/17)


Five reasons for central banks: Are they any good?

Source: Ludwig von Mises Institute
by Karl-Friedrich Israel

“So what are the justifications for central banks? [Vera C. Smith (later Lutz)] identified five main arguments for central banks from an economic point of view. Although Smith has written with a gold standard as the underlying monetary system in mind, it is interesting to look at these arguments with the benefit of hindsight more than 80 years later. Has any one of the arguments actually made a strong or even conclusive case for central banking?” (02/22/17)