Category Archives: Federal Reserve

Markets are all rigged, get over it! Yardeni blames the Fed

You’ve heard me say this before (but not this strongly) that the monetary machinations of the global central banks (led by the Fed, and buttressed by the European Central Bank and the Bank of Japan) are flooding the world with liquidity and causing all sorts of malinvestment. In the video above, Ed Yardeni agrees, perhaps even stronger than me, and says we need to get over it–the world is what it is. Yesterday’s major headlines were all about the Fed,… Continue Reading ››

Bereans for government regulation of Wall Street and the Big Banks. Who’da thunk it?

Earlier in the week I criticized the results of Dodd-Frank, because it has miserably failed at its ostensible purpose of preventing future “too big too fail” incidents. Indeed, not only did it not succeed in this–in the sense of reducing the number of potential risks–it has significantly exacerbated it as the banks are increasingly consolidating as larger enterprises as a necessary way to deal with higher regulatory costs. So, if Dodd-Frank is the wrong solution, what is the right solution? … Continue Reading ››

Well, no October Surprise from Stock Market collapse. Why Not?

A few weeks before the election, I speculated that a potential election threat to the Democrats was a significant correction to the stock market.  The main reason for the speculation was the impending cessation of QE3, the Fed’s monetary stimulus program.  Pretty much all market observers believe the Fed’s stimulus has at least contributed to the significant stock index accumulation, and indeed, in more candid but also more opaque (to the non-economist) comments Mr. Bernanke would say the purpose of… Continue Reading ››

The Fed giveth, and the Fed taketh away? Is a bursting stock market bubble going to be the October Surprise?

The stock market swung wildly this past week, with the final result  the S&P 500 down 3.1%, and the Nasdaq 100 down 3.9%.  Everybody knows a major reason why:  The Federal Reserve is winding down its aggressive monetary stimulus, and now the question is will they increase interest rates, and if so, how soon?  QE3 is ending, and the unprecedented monetary stimulus (~$1.6T added to the Fed’s balance sheet, with half in mortgage backed securities and the other half in treasuries)… Continue Reading ››

Federal Reserve’s big “printing money” experiment–No Problem says Chicago’s John Cochrane, but we beg to differ

John Cochrane is a tremendously talented economist and professor of finance @ Chicago’s Booth School of Business.  He’s probably forgotten more arcane financial reasoning than I know; but that doesn’t stop us from critically examining his thinking.  In today’s WSJ, Mr. Cochrane cheers the Fed’s balance sheet expansion as a good thing for the economy. As Federal Reserve officials lay the groundwork for raising interest rates, they are doing a few things right. They need a little cheering, and a… Continue Reading ››

Money, Money, Money–Janet Yellen @ the Fed, QE on the rise but slower, and more!

We’ve had tons of economic news worth highlighting over the last month, but Christmas offered much more fun than writing blog posts.  So here is a quick review of several economic issues that will continue to be issues in 2014. First up is the Senate confirmed Janet Yellen as the first female Federal Reserve Chair of the Board of Governors.  This blog has criticized Ms. Yellen before, last year predicting her nomination and decrying her approach to monetary policy.  Nothing… Continue Reading ››

Common Sense Economics

Alan Greenspan was being interviewed about his new book The Map and the Territory in Time magazine recently and responded to the question, “Knowing what you know now, what would you have done differently during your time as chairman of the Fed?”  His response was in part, “I always knew debt was important.  If I could go back and recalibrate my psyche and fully understand how toxic debt really is, that would have been very helpful.”  That comment leaves me… Continue Reading ››

Janet Yellen’s Nomination and Her Confirmation’s Impact on Monetary Policy

Yesterday Barack Obama nominated Janet Yellen to become Chairwoman of the Board of Governors of the Federal Reserve. Borrowing from Stanly Kubrick’s classic film Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb and with apologies to Slim Pickens, this is how I perceive Yellen’s nomination (and subsequent Senate confirmation) will impact monetary policy. Monetary policy before Yellen’s confirmation:           Monetary policy after Yellen’s confirmation:

Who to blame for the Gov’t shutdown? I blame the Fed and bad economic theory!

You say “Really?  Are you just an anti-Fed nut case?”  Well, I’m certainly anti-Fed, and my wife won’t confirm or deny #2.    But let me make my case.  As economist Russ Roberts likes to say, economists often tell “stories” that we think reflect reality.  These stories are backed by a particular theory and often have an array of evidence that supports.  The problem is that these stories have opposing stories that also have theories and counter evidence.  As my macroeconomic… Continue Reading ››

Bubble, Bubble, Toil & Trouble: The Fed found it easy to build a bond bubble, but finding it more difficult to unwind

There is little doubt the Fed’s easy money policy, and especially the deliberate QE of buying long term instruments, has resulted in speculative flows investing in those assets.  As we related last week, the Fed’s discussion of tapering has resulted in immense turmoil, as speculators are wondering if capital needs to be redeployed away from U.S. government-favored assets.  Long bond yields, while still historically low, rose dramatically over the last several weeks.  The 10 year Treasure is now yielding ~2.6%,… Continue Reading ››