Category Archives: Monetary Policy

Update on Trade Deal: Senate agreement gives new life with separate “currency manipulator” bill

The WSJ reports today that a day after the Democrats in the Senate repudiated Mr. Obama, the Senate agreed to allow a vote on Trade Promotion Authority (TPA), once the Republican leadership agreed to allow a vote to force the administration to punish “unfair” trade in the form of currency manipulation. The concern have over currency manipulation is that some nations–Asian nations in particular–have artificially lowered the value of their currencies to make their exports more competitive, which has cost… Continue Reading ››

Former Fed Vice Chair encourages patience on rate hikes. Beyond the bad economics, have we thought through the morality of zero interest rates?

Former Vice Chairman of the Federal Reserve board joined the chorus of Wall Street cheerleaders saying the Fed can afford to be patient with raising interest rates earlier this week.  His rationale? Inflation as measured by the consumer price index or the Fed’s favored measure is very low: The so-called hawks, who have been calling for rate hikes since 2009, have constantly warned of high inflation lurking just down the road. It must be a long road. The Fed’s favorite… Continue Reading ››

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 ››

Economics Everywhere! Keynesian failure in Japan, ECB money printing and Walmart wage hikes!

First up is the ongoing failure of Keynesian economics with its calls for government stimulus to save the day.  Japan is the case study for looking at what government policy makers have done.  Ever since their stock bubble burst (enabled by easy money policy) in the late 80s, the Japanese economy has went from one period of government “fix” to the next.  The end result has been 25 years of relative stagnation and their national debt is now double ours at… Continue Reading ››

The bogeyman continues to run wild–the dreaded deflation–courtesy of financial reporting that is almost completely wrong

I hate to be such a broken record on the subject of why deflation isn’t necessarily bad, such as this post from a few weeks back.  But I do it because this very wrong-headed fear leads to utter disaster.  For example, a big reason for Mr. Bernanke and Mr. Greenspan pushing the U.S. to negative real interest rates from 2002-2005 (which helped create the mortgage bubble which we are still recovering from) is a fear of deflation.   When prominent economists… Continue Reading ››

World monetary system disorder reigns

Yesterday the markets were stunned when the Swiss National Bank reversed its official policy of pegging the value of the Swiss Franc against the Euro.  The value of the Franc vs. the Euro spiked 30% higher virtually immediately; much-maligned gold was up over $20/oz.  Today reports are coming out of several large bankruptcies associated with foreign exchange.  One report from CNBC relates: Foreign exchange broker Alpari UK announced Friday that it had entered insolvency following the Swiss National Bank’s (SNB)… Continue Reading ››

What is the price of oil telling us? And what are the real downsides of cheap gas?

A few days ago I continued my regular pooh-poohing of the perils of deflation, which is coming up again because of the fall in the price of oil.  As I said in that post, deflation that is associated with productivity is generally a good thing, but if its a result of a collapse in the money supply, well, that is a disaster.   And while the price of any single commodity falling can never be deflationary–since deflation is a monetary phenomenon–it… Continue Reading ››

AAgh! Economic idiocy abounds! I’m getting despondent..

Today is my final for macroeconomics and hopefully my students will demonstrate some level of economic understanding.  However, I fear that perhaps the culture of economic ignorance which pervades our public understanding might make all my efforts for naught.  Unfortunately as they leave my class they will be surrounded for the rest of their lives (at least I fear) media that continually puts out economic foolishness. Perhaps the greatest bogeyman of all modern economics is that deflation is bad; an… 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 ››