Good to know Bernanke’s no longer worried about fiscal austerity

That’s all I got. ( Blame my crummy iPad, not me.)


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79 Responses to “Good to know Bernanke’s no longer worried about fiscal austerity”

  1. Gravatar of Mark A. Sadowski Mark A. Sadowski
    19. June 2013 at 14:03

    “Blame my crummy iPad, not me.”

    Get a horse.

  2. Gravatar of foosion foosion
    19. June 2013 at 14:05

    Watch the video at 45 minutes.

    Ryan Avent says the Fed (other than Bullard) is blase about inflation, actual and expected are below target, suggesting the Fed should do more. Bernanke says “I don’t disagree with anything you said.”

    Yet they obviously aren’t doing more and are planning to do less.

  3. Gravatar of JimP JimP
    19. June 2013 at 14:13

    So much for the Rooseveltian resolve.

    Unemployment remains too high. Inflation remains too low. So – Ben says lets give up.

    Bernanke now has both legs out the door. He might at least now decide to say what he really thinks.

    Unless he has.

  4. Gravatar of Neal Neal
    19. June 2013 at 14:43

    The NYT reported that

    Federal Reserve policy makers, more confident about the economic recovery, on Wednesday maintained their current pace of monetary stimulus.

    Not doing enough, sure. Doesn’t look like they’re about to give up, though.

  5. Gravatar of foosion foosion
    19. June 2013 at 15:06

    >>Not doing enough, sure. Doesn’t look like they’re about to give up, though.>>

    Rather than doing more, they’re obviously eager to do less.

  6. Gravatar of dlr dlr
    19. June 2013 at 15:16

    A good monetary policy blogger doesn’t blame his instruments. Plus you owe it to EMH to say more on days like this. When Bernanke tightened policy during his press conference with his official, unofficial tapering calendar announcement, stock prices immediately dropped and real rates rose… a lot. And not short rates. Are you really okay with just calling this a liquidity effect outweighing the fisher effect? This is not the Fed pulling a bunch of liquidity from the overnight market. These are ten year and even thirty year real rates popping. I can’t think of a sensible world in which the liquidity effect could outweigh the fisher effect to the anywhere near the extent of today’s bond and especially TIPS price declines on an announcement like this.

    Also, Bernanke claimed during the PR that if traders expected a 50bp rate dropped and the Fed dropped by 25bps it should still be a policy “easing.” This can be a benign semantic preference but I don’t think it is. I think it is why he sometimes seems to forget that monetary policy is always and everywhere an expectational phenomenon.

  7. Gravatar of rtd rtd
    19. June 2013 at 15:25

    That wacko-Australian uber-liberal Justin Wolfers claims this is baffling: https://pbs.twimg.com/media/BNJihQECMAA5S2_.png:large

  8. Gravatar of Steve Steve
    19. June 2013 at 17:00

    dlr, excellent comments.

    The TIP etf dropped almost a point on the Bernanke tapering calendar comment.

    But Bernanke claims that he is easing every day, because the balance sheet gets bigger every day.

  9. Gravatar of Steve Steve
    19. June 2013 at 18:06

    For all practical purposes, the open ended bond buying program just became a ~$500 billion bond purchase program ending in June 2014.

    We’re back to halting calendar based QE again.

    ($82 billion decreasing to 0 over 12 month, 82*12/2 = ~500)

  10. Gravatar of Benjamin Cole Benjamin Cole
    19. June 2013 at 19:19

    Excellent post.

    When will the Fed get it? The market likes QE, the economy likes QE.

    So…why stop QE? When inflation is trending below target, and the experience in Japan’s five-year run with QE (2001-6) was that it did not result in inflation.

    Why stop QE?

    Is wiping out national debt a bad idea?

    Is stimulating the economy a bad idea?

    It seems to me we have a rare opportunity to pay down national dent without incurring inflation. Why would we not take this opportunity?

    Because, as monetary ascetics insist, it is better to suffer…..

  11. Gravatar of marcus nunes marcus nunes
    19. June 2013 at 19:24

    And Bernanke is even fooling some MMs who think the broad rise in the long yield is a sign of ‘optimism’!
    I thought it´s signalling a loss of trust in the Fed:
    http://thefaintofheart.wordpress.com/2013/06/19/the-markets-dont-trust-the-fed/

  12. Gravatar of Full Employment Hawk Full Employment Hawk
    19. June 2013 at 20:13

    Ben Bernanke, the Hamlet of monetary policy has done it again.

    When it looks like we had won, with the outcome still in doubt, who ordered the retreat that turned it to a rout?

    Economists, such as Market Monetarists who consider expansionary monetary policy to still be effective even when very short term rates have reached the zero floor, emphasize that the effect is primarily through its effects on expectations. So Bernanke sets out to undermine expansionary expectations. WAY TO GO!

    “Despite sounding relatively upbeat notes about the economy, the Fed still expects unemployment to be around 7 percent a year from now” Any easing off on monetary expansion when the unemployment rate is expected to be that that high is totally inconsistent with the Fed’s mandate to seek maximum employment.

    And since the beginning of the Great Recession the Fed’s forecasts of unemployment have repeatedly and virtually consistently underestimated it. According to the rational expectations hypothesis, forecasters will use their forecasting errors to improve their forecasts. The Fed shows little sign of doing this.

    Good thing that Bernanke will be leaving. Hopefully Yellen will do a better job. Christina Romer would be the best choice.

  13. Gravatar of Riccardo Leggio Riccardo Leggio
    20. June 2013 at 01:31

    Why’s your iPad “crummy” – what did you want it to do that it didn’t?

  14. Gravatar of Saturos Saturos
    20. June 2013 at 04:23

    It’s interesting to note that the Fed statement itself announced no change in policy intentions or mechanical policy actions. Yet we still saw the reaction – purely on Bernanke’s verbal elaborations?

  15. Gravatar of Mikio Mikio
    20. June 2013 at 04:38

    I think it’s more a case of the market, driven by its own psycho biases, misinterpreting (yes, that happens sometimes), the 2% inflation target to be a ceiling, and that the Fed doesn’t care about it as long as inflation is below that.

    But from what Bernanke said, it’s hard to believe that the Fed would “taper” if inflation doesn’t move back up to 2%, even if unemployment drops to 7% or below.

    So, unless the economy picks up and we move from 1% to 2% inflation in the next six months (fat chance), I don’t the Fed tapering.

    Doesn’t make sense.

  16. Gravatar of Mikio Mikio
    20. June 2013 at 04:47

    Incidentally, whatever happened to interest in the US or Japan, it’s child’s play… compared to the surge in Chinese money market rates to 11% in the course of the past few weeks.

    http://www.ft.com/cms/s/0/d244210c-d8ae-11e2-a6cf-00144feab7de.html

  17. Gravatar of Saturos Saturos
    20. June 2013 at 05:41

    Even this careful qualification didn’t seem to help: http://www.cbsnews.com/8301-505123_162-57590061/bernanke-holds-the-line-on-fed-monetary-policy/
    My thinking is that the market realizes that a lot more needs to be done than has been done, that business as usual is still a contractionary monetary policy stance, and was in fact looking for signs that stimulative measures would move forward, not backwards. Bernanke’s remarks tonight thus fall far short of what the expectations were leading into it, and assets adjusted accordingly.

  18. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 06:02

    With fiscal policy (especially once one includes the state and local governments) having become very contractionary, it is the offsetting expansionary monetary policy that is keeping the economy growing fast eonough to make the unemployment rate come down at a snails pace. (Incidentally, this shows that the economy is not in a full liquidity trap.) If the degree of offsetting monetary policy is reduced, the contractionary fiscal policy will work its economic mischief just as it is doing in the Eurozone.

  19. Gravatar of Steve Steve
    20. June 2013 at 06:11

    Saturos,

    I think the problem is that the Fed is (un?)intentionally setting an unemployment floor. They want out of QE by 7.0% unemployment and they want to be jacking rates by 6.5% unemployment. If we are right that the Wicksellian interest rate is extremely low, then the Fed is creating a floor on unemployment by promising an overtightening between 6.5% and 7.0% unemployment. All of this with 0.8-1.2% inflation!!!

  20. Gravatar of Steve Steve
    20. June 2013 at 06:16

    To phrase it differently, the Fed is doing plenty for now. They don’t need to “do more” action wise. But expectation wise, Bernanke communicated a completely unrealistic reaction function in response to improved unemployment.

  21. Gravatar of Saturos Saturos
    20. June 2013 at 07:53

    Kurt Schuler supports and criticizes NGDP targeting: http://www.freebanking.org/2013/06/18/the-ngdp-experiment/

    Steve, yeah, that too.

  22. Gravatar of Saturos Saturos
    20. June 2013 at 08:02

    George Selgin makes an excellent case for the compatibility of Free Banking and NGDPLT (MF should read this – Geoff too) http://www.freebanking.org/2013/06/19/free-banking-and-ngdp-targeting/

  23. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    20. June 2013 at 08:14

    So much for the argument that expectations don’t matter.

  24. Gravatar of Saturos Saturos
    20. June 2013 at 08:46

    Interesting: Bullard was the dissenting dove today.

  25. Gravatar of Saturos Saturos
    20. June 2013 at 08:52

    Ryan Avent has a great new post on all this: http://www.economist.com/news/finance-and-economics/21579833-federal-reserve-tries-clarify-its-goals-tinker-taper

  26. Gravatar of Saturos Saturos
    20. June 2013 at 08:57

    Dylan Matthews has a great post too: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/19/this-graph-shows-how-bad-the-fed-is-at-predicting-the-future/

  27. Gravatar of Jim Crow Jim Crow
    20. June 2013 at 09:00

    Ryan A seems to have come up with the only plausible explanation I’ve seen so far for why the Fed seems satisfied with such subpar economic performance and below target inflation. ‘Financial Stability’ concerns. They learned the wrong lesson from 2008 and it is truly maddening.

  28. Gravatar of Saturos Saturos
    20. June 2013 at 09:01

    Evan Soltas and Justin Wolfers explain Bullard’s dissent: http://www.bloomberg.com/news/2013-06-19/four-reasons-inflation-is-too-low-.html
    http://www.bloomberg.com/news/2013-06-19/bernanke-ignores-low-inflation-market-doesn-t-.html

  29. Gravatar of Saturos Saturos
    20. June 2013 at 09:09

    Elsewhere in the world – Seriously? (Perhaps we shouldn’t just blame Draghi) http://www.economist.com/news/europe/21579485-europe-once-again-looks-anxiously-karlsruhe-ja-and-nein-euro-rescues

  30. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    20. June 2013 at 10:46

    With friends like Blinder and DeLong, Barack Obama doesn’t need enemies;
    http://www.foreignaffairs.com/articles/139464/j-bradford-delong/the-second-great-depression

    ‘The U.S. economy has enjoyed a recovery only in the sense that conditions have not gotten worse. Blinder notes that the unemployment rate jumped to ten percent at the height of the crisis and is now hovering around eight percent, nearly halfway back to economic health. But this assessment is misleading. In the middle of the last decade, the percentage of American adults who were employed was roughly 63 percent. That figure dropped to about 59 percent in 2009. It remains there today. From the perspective of employment, the U.S. economy is not recovering but flatlining.’

  31. Gravatar of Max Max
    20. June 2013 at 12:20

    Bullard gets points for consistency. Unfortunately, it’s a consistent lunacy. He basically wants the Fed to peg the dollar to the price of oil, since that’s the only way to prevent the little wiggles in CPI that he fears so much.

  32. Gravatar of W. Peden W. Peden
    20. June 2013 at 12:26

    Ben Bernanke is beginning to impress me with his excellent imitation of Arthur Burns.

    “It’s time to cut down inflation… Yep, stock market’s falling… Ok, time to stop. NGDP growth may still be over 9%, but the inflation right now is cost push and we can’t do anything about that. My analysis of the output gap suggests that inflation will fall in the medium-run.”

    “It’s time to cut down the unemployment rate… Yep, stock market’s rising… Ok, time to stop. NGDP growth may still be below 3%, but the weak growth right now is mostly the result of strong headwinds and we can’t do anything about that. My analysis of the output gap suggests that we’ll see an economy medium-run.”

    (The ‘medium-run’ being what economists talk about when they lose faith in economics, since there’s no basis in economic theory for such a concept.)

  33. Gravatar of W. Peden W. Peden
    20. June 2013 at 12:27

    * My analysis of the output gap suggests that we’ll see an economic recovery in the medium-run.

  34. Gravatar of Mike Sax Mike Sax
    20. June 2013 at 12:46

    Unfortunately the market doesn’t seem to agree Scott.

    http://www.cnbc.com/id/100831276

  35. Gravatar of James in london James in london
    20. June 2013 at 13:12

    Saturos

    Don’t be too harsh on Draghi. He did his best to rescue a dire situation back in mid-2012 with his non-existent Outright Monetary Transactions idea. A good spoof that saved the Eurozone from something really bad happening. OMT and the “do what it takes” comment really changed expectations and did ease monetary policy, for a while. Of course, it’s nothing like good enough, by miles, but it showed his heart was in the right place. He is just surrounded by the same sort of consensus economists plus far more difficult politics than Bernanke.

  36. Gravatar of W. Peden W. Peden
    20. June 2013 at 13:26

    Monetary policy is ineffective at the ZLB. The proof-

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/06/Fed%20vs%20Equities.jpg

  37. Gravatar of marcus nunes marcus nunes
    20. June 2013 at 13:41

    For those that have been following Mark Sadowski´s installments on Richard koo, Here´s his latest (and last) chapter:
    http://thefaintofheart.wordpress.com/2013/06/20/richard-koos-misleading-take-on-the-great-recession-the-final-chapter-a-guest-post-by-mark-sadowski/

  38. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 14:58

    “Monetary policy is ineffective at the ZLB. The proof-”

    Fiscal policy since 2010 has become increasingly contractionary, especially when one includes the state and local government sector. According to orthodox Keynesian economics, at the ZLB, this contractionary fiscal policy should push the economy into a second recession, just as it has done in the Eurozone. But the economy has continued to grow and the unemployment rate has continued to decrease, though at unsatisfactorily low rates. This is because the expansionary monetary policy has been able to more than offset the contractionary fiscal policy, showing that we are not in a liquidity trap.

  39. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 15:11

    One needs to ask what economic classes benefit from a reduction in monetary stimulus when the unemployment rate is expected to still be at 7% and the inflation rate is below the target.

    Obviously not working people and the poor. But a policy surprise reducing monetary policy while the infation rate is below target so that the actual rate of inflation will be below the expected rate of inflation will benefit the rentier class.

    There is a class war going on with the Plutocracy on one side and working people and the poor on the other, and Bernanke is conducting monetary policy for the benefit of the Plutocracy and against the benefit of working people and the poor.

    Once one sees economic policy in terms of this class war, things that appear to not make sense, suddenly make sense.

    For example, it explains why Market Monetarism cannot get traction with most conservatives. Since NGDP targeting would restore the economy to full employment, it will benefit working people and the poor, and the abandonment of policies that keep the actual inflation rate below target will cause the rentier class losses.

  40. Gravatar of Max Max
    20. June 2013 at 15:33

    Hawk, wouldn’t the rentier class be happier if interest rates were higher? From 2008 to 2009, interest income fell by 25%, and it hasn’t recovered.

  41. Gravatar of W. Peden W. Peden
    20. June 2013 at 15:34

    Full Employment Hawk,

    I should have made my sarcasm more obvious: the graph shows a clear correlation between QE and equities, and I don’t think that expectations of equity rises causes the Fed Board to vote for stimulus.

  42. Gravatar of Mikio Mikio
    20. June 2013 at 16:47

    The Bullard dissension suggests that, at the margin, the Fed is worried about signaling potential/conditional tapering in the face of falling inflation/rising real rates.

    It’s even more interesting because Bullard is considered a centrist…

  43. Gravatar of Steve Steve
    20. June 2013 at 17:04

    “One needs to ask what economic classes benefit from a reduction in monetary stimulus”

    I vote for Martian invaders.

    And career bureaucrats.

    But I repeat myself.

  44. Gravatar of Matt Waters Matt Waters
    20. June 2013 at 18:44

    Welcome to the “semi-lost decade.” Japan’s central bank tightened at the first sign of positive inflation. The Fed is clear that any deflation will be fought by QE but QE will end far before any real growth is achieved. But if QE can prevent deflation, why can’t it prevent too-low inflation? And if that could reduce unemployment significantly, what in the world are the downsides of QE which overwhelm lower unemployment?

  45. Gravatar of Matt Waters Matt Waters
    20. June 2013 at 19:18

    “Hawk, wouldn’t the rentier class be happier if interest rates were higher? From 2008 to 2009, interest income fell by 25%, and it hasn’t recovered.”

    Real returns on investment are what matter and even real interest rates can be misleading if you look at them naively. A bond purchased in 2008 has had a significant return in real terms because of the drop in CPI 2008-09. CPI growth rates returned, but CPI levels took years to reach 2008 levels again.

    As far as why people favor tight monetary policy, the reasons are generally not as cynical as some self-interested “rentier” class. It’s really hard for me to think of ANYBODY who truly benefits from hard money. Only those who happened to be in the very most conservative investments at the best time benefit from deflation. When inflation expectations shift downward significantly, the market will immediately downgrade the price of any risky investments. Any investments in real capital will see both lower returns in nominal returns obviously but also lower real returns due to a generally lower rate of utilization. You have to happen to be in cash or Treasuries to see your investments to up in real value.

    More cynically, you could have your nominal income fixed somehow. Due to deflation, the formula for SS benefits was supposed to adjust them downward, but to nobody’s surprise they were kept from going down. Government employees can continue earning the same nominal income, while employees who still have a job may earn an above-market real wage.

    That said, I think most people are well-meaning and honestly believe their views will decrease unemployment. There is just a fundamental misunderstanding of what causes unemployment and how exactly monetary policy works. A relative handful of people understand the former. Even on the left, Krugman has criticized many Democrats for not seeing the importance of AD. But even fewer people seem to understand the latter. Many liberals I read see QE as some extreme policy which, under merely 7% unemployment, should be ended or tapered or whatever. Meanwhile proposals for negative IOR are discarded as even crazier. There’s no real arguments against these proposals, but so few people really consider the proposals. I don’t get it.

  46. Gravatar of Geoff Geoff
    20. June 2013 at 20:23

    JimP:

    “Unemployment remains too high. Inflation remains too low. So – Ben says lets give up.”

    Stagflation empirically falsified the Phillips curve doctrine.

    Sustainable employment is not brought about by printing more pieces of paper.

    Benjamin Cole:

    “When will the Fed get it? The market likes QE, the economy likes QE.”

    If the market were actually allowed to function in money, then the demand for Fed notes would almost certainly collapse. You can’t claim that the market “likes” QE, on the sole basis that stock prices go up, spending goes up, and so on, with QE. These events are a reflection of the value of the dollar dropping against what is being sold against dollars.

    dlr:

    “I can’t think of a sensible world in which the liquidity effect could outweigh the fisher effect to the anywhere near the extent of today’s bond and especially TIPS price declines on an announcement like this.”

    The world is sensible by definition. If your theory contradicts the world, then it’s your theory that is not sensible, not the world.

    marcus nunes:

    “And Bernanke is even fooling some MMs who think the broad rise in the long yield is a sign of ‘optimism’!”

    MMs are fooled once again. Bernanke signals tigher money, and long term rates rise. This contradicts Dr. Sumner’s theory that tighter money leads to lower long term rates.

    Dr. Sumner:

    http://www.cnbc.com/id/100830101

    FTA:

    The 10-year Treasury note’s yield rose to 2.42 percent on Thursday – highest since August 2011. Treasury yields are benchmarks for mortgage rates and other long-term borrowing costs.

    You know what I won’t do in response to this? I won’t gloat using faulty theory like in this post:

    https://www.themoneyillusion.com/?p=18115

  47. Gravatar of Negation of Ideology Negation of Ideology
    20. June 2013 at 20:56

    Full Employment Hawk –

    “For example, it explains why Market Monetarism cannot get traction with most conservatives. Since NGDP targeting would restore the economy to full employment, it will benefit working people and the poor, and the abandonment of policies that keep the actual inflation rate below target will cause the rentier class losses.”

    I think a more likely explanation is that most conservatives have never heard of Market Monetarism. Neither have most liberals or anyone else. I don’t believe conservative oppose policies because they benefit the poor. They may oppose policies because they believe those policies will fail or have unacceptable side effects. You may believe them to be wrong, and perhaps you are correct, perhaps not.

    I believe that if most people understood monetary policy, they would be Market Monetarists, regardless on where they stood on other issues.

  48. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 21:18

    “I should have made my sarcasm more obvious:”

    Unfortunately I posted the message before I looked as the graph. As soon as I saw the graph I relalized it was sarcasm.

  49. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 21:41

    “Sustainable employment is not brought about by printing more pieces of paper.”

    So what? If the economy is below potential output, monetary expansion will restore the economy to full employment faster than waiting for the economy’s self-correcting mechanisms to restore the economy to full employment. In the long run, the economy will return to full employment by itself (unless the downward contraction is so severe that it causes the economy to collapse), but this long run will take unneccessarily long, especially if an economy is in a depression. Before the economy returns to full employment by itself a large amount of output and income will have been lost that can never be recovered and is lost forever. In addition, it subjects working period to a totally unneccessary amount of disutility. So expansionary monetary policy should be used to restore the economy to full employment more rapidly. This is the point that monetary disequilibrium theorist (in 1923) John Maynard Keynes made with his “in the long run we are dead” remark.

  50. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 21:43

    “I think a more likely explanation is that most conservatives have never heard of Market Monetarism.”

    Do you really think that Meltzer, Lucas, Taylor, and Mankiw have never heard of Market Monetarism?

  51. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 21:54

    “I don’t believe conservative oppose policies because they benefit the poor.”

    Conservatives are indiffent to economic conditions that create hardship for working people and the poor and policies that reduce such conditions are not given any priority by them. Policies that prevent the risk of inflation, even if very remote, and/or which reduce the deficit have the priority with them, and if these cause unemployment or keep the unemployment high, they do not see this as a problem to be avoided. See for example the economic policies of the of the Eurozone. The policymakers have continued with these policies long after it became clear that austerity is not expansionary.

  52. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 22:07

    “Stagflation empirically falsified the Phillips curve doctrine.”

    Adverse supply shocks shift the entire short run Phillips curve up. Therefore the short-run Phillips curve is not falisfied in the presence of such shocks.

    Since we are currently not facing any significant supply shock, the short-run Phillips curve is relevant.

  53. Gravatar of Full Employment Hawk Full Employment Hawk
    20. June 2013 at 22:41

    “With friends like Blinder and DeLong, Barack Obama doesn’t need enemies;”

    Obama has done better with the economy than McCain, Romney, or any Republican would have done, but that is not saying very much. The economy is still in a little depression, and it looks like we will be in it for a good deal of time longer. The Obama administration trying to take credit for the meager improvements in the economy amounts to putting lipstick on a pig.

    What he needs to do is 1. To make sure that the next chair of the Fed takes the mandate to seek maximum employment seriously and fill any other vacancies on the BOG with such people. 2. Change the conversation about economic policy from deficit reduction to unemployment reduction and declare war on the current fiscal austerity, starting with the sequester. The objective should be to make fiscal policy less contractionary, so that it does the expansionary monetary policy less harm. This involves agressively and relentlessly using the bully pulpit to convince the American public that austerity kills jobs, and to identifying Republicans who are subject to a serious electoral challenge from a Democrat in 2014 and peel them off from the Republican leadership. Then in the 2014 make the Republicans’ job killing austerity a major election issue.

  54. Gravatar of Steve Steve
    21. June 2013 at 07:52

    Full Employment Hawk,

    Obama is incompetent. Lots of talk that Jeremy Stein (Obama’s new appointee) is behind Bernanke’s push to taper, so the Fed can prick bubbles.

  55. Gravatar of Steve Steve
    21. June 2013 at 07:57

    Obama appointed Paul “0 Percent Inflation” Volcker.
    Obama appointed Jeremy “Bubble Popping” Stein.

    Obama wants to make sure capitalism doesn’t run amok on his watch.

  56. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    21. June 2013 at 08:21

    ‘Obama has done better with the economy than McCain, Romney, or any Republican would have done….’

    You know that, how?

  57. Gravatar of Full Employment Hawk Full Employment Hawk
    21. June 2013 at 09:19

    “You know that, how?”

    First of all, they all believe that working people and the poor have too much money and the rich have too little. There would have been a massive redistribution of income and wealth upward toward the 1%, making the current gross inequality of income a lot worse. Secondly, under them we would have had even more fiscal austerity combined with less of an offset with expansionary monetary policy.

  58. Gravatar of Full Employment Hawk Full Employment Hawk
    21. June 2013 at 09:37

    “Obama is incompetent. Lots of talk that Jeremy Stein (Obama’s new appointee) is behind Bernanke’s push to taper, so the Fed can prick bubbles.”

    Unfortunately Obama is not likely to take the wise advice I posted for him above. His failure to make restoring the economy to full employment at a rapid pace the number one economic priority of his administration is by far his most serious shortcoming. He listens to a lot of bad economic advice and as a result 5 years after the beginning of the great recession we are still stuck with 7 1/2% unemployment and will remain below full employment for the remainder of his term. That is not a record to be proud of. It is only compared to the Republican alternatives that he looks good.

    I maxed out on my contributions to his campaign against the Plutocracy’s candidate (Romney), and if I had the opportunity to do things over, would do it again. That does not change the fact that I am very dissappointed with his economic performance.

    If he had made restoring the economy to full employment, thereby ending the second depression, and reversing the march to greater and greater inequality his main economic priorities he could have been a great transformative president, and he blew the opportunity.

  59. Gravatar of Full Employment Hawk Full Employment Hawk
    21. June 2013 at 09:41

    “Lots of talk that Jeremy Stein (Obama’s new appointee) is behind Bernanke’s push to taper, so the Fed can prick bubbles.”

    On what are you basing this? Note I am not challenging the accuracy of your claim. I really want to know what the basis for it is.

  60. Gravatar of Scott N Scott N
    21. June 2013 at 12:27

    James Bullard gets it (from an interview by Neil Irwin and Ylan Mui):

    N.I.: Does some of this uncertainty in markets, both in the last 48 hours and in the last few weeks and month, does that make you reconsider some of the costs attached to QE?

    J.B.: You know, I’ll make a comment about the recent volatility. A lot of people said it’s Fed communication. It wasn’t Fed communication. This was tighter policy. It’s all about tighter policy. You can communicate it one way or another way, but the markets are saying that they’re pulling up the probability we’re going to withdraw from the QE program sooner than they expected, and that’s having a big influence

    N.I.: Is that correct? Is this a more hawkish Fed today than it was a week ago or a month ago?

    J.B.: Based on Wednesday’s action, I would say it is.
    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/21/james-bullard-this-is-why-i-dissented-at-the-fed-meeting-this-week/

  61. Gravatar of Scott N Scott N
    21. June 2013 at 12:30

    Tim Duy also gets it:

    “The Fed changed the game this week. Bernanke made clear the Fed wants out of quantitative easing. While everything is data dependent, the weight has shifted. The objective of ending quantitative now carries as much if not more weight than the data. Market participants need to adjust the prices of risk assets accordingly.

    Bottom Line: I think the question is not how good the data needs to be to convince the Fed to taper. The question is how bad it needs to be to convince them not to taper. And I think it needs to be pretty bad.”
    http://economistsview.typepad.com/timduy/2013/06/its-about-the-calendar.html

  62. Gravatar of James in London James in London
    21. June 2013 at 12:31

    FEH
    Stein seems a bit of an unreconstructed “finance type”. Clever but not a monetary economist.
    http://online.wsj.com/article/SB10001424127887324392804578363032560420100.html

  63. Gravatar of James in London James in London
    21. June 2013 at 12:45

    FEH
    Also here…
    http://www.acting-man.com/?p=23716

    http://www.cliffkule.com/2013/06/jeremy-steins-work-initiated-tapering.html

    http://yragharris.com/2013/06/19/spoke/

    And it ultimately leads here:
    http://www.federalreserve.gov/newsevents/speech/stein20130207a.htm
    “In spite of the caveats I just described, I can imagine situations where it might make sense to enlist monetary policy tools in the pursuit of financial stability.”

    He sees a need to burst bubbles. And that appears to be what the Fed is now doing. Others might call it tightening too soon. I would.

  64. Gravatar of Bill Ellis Bill Ellis
    21. June 2013 at 13:28

    I keep trying to convince libertarians that their real allies are liberals…

    Krugman gives me more ammo. Get over trying to kill the welfare state… The real problem is rent seeking by the elite.

    http://krugman.blogs.nytimes.com/2013/06/21/rents-and-returns-a-sketch-of-a-model-very-wonkish/?_r=0#more-34907

  65. Gravatar of Jim Glass Jim Glass
    21. June 2013 at 13:36

    Here’s why sensible political-economic policy is impossible…

    ~~~
    http://www.c-spanvideo.org/program/EconomicLes

    Economic Lessons from the Great Depression

    Christina Romer spoke about lessons from the Great Depression that are applicable to contemporary economic policy…
    ~~~~

    No, Christina’s not the problem.

    But listen to the questions she gets in response to her talk, starting at minute 48:00.

    And this is a university audience, presumably much better informed and educated and with better judgment than the mass of average voters.

    At this point I usually quote Churchill, but this time an economist friend suggests Kent Brockman.

  66. Gravatar of Jim Glass Jim Glass
    21. June 2013 at 13:51

    A minute-by-minute look at what Bernanke’s talking did to the market, plus a take on how and why he did it:

    politicalcalculations.blogspot.com/2013/06/the-bernanke-noise-event.html

  67. Gravatar of W. Peden W. Peden
    21. June 2013 at 13:59

    Bill Ellis,

    When liberals actually take on rent-seeking by elites, rather than pursue policies that enable such rent-seeking, they may find themselves with some libertarian allies.

  68. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    21. June 2013 at 14:30

    ‘First of all, they all believe that working people and the poor have too much money and the rich have too little.’

    You can provide evidence for this assertion?

  69. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    21. June 2013 at 14:39

    How does George Harrison’s question get dealt with in Krugman’s model;

    http://www.beatlesinterviews.org/db1969.1008.beatles.html

    ——–quote——-
    I think the American idea is really good where they just put out an album and the stations over there, you know, they have a lot of independent stations, unlike Britain, you see. That’s a problem with Britain, you’ve got your good old BBC– full stop. You know, maybe Radio Luxembourg if the weather’s fine.”

    “You know, this is the thing I don’t like. It’s the Monopolies Commission. Now if anybody, you know, Kodak, or somebody is cleaning up the market with film, the Monopolies Commission, the Government send them in there, and say you know, you’re not allowed to monopolize. Yet, when the Government’s monopolizing, who’s gonna send in, you know, this Commission to sort that one out. Britain in a way, you know, it cuts its own throat. Just from my experience of Britain. It’s, you know, it’s on every level. You know, from your tax right down into every little speck of business. The British Government’s policy seems to be, grab as much as you can now because maybe it’s only gonna last another six months. I know personally for me, there’s no point in me going out and doing a job, doing a show or doing a TV show or anything, you know. Because in Britain first of all they can’t afford to pay you. And whatever they do pay you is taxed so highly that it ends up that YOU owe THEM money.”
    ———-endquote———

  70. Gravatar of W. Peden W. Peden
    21. June 2013 at 15:12

    “How come there’s only one Monopolies Commission?”

    – Nigel Rees

    The one thing that makes government monopolisation/oligopolisation of businesses like postal services, broadcasting and railways bearable is that the private sector as a whole always finds a substitute for the poor monopolised service, whether it’s email, video, the internet, cars, domestic flights or whatever.

    If (social) liberals were to successfully pursue the interests of ordinary people, then they’d take on these monopolies. And really push for free trade, of course, but as Milton Friedman pointed out, when was the last time that a “consumer advocate” pushed for free trade?

  71. Gravatar of Full Employment Hawk Full Employment Hawk
    21. June 2013 at 16:01

    I don’t have access to the Wall Street articles. But with respect to Stein’s comment that “Governor Stein noted that monetary policy was not an effective tool to deal with financial stability because “it gets into all the cracks.” i want to point out that:

    Of course it is not. Monetary policy is an effective tool to seek maximum employment. The achievement of financial stablility requires effective regulation and breaking up the too big to fail banks.

    It looks like by appointing another financial type instead of someone who understands macroeconomics and monetary economics, Obama has shot himself in the foot again.

    The main reason Clinton had, and still has, such high approval ratings in spite of being a scoundrel in his personal life and a liar is because the unemployment rate came down at a solid rate and achieved full employment. In addition there was some improvement in the standard of living of working people. The main reason Obama does not have higher approval ratings is that these things are not happening under his administration.

    IT’S THE JOBS STU. er MR. PRESIDENT!

  72. Gravatar of Full Employment Hawk Full Employment Hawk
    21. June 2013 at 16:05

    “You can provide evidence for this assertion?”

    Reams and reams of it. Just a recent example: The Republicans want to make huge cuts in food stamps in the agricultural bill, while the bill gives about 26 plutocrats subsidies exceeding one million each. Then they lecture the people on food stamps about the dignity of standing on their own and not being dependent on government hand outs. HYPOCRITES!!!

  73. Gravatar of ssumner ssumner
    22. June 2013 at 05:46

    Everyone, Lots of great comments. Sorry I don’t have time today for individual answers. Here’s my general observation:

    Some claim that rising bond yields reflect increased expectations of economic growth. The problem with that view is that rates spiked after the Fed (and later Bernanke) issued statements that were more contractionary than expected. I don’t think there is any model that predicts more contractionary than expected monetary policy will lead to higher nominal growth.

    A slightly better argument is that the spike in long term yields reflects the liquidity effect, but as “dlr” points out yields rose for very long term bonds. I’ve seen this puzzle before; at times contractionary monetary news makes long yields fall, and at other times it makes long yields rise. And I still have no explanation.

    Another possibility is that markets think the Fed has better data on long term growth prospects than they do, but in that case I’m surprised that stocks fell so sharply. And I doubt the Fed does have better data, they’ve done worse at predicting the economy than the private consensus.

  74. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    22. June 2013 at 06:48

    ‘I’ve seen this puzzle before; at times contractionary monetary news makes long yields fall, and at other times it makes long yields rise. ‘

    Which is as it should be, because there are more forces pushing and pulling on interest rates than just monetary policy action. And, which is why economists should just drop any mention of interest rates when talking about Central Bank actions. The forces are too many and too subtle for anyone to know just what and how strong they are.

  75. Gravatar of Patrick R. Sullivan Patrick R. Sullivan
    22. June 2013 at 07:18

    ‘The Republicans want to make huge cuts in food stamps….’

    Which is evidence that they hate high marginal tax rates on the poor (over 100% in some cases). So, one can make a better case that they have the best interests of ‘the poor’ at heart and want them to prosper. Unlike the Democrats who need large numbers of poor around.

  76. Gravatar of Full Employment Hawk Full Employment Hawk
    22. June 2013 at 10:30

    “Which is evidence that they hate high marginal tax rates on the poor (over 100% in some cases).”

    This is blatent sophistry. The idea that they have the best intersts of these people at heart is pure hypocracy.

    Many of the people getting food stamps are children at, at least in our society are too young to work. Many other are too old to work. Many other are too sick to work. Marginal tax rates are irrelevant to them.

    Many others are the working poor who are not able to get a job that pays a living wage. Marginal tax rates are not keeping them from working.

    With the economy in a little depression a significant number of the people getting food stamps are involuntarily unmployed. People who are not working because there are no jobs available for them are income constrained, so that marginal tax rates are irrlevant for them.

    And what about the 26 overpriviledged Plutocrats getting over a million dollars in subsidies. Is keeping these people dependent on government handouts instead of eliminating them so that they may come to enjoy the dignity of making it on their own without being dependent on government hand outs in their best interests?

    What we have here is pure class warfare. Taking from working people and the poor to give to the rich and attempts to try to disguise this as doing it in the poor’s best intrests is transparent sophistry.

    The most effective way to reduce poverty at the present time is to restore the economy to full employment. Market monetarists want to do this, but conservatives are doing everything they can to retard the recovery, including wanting to raise interest rates while the economy is still depressed.

  77. Gravatar of Full Employment Hawk Full Employment Hawk
    22. June 2013 at 10:38

    I have a personal interest in the food stamps issue because I have a relative who receives food stamps for good reason. As a result of a failed brain operation inended to stop epileptic attacks, she is so seriously brain damaged that she cannot work. Before the brain operation, in spite of having epileptic attacks, she held down a good full time job. The operation did not stop the epilepsy, but very seriously damaged her ability to remember things. She needs the food stamps. Talk about marginal tax rates are irrelevant. Now the House Republicans want to humiliate her by subjecting her to drug testing. I HATE THESE PEOPLE!

  78. Gravatar of TheMoneyIllusion » Welcome to the market monetarist world TheMoneyIllusion » Welcome to the market monetarist world
    22. June 2013 at 12:27

    […] is the Fed adopting policies likely to cause it to fail?  I don’t know.  Commenter “James of London” links to people who spot the sinister influence of Jeremy Stein, who thinks the Fed should […]

  79. Gravatar of ssumner ssumner
    23. June 2013 at 06:19

    Patrick, You said;

    “And, which is why economists should just drop any mention of interest rates when talking about Central Bank actions. The forces are too many and too subtle for anyone to know just what and how strong they are.”

    Exactly.

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