My first article at The Week

Just in time for the Fed taper.



13 Responses to “My first article at The Week”

  1. Gravatar of W. Peden W. Peden
    18. September 2013 at 08:11

    “However, government officials have never been good at predicting bubbles; if they were, they would be running hedge funds, not working as bureaucrats.”

    Well-put. If the outcome of the global financial crisis (or “local NGDP crisis”) is that central bankers try to become contrarian investors, then the long-term negative consequences of the crisis haven’t even begun to arrive.

  2. Gravatar of Morgan Warstler Morgan Warstler
    18. September 2013 at 08:34


  3. Gravatar of Brian Donohue Brian Donohue
    18. September 2013 at 08:51

    Excellent article!

    Even better mug shot!

  4. Gravatar of Tommy Dorsett Tommy Dorsett
    18. September 2013 at 08:51

    Scott — This doesn’t sound like you, “The goal of this round of quantitative easing (dubbed QE3) was to reduce long-term interest rates in order to boost the economy.”

    If that was the goal, then QE1, QE2 and QE3 all failed as long rates rose during each eposide of Fed purchases (as they should if NGDP expectations rise). Perhaps the editors tweaked it a bit on you?

  5. Gravatar of ssumner ssumner
    18. September 2013 at 09:01

    Thanks everyone.

    Tommy, When you write for a place like The Week you are told to make it accessible to average people who know nothing of monetary policy. And also to make it short. Thus there was never any prospect of me being able to get into MM transmission mechanisms, or the distinction between market rates and the Wicksellian equilibrium rate. I think the Fed’s goal was lower rates, and I think policy worked even though (as you say) it didn’t produce lower rates. But to get into that nuance at The Week would have been impossible.

  6. Gravatar of jknarr jknarr
    18. September 2013 at 09:10

    Send it to Kudlow, Keene, and everybody else for that matter and offer to chat.

    Scott Sumner for Chairman of the Fed.

    You’re already intellectually tied with Ben Bernanke. You are the clear choice for a better America.

  7. Gravatar of Krugtron Krugtron
    18. September 2013 at 09:23

    I’ve been reading your blog fairly consistently for the last three years but I hate the fact that my first comment here will be a negative one. I’ll preface all of this by saying i do find many of your ideas compelling

    So heres my beef is with your recent posts last few months. You seem unwilling to carefully see why the fed feels pressure to taper. It has hardly anything to do with asset price bubbles despite what a couple of powerless fed hawks might say. It also isn’t even about the fed temporarily remitting nothing back to Treasury during the unwinding of its balance sheet, though that seemed to be a factor until later clarified on the NY Fed’s blog how they might deal with posting a rare loss on its securities

    The decision to taper is all about the money market mutual fund industry. They rely on repo and probably other super secure forms of ‘lending’ to make some 1 + epsilon returns. But as the fed has been absorbing collateral over the past year nearly, that now overnight repo rates are hovering very close to zero and have dipped into negative territory in some cases. The Fed does care about this. It’s why the FFR trades in a range rather than at zero, and why IOR is 25 bps (the GSEs not earning interest also matters but it’s secondary IMO). As the Fed’s bond purchases continue, collateral becomes all the more scarce and MMFs have fewer opportunities to make a positive nominal return. It’s only because the fed signaled tapering that some supply of treasuries came back on the market during the sell off that kept repo rates from clearly being in negative territory.

    It might also be worth noting that TIPS guarantee a nonnegative nominal return for likely the same reason (thus destroying some of their nformational value …which was the whole reason they were created)

    So should the fed be engaged in industrial policy wrt financial intermediation and services? I don’t know. Maybe the benefits of indefinite qe are greater than the costs of losing the MMF industry. But MMFs provide a form of financial intermediation that was at the center of the financial crisis. I’m confused on this issue but it seems obvious to me that bloggers like you and Miles Kimball arent paying close enough attention to why limitless qe (or negative interest rates) isn’t so obviously feasible. If you or anyone else can tell me how the MMF industry would survive indefinite qe or why the costs are insignificant, your stance on tapering would be far more compelling


  8. Gravatar of Krugtron Krugtron
    18. September 2013 at 09:28

    Crap, that was long, maybe I need to start my own blog…or write more concisely

  9. Gravatar of Chun Chun
    18. September 2013 at 09:54

    You called QE “fiscal stimulus” in the first paragraph. Is it a typo or does it mean something else?

  10. Gravatar of ssumner ssumner
    18. September 2013 at 11:08

    Jknarr, I was supposed to be on Kudlow Monday, but got bumped by the DC shooter.

    Krugtron. Keep in mind that low interest rates are caused by tight money. So in the long run my policy would actually help MMMFs by raising rates. In any case, I doubt that industry has much of a bearing on the QE decision, but I definitely think it affects decisions regarding negative IOR. I’ve mentioned that issue in the past.

    Chun, Thanks, they said they’d correct it.

  11. Gravatar of benjamin cole benjamin cole
    18. September 2013 at 11:51

    Good article! Taper…but taper up!

  12. Gravatar of xtophr xtophr
    18. September 2013 at 18:34

    Your best paragraph is at the bottom of the article:

    “If the Fed does decide today to taper it will be a big gamble. It will mean moving away from its normal focus on inflation and employment targets, and instead responding to vague and poorly understood fears of “bubbles.” The Fed should continue to focus on its mandate: Stable prices (which they interpret as 2 percent inflation) and full employment.”

    Great first sentence. Grabs the attention. In fact, I liked the whole article better when I read it backwards. Strongest statement up front, then evidence and analysis. Inverted pyramid, and all that.

    Your ideas are clearly gaining influence. Any friends in the journalism department?

  13. Gravatar of ssumner ssumner
    19. September 2013 at 06:11

    Thanks xtophr, No, I don’t know journalism people.

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