This has to be the easiest job in the world. No matter what happens, you do nothing:
The Federal Reserve decided to stick to its current policies Wednesday, but indicated the United States economy is slowing and that more action could be in the cards soon.
Since Fed policymakers last met six weeks ago, data has shown the recovery slowed and hiring remained tepid. The economy grew at a paltry 1.5% annual rate in the second quarter, and employers added just 80,000 jobs in June.
The central bank said that economic activity “decelerated” in its policy statement released Wednesday afternoon and reiterated its former guidance, forecasting it is likely to hold interest rates near “exceptionally low levels” at least through late 2014.
If these guys were doctors, they’d still be using leeches.
wrb
I just posted this on the other thread but this is where it belongs.
I repost because I’m curious to read the replies, and to learn what else an unconventional Fed could do.
I don’t know enough about the regulatory limits, to be positive, but it has seemed to me that the Fed has some unused power to intervene in the mortgage markets and to pump money into the main street economy. I’d be curious why these wouldn’t work.
The Fed buys toxic assets from banks and sells them at a discount.
Why not buy mortgages, massively, and write down the interest rate to something closer to the rate at which the Fed can borrow? This would inject huge liquidity into the economy at the local level, as people re-purposed the money with which they had been paying their mortgages.
The Fed pours money at very low rates into a few major banks. That money can come with stipulations.
Why not open that spigot to small banks and credit unions with the stipulation that it be loaned within their communities?
Unconventional, but we are facing a radical, unconventional crisis.
Of course people will argue that this isn’t perfectly fair, but is anything that the Fed does?
Wouldn’t everyone benefit from the better economy that would result
LanceThruster
But since they’re leeches, they want to make damn sure we’re unable to see any doctor.
James E. Powell
Compare the chances of Bernanke or any of governors getting fired for doing something with the chances that they will be taken care of and remain extremely wealthy for the rest of their lives by doing nothing.
Also too, it is hard to get someone to understand something when his income depends on not understanding it.
Brachiator
Nawww. Sometimes, leeches actually work.
Alex S.
I wonder what these guys do all the day anyway. I could probably do their job if I spent an hour a day reading some economic news and then decide on some kind of interest rate which is very close to, or even the same as the number before.
Dennis SGMM
Aw. c’mon. Alan Greenspan, a fuck story if there ever was one, was Fed Chair for something like nineteen years. The justification for re-appointing him was always “The markets will get upset if we put in someone else.”
Bernanke is just getting started.
PurpleGirl
@Brachiator: Yes, that’s true. Modern medicine does use leeches for some things.
RaflW
November 7th, if Mitt wins. 7th of Never if Obama does.
The Fed is now even more partisan than the Scalia-Thomas-Roberts SCOTUS.
Just Some Fuckhead
If these guys were doctors, they’d be Doctor Kevorkian, calmly and ably assisting in an economic suicide.
wrb
Vote Romney so the Fed will stimulate the economy!
JGabriel
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John Cole @ Top:
Nah, this is the Fed helping the GOP keep the economy depressed during an election season.. Bernanke is a Republican appointee, and many of the other Fed board are GOPsters too. They’re putting party before country, either because they’re afraid of threats from the Mainstream Republicans(tm), or, more likely, because that’s just the way they roll.
Whatever the reason, the upshot is the same: the Fed, through its inaction is helping the GOP in an election season by keeping the economy depressed, largely at the expense of middle and lower class Americans, and particularly the unemployed.
.
AnonPhenom
Jan 31, 2014 marks the end of the do-nothing Fed Chairs term. Along with filling up to 4 spots on the SCOTUS, yet another reason to vote for the President to be re-elected.
Derelict
Let’s see: Fed Board of Governors dominated by Republican appointees, Bernanke a Republican appointee, and both the Fed AND Treasury pretty much staffed by former Goldman-Sachs people.
Gee, I wonder why the Fed’s not doing anything to help the economy. It sure is a mystery.
Just Some Fuckhead
@Derelict: Easy there, Burnsie’s still a little raw.
CraigoMc
Ironic – before he got into government work, Bernanke was famous in academia for his scholarship on the Great Depression. He blasted the Fed for deflating the economy in the face of a recession, and now that he’s in the same chair, he refuses to take any step to expand the monetary base.
Why? Because inflation might go from two percent to four. The horror.
CraigoMc
@wrb: What you describe is quantitative easing, and the Fed has done it twice during this recession – but not since 2010.
AnonPhenom
FYI
Who do you want looking at the particulars of a renewed charter? RMoney &Co.? Obama, Reid, Pelosi, et al?
catclub
@CraigoMc: and the next step is explicit targeting of HIGHER inflation than 2%.
Buying more bonds, negative interest on bank federal reserve excess holdings.
In another thread: If inflation were at 8% and unemployment were at 2%, they would FIND something to do.
The Fed has a dual mandate.
Davis X. Machina
@catclub: Dual, my royal Irish arse. And it’s not just the Fed. It’s not just the US. It’s the whole system…. Steve Randy Waldman, “Depression is a choice”:
patroclus
When prevailing interest rates are barely above zero, there isn’t a whole lot that the Fed can do. Reserve requirements are rarely changed, and if they were going to do that, it should have been 4 years ago. Neither the discount rate nor open-market-operations pegging of short-term rates like Fed Funds have much leeway. And heavier regulation/supervision of their member banks is more likely to be contractionary rather than expansionary.
I share the frustration, but stimulative fiscal policy is what this country needs.
CraigoMc
@AnonPhenom: I’m not sure where that came from. It sounds like a Paulist fantasy.
It is true that the twelve Fed banks (New York, Philly, Minneapolis, etc.) are chartered for a period of 20 years, but those charters are renewed like clockwork.
Dennis SGMM
@AnonPhenom:
Wonder what quid pro quos the Republicans will demand for their votes to renew the charter.
Alex S.
@Davis X. Machina:
Yes. Also, the inflation target at 2% is too low. It is a present to wealthy people. It makes the rich people richer and keeps poor people poor. Traditionally, inflation is a job-creating device. And in return, more jobs mean higher inflation. The situation as it is right now, no inflation, too few jobs for too many people, is perfect for wealthy people who can park their dollars in some tax shelter and don’t need to fear a depreciation of the dollar.
NCSteve
@Brachiator: No, not leeches. More like scheduling a guy in cardiac arrest for an MRI next Tuesday because they think there’s a chance its all in his head.
CraigoMc
@patroclus: FOMC operations can in fact expand the money supply, and with borrowing costs near zero, there’s no reason not to try – unless you view a moderate amount of inflation as a bug and not a feature, as the Fed governors apparently do.
Davis X. Machina
@CraigoMc: Inflation’s not ‘a bug’. It is The Thing That Is Not. That Which Shall Not Be Named. The Abomination of Desolation…
How much of Ultimate Evil is ‘a moderate amount’?
CraigoMc
And as bad as the Fed is, the ECB is even worse. It’s dominated by German bankers who, if asked which was worse for their country, the Weimar inflation or the Holocaust, would have to sit down and think about it.
(Never mind that the Weimar inflation did not occur for the reasons people think it did.)
And because Britain is not a member of the Eurozone, London, the financial capital of the world, has far less clout with the ECB than Berlin.
catclub
@NCSteve: I was thinking, more like: Your O2 sat is bad, at 50%, but we would not want to let it get up to where you can walk around without gasping.
You might get up to mischief.
catclub
@CraigoMc: Yes, this is a very small consolation.
AnonPhenom
@CraigoMc:
… And raising the debt limit? I mean, who in their right mind would fuck with that? Amirite?
CraigoMc
@Davis X. Machina:
4% was the post-gold standard average. It’s generally associated with a growing economy.
CraigoMc
@Davis X. Machina:
4% was the post-gold standard average. It’s generally associated with a growing economy.
AnonPhenom
@CraigoMc:
…. Like trying to block a debt limit increase. I mean, who in their right mind would fuck with something like that, amirite?
sherparick
Obama’s second biggest mistake was renominating Bernanke in August 2009, and not generally paying attention and filling vacancies on the Fed with folks, who would like, be concerned about mass unemployment and zero economic growth.http://www.nytimes.com/2009/08/25/business/25bernanke.html
His biggest mistake was listening to Robert Rubin and all the ohter cool Wall Street kids and making Tim Geithner is Treasury Secretary and Larry Summers is chief economic advisor. Mistake no 2 flowed naturally from mistake no 1.
Don’t get me wrong, I want him to win reelection since his opponent is actually Gozer and all the demons released upon the world. But if he does not win, he really will have no one but himself to blame for accepting all the neo-liberal spin from the Hamilton Project. http://www.hamiltonproject.org/about_us/
In making this decision, as Dean Baker pointed out at the time, the President kind of overlooked the fact that a large reason there was a financial crisis and a Great Recession in 2007-2009 was pretty much because of the policies Bernanke had conducted and advocated, first as Bush’s Chairman of the Council of Economic Advisors, then as a member of the Fed under Greenspan, and finally, after January 2006, as the Chairman himself.
So now Bernanke is remembering he is a Republican after all. Must not do anything to tweak the economy before the election or else Mittens wont’t have a chance. And because the President reappointed him, Democrats now go out of their way to defend him from Republican attacks when they sould be ripping him a new one everytime he comes up to testify before Congress (Bernanke’s Fed has overestimated economic growth every year since he has been Chairman (totally failing to forecast the Recession at the start of 2008, even when the economy was technically already contracting in December 2007.
http://articles.chicagotribune.com/2012-01-18/business/ct-biz-0118-gail-20120118_1_fed-officials-fed-leaders-susan-bies
CraigoMc
@AnonPhenom: I meant in the sense that the 100-year limit does not actually exist. It’s an email forward fantasy.
Horrendo Slapp (formerly Jimperson Zibb, Duncan Dönitz, Otto Graf von Pfmidtnöchtler-Pízsmőgy, Mumphrey, et al.)
I’m not an economist, and I never even took an economic class in college, so I could be talking out of my ass, and it wouldn’t be the first time. But…
So, as far as I know, the Federal Reserve has dropped interest rates to 0%, which I guess is about as low as they an go. Seems like I’ve heard that that’s what they’ve done, at least. And I don’t know what else the Federal Reserve can do other than fiddle around with interest rates. But, shit, couldn’t Bernanke at least go up to Congress and pitch a fit that they need to begin spending more? Roosevelt called it “pump priming”, and it seems like if ever we needed to prime the pump a little, it’s now. I know Bernanke can’t make Congress spend he money, but making a big scene about how we need some more spending might at least make the point to Americans that the Republican House is fucking the country over. Am I wrong here?
Dennis SGMM
@Horrendo Slapp (formerly Jimperson Zibb, Duncan Dönitz, Otto Graf von Pfmidtnöchtler-Pízsmőgy, Mumphrey, et al.):
His predecessor was certainly not shy about publicly advocating Social Security privatization or of singing the praises of “alternative mortgage options.”
In this wonderful age, advocating for the many as opposed to the few is politicizing and/or class warfare.
wrb
@CraigoMc:
No it isn’t quantitative easing– quantitative easing has involved buying treasuries, not the mortgages of individuals and reducing their payments, not pumping money into local banks and local economies.
Big diff
CraigoMc
@wrb: The Fed actually did buy up a bunch of MBS back in 2008-2009. They don’t buy individual loans because that would be a nightmarish process.
wrb
@CraigoMc:
The big difference is discounting them to benefit the borrowers and their local economies where liquidity is scarce, rather that to benefit the lenders and the financial markets, which are flooded with liquidity.
Donut
@Dennis SGMM:
Pathetic, but true. Technocrats who get that far up the scale pretty much write their own tickets, even if/ when they fuck up totally.
Not Sure
I don’t know. My impression is that the Fed is printing money until the presses glow red in an effort to create inflation on purpose, but can’t get it to rise higher than about 3%. I can’t imagine my credit union is making any money at all lending me money at 2.75%, but there you have it. If inflation ever does come, I’ll be able to simply write a check to pay off the mortgage.
Ksmiami
We really needed to create a direct infrastructure bank in 2008 … But Obama wanted to be bipartisan and give tax breaks as stimulus.
Ben Johannson
@Not Sure: The Federal Reserve can’t print money, because that’s a violation of its charter. It has lowered the federal funds rate to zero by increasing quantities of excess reserves in the banking system, but reserves balances do not correlate with the money supply. Not that John Cole would ever take that into consideration.
Ben Johannson
@sherparick: Your criticism of Bernanke is foolish and partisan. The Fed does not have the power to drive an economic recovery, despite what certain bloggers may assert.
The standard spiel about monetary policy increasing the money supply focuses on the illusory “money multiplier.” According to conventional wisdom a bank loans out its deposits minus any reserve requirements. So if you made a $100 deposit at your bank, and the reserve requirement was 10%, your bank would loan out $90, which would become a deposit somewhere else. Minus ten percent that bank would then loan out $81. The next bank would loan $72.9, and so on. Monetary fetishists argue that by increasing bank reserves more loans can be made and the money supply expanded.
There are numerous problems with this narrative, so many and of such significance that the money multiplier is absurdly easy to falsify:
1) Banks are never reserve constrained. Any loan officer can tell you the bank doesn’t go and check its deposits before it extends credit. If it finds a creditworthy customer it simply makes the loan and then finds the reserves it needs at the end of the day. Banks can always obtain whatever reserves are needed to clear payments, so pumping up their reserve balances does not increase their capacity for making loans.
2) Banks don’t loan their reserves to customers anyway. Reserves in this context are used solely to clear payments between banks, not for credit creation. The bank extends credit (say by writing a check) which the borrower then takes to his bank. So in reality the loan has created a deposit, rather than deposits creating loans.
3) Countries like Australia and Canada do not have reserve requirements. If the money multiplier were correct, then $1 AUD could be loaned out infinitely and the money supply would be expanding so quickly that inflation would destroying their economies.