A proposal to punish the hard-money regional bank presidents.
Among Washington’s modern ironies is that liberals think a Federal Reserve that is increasingly a creature of the White House and Congress has too much independence. So along comes Barney Frank with a plan to make the central bank even more political than it already is, in particular by cutting out its regional presidents and replacing their votes with political appointees.
In a remarkable white paper released last week, the former Chairman and now ranking member of the House Financial Services Committee targets the role of the 12 regional bank presidents. Today the presidents are allotted (on a rotating basis) four of the 12 voting slots on the Fed’s Open Market Committee, or FOMC, which sets monetary policy. The other eight are the president of the Federal Reserve Bank of New York and the seven Fed Governors, who are appointed by the President and confirmed by the Senate. Mr. Frank wants to strip the regional banks of any voting membership.
The 12 presidents are selected by regional bank boards, and Mr. Frank writes that this “anomaly” is “not simply an imperfection in our model of government based on public accountability” but influences “in a systematic way the decisions of the Federal Reserve.” That would seem to be the point, though what Mr. Frank means is that the regional presidents have historically tended to favor sound money and thus have “now become a significant constraint on national economic policy making.”
The Congressman’s timing is especially notable, coming only days before the latest two-day FOMC meeting that ends today. One plausible inference is that Barney is walking point for White House political advisers who want to intimidate the Fed presidents from sticking to a harder-money policy but can’t say so themselves. He’s certainly in line with the latest consensus among liberal economists, who are urging a burst of inflation to reduce U.S. debt and pump up the economy before Election Day.
ReutersU.S. House Financial Services Committee Ranking Member Representative Barney Frank
EXCERPT FROM THIS ARTICLE: The Fed will get attaboys from markets if it buys more bonds. The bond market loves a whale, a big buyer who doesn’t care about price. It’s even better when the purchases are announced in advance, giving markets an opportunity to buy first. When the Fed signaled it would buy mortgage bonds in 2008, markets bought them heavily before the Fed, locking in huge profits.
With unemployment high and President Obama locked into antigrowth tax increases, the Federal Reserve is again being called on to intervene in financial markets. The latest bad idea is for the Fed to try to lower long-term interest rates (or “flatten the yield curve”) by lengthening the maturity of its $2.6 trillion bond portfolio.
The Fed should instead be using its considerable energy and expertise to provide sound money, and using its bully pulpit to encourage federal spending restraint and regulatory reform in line with its full-employment mandate.
To try to flatten the yield curve, the Fed would buy more long-maturity bonds and finance them by selling some of its shorter-term bonds (dubbed Operation Twist) or by further increasing the $1.6 trillion in short-term deposits it holds for commercial banks (in other words, more quantitative easing). (more…)
It is inherently American to work, to risk and to dream. Our government’s policies should encourage that.
By HERMAN CAINMr. Cain, a Republican, is running for president of the United States. He is a former chairman and CEO of Godfather’s Pizza and a former chairman of the board of directors to the Federal Reserve Bank of Kansas City
Last week, President Obama unveiled his eagerly anticipated jobs plan. After 43 minutes of his speechifying, Americans were left wondering: We waited 30 months for this?
Indeed, it seems Mr. Obama’s first term has been spent advancing a legislative agenda that pays no mind to our ailing economy and the Americans whose sufferings are casualties in his ideological war. After a failed stimulus package, preferential industry bailouts, and the disastrous government overhaul of the health-care industry, it seems the plight of the American worker has remained an afterthought.
This is the worst jobs recovery since the Great Depression. If the Obama administration’s aim was to merely tie for last place with the previous worst recovery, it would have created eight million more jobs, based on comparative data from the Bureau of Labor Statistics. If our recovery were more typical of the postwar era, as former Sen. Phil Gramm reported on this page in April, we would have 14 million more jobs today.
As a longtime leader in the business community, I know firsthand that government does not create jobs. It can only create the conditions in which businesses operate. These conditions can spur growth, or they can suppress it. The conditions imposed by the current administration have suppressed growth.
Still, there is hope. That hope begins with economic certainty, a sort of assurance the president seems unwilling to provide. I, on the other hand, have proposed a plan that would stabilize and grow our economy:
“Cain’s Vision for Economic Growth,” also known as the 9-9-9 Plan, is founded upon three guiding economic principles: Production drives the economy. Risk-taking creates growth. Units of measurement must be dependable.
The plan begins with restructuring the tax code to include the broadest possible base at the lowest possible rate. The elements are: (more…)
FOR the last three years we have been told repeatedly by government officials that funneling hundreds of billions of dollars to large and teetering banks during the credit crisis was necessary to save the financial system, and beneficial to Main Street.
But this has been a hard sell to an increasingly skeptical public. As Henry M. Paulson Jr., the former Treasury secretary, told the Financial Crisis Inquiry Commission back in May 2010, “I was never able to explain to the American people in a way in which they understood it why these rescues were for them and for their benefit, not for Wall Street.”
The American people were right to question Mr. Paulson’s pitch, as it turns out. And that became clearer than ever last week when Bloomberg News published fresh and disturbing details about the crisis-era bailouts.
Based on information generated by Freedom of Information Act requests and its longstanding lawsuit against the Federal Reserve board, Bloomberg reported that the Fed had provided a stunning $1.2 trillion to large global financial institutions at the peak of its crisis lending in December 2008.
The money has been repaid and the Fed has said its lending programs generated no losses. But with the United States economy weakening, European banks in trouble and some large American financial institutions once again on shaky ground, the Fed may feel compelled to open up its money spigots again. (more…)
One year ago, on Aug. 27, 2010, Federal Reserve Chairman Ben Bernanke explained the rationale for a second round of quantitative easing. “A first option for providing additional monetary accommodation is to expand the Federal Reserve’s holdings of longer-term securities,” he said, thereby supposedly “bringing down term premiums and lowering the costs of borrowing.”
Yet the bond market promptly reacted by raising long-term interest rates. The yield on 10-year Treasurys, which was 2.57% at the time of his Jackson Hole, Wyo., address, climbed to 3.68% by February 2011 and did not dip below 3% until late June when QE2 was coming to an end. The price of West Texas crude oil, which was $72.91 a year ago, remained above $100 from March to mid-June and did not come down until QE2 ended and the dollar stopped falling.
When Mr. Bernanke spoke, the price of a euro was less than $1.27. By the week ending June 10, 2011, 15 days before QE2 ended, the dollar was down about 15% (a euro cost $1.46). In that same week, The Economist commodity-price index was up 50.9% from a year earlier in dollars—but only 22.8% in euros. How could paying much more than Europe did for imported oil, industrial commodities, equipment and parts make U.S. industry more competitive?
The chart nearby subtracts the contribution of government purchases (such as hiring and construction) from real GDP growth to gauge the growth of the private economy. The generally negative contribution of government purchases (column two) does not mean government spending has slowed, as some contend. Instead it reflects the fact that federal and state spending has been increasingly dominated by transfer payments (such as Medicaid, food stamps and unemployment benefits) which do not contribute to GDP, and in some cases reduce GDP by discouraging work.
The utter failure of QE2, hollow Congressional spending “cuts” that will keep the National Debt on track towards $23 trillion by 2021, S&P downgrade and recent plunge in the stock market are the first cracks in the façade of the great American Empire.
“A system of capitalism presumes sound money, not fiat money manipulated by a central bank. Capitalism cherishes voluntary contracts and interest rates that are determined by savings, not credit creation by a central bank.” – Ron Paul
I wonder what goes through Ben Bernanke’s mind as he sits in his gold plated boardroom in the majestic Marriner Eccles building in Washington DC and decides to impoverish grandmothers in order to further enrich Wall Street bankers. He just pledged to keep interest rates at zero percent for two more years. Ben is a supposedly book smart man. Does he have no guilt or shame for what he has wrought? How does he sleep at night knowing he has created bloody revolutions around the globe due to his inflationary zero interest policy? People are dying because he has decided that an elite group of Wall Street bankers who recklessly brought down the worldwide financial system in 2008 deserve to be kept alive and enriched at the expense of the many. (more…)
As the economy continues to struggle, we are reminded of a course offered at Yale University titled “Grand Strategy.” Drawing on a weighty curriculum of history and philosophy, the course seeks to train future policy makers to tackle the complex challenges of statecraft in a comprehensive, systematic way. Clearly, U.S. economic policy is sorely lacking an effective grand strategy, and we are likely to endure high unemployment, weak economic performance and trying financial markets until such a strategy is articulated and pursued.
Policy makers should cease the barrage of ad hoc, short-term policy initiatives. Is increased federal spending across government agencies a grand strategy? How about checks in the mail to spur spending? Cash for clunkers to move auto inventories? Fast trains and faster Internet? Mortgage modification programs and fleeting tax credits to re-stoke home ownership?
Inducing consumers to do today what they would otherwise do tomorrow is hardly a grand strategy. Hundreds of billions in “stimulus” spending has stimulated little but more debt. Forty-eight months have passed since the onset of the financial crisis, 26 months since the recession technically ended. Yet job creation remains remarkably weak, and markets deeply uneasy.
We can’t go on like this.
The debt-limit debate caused policy makers to recognize what citizens already knew: We must put our fiscal house in order. Cutting spending is essential. But we will never cut our way to prosperity. (more…)
Stocks spiraled downward Thursday as investors buckled under the strain of the global economic slowdown and the failure of policy makers to stabilize financial markets.
The selling began in Europe and continued in the U.S., where stocks plunged from the opening bell. The Dow Jones Industrial Average posted its worst point drop since the financial crisis in December 2008, falling 512.76 points, or 4.31%, to 11383.68. Oil and other commodities were also hammered. Even gold was a safe haven no more as prices fell. Asian markets slid on Friday morning, with benchmark indexes in Tokyo, Australia, South Korea and Hong Kong all falling more than 3% by midday.
Stocks plunged, driving the Dow Jones Industrial Average down more than 500 points, as investors worried about the global economy and Europe’s debt crisis. Paul Vigna has details.
What if the weak recovery is all the recovery we are going to get?
By DANIEL HENNINGER
Barack Obama, John Boehner and Mitch McConnell have been performing an intricate scorpion dance over spending, taxes and the debt ceiling, premised on the belief that this is the deal that would ignite the recovery.
But what if it’s too late? What if that first-quarter growth rate of 1.8% is a portent of the U.S.’s long-term future? What if below-normal U.S. GDP is, as the Obama folks like to say, the new normal?
Robert Lucas, the 1995 Nobel laureate in economics, has spent his career thinking about why economies grow, and in particular about the effect of policy making on growth. From his office at the University of Chicago, Prof. Lucas has been wondering, like the rest of us, why, if the recession officially ended in the first half of 2009, there hasn’t been more growth in the U.S. economy. He’s also been wondering why this delayed recovery resembles the long non-recovery years of the 1930s. And he has been thinking about the U.S. and Europe.
In May, Bob Lucas pulled his thoughts together and delivered them as the Milliman Lecture at the University of Washington, an exercise he described to me this week as “intelligent speculation.”
Here is the lecture’s provocative final thought: “Is it possible that by imitating European policies on labor markets, welfare and taxes, the U.S. has chosen a new, lower GDP trend? If so, it may be that the weak recovery we have had so far is all the recovery we will get.” (more…)
