112th Congress Averts Fiscal Cliff But Leaves A Mess For The 113th [View article]
I doubt the President will invoke the 14th Amendment since he has already implied that he does not see that as a legal avenue. That said, I think he wants the Congress to hold a clean vote on it because he thinks that if they fail to pass it the American people will blame the Republicans and he will have more leverage in negotiations over spending. If they do pass it, he then has a string of compromises with Congress, which bodes well for further negotiations.
Interesting article and several good charts about the velocity of money, but I would take and have taken the argument one step further. We need to increase the velocity of money, so instead of simply pumping excess liquidity into the system, the Fed should be working to stimulate lending. I evaluated several possible ways for engaging in such lending stimulus in August: http://bit.ly/WbTW4r
Stagnant Bank Of England Policy Hints At Fed Inaction [View article]
Winning Trader, you clearly failed to read the article since you base your counterargument on a point that was made in the second paragraph. That paragraph clearly explains that the Bank of England has engaged in more QE per capita than the Fed. I then go on to examine a political scenario where an outgoing central banker (Mervyn King) has halted continued monetary stimulus to counteract fiscal austerity. My point is simply that if the Fed wishes to make a similar point about the need for fiscal action in the face of the "fiscal cliff," then they will not expand asset purchases this week. Regardless of whether or not they do expand asset purchases, within the next few months the Fed is almost definitely going to change their forward guidance strategy.
New Blood At The Bank Of England: Good Show! [View article]
It is a stretch to say that Bill Martin had significant experience in international finance, but your point is well taken. However, if international financial experience is a prerequisite for being a central banker, that suggests that the most qualified person for the job in the U.S. is Tim Geithner. He worked in the private sector for Kissinger and Associates before going to the Treasury Department and rising to rank of Assistant Secretary for International Affairs, a position designed to deal almost exclusively with international finance and exchange. Since then, he has served as President of the NY Fed and as Treasury Secretary, so his resume is even more robust than was Paul Volcker's when he was named Fed Chair. This is not to suggest that Mr. Geithner should be the next Chairman, just to point out that by zeroing in on the backgrounds of individuals negates the importance of the circumstances under which they served as Fed Chairman.
First, the FOMC only has 12 voting members, so your math is a bit off.
Second, if all 19 participants in the meeting had a vote right now, at least 3 and probably 4 or 5 would be dissenting.
Third, you clearly missed the point of the article; several commentators have recently begun acting as though John Taylor and Larry Summers are viable Fed Chairman options. All of these commentators have failed to acknowledge the constraint a President faces with nominees requiring a super-majority Senate conformation. This means that the viable choices need to be much less political and are therefore unlikely to stray very far from current policy. Essentially, this means that future policy constraints will continue to come from other voting members of the FOMC, not the Chairman.
This Is Not A Currency War, It Just Looks Like One [View article]
Sorry for the delay, but I wanted to jump in here and point out that at every opportunity Fed policymakers have avoided saying that they are trying to influence equity markets. That said, veiled references to global markets indicate a very different thought process when they actually make decisions. The bulk of my research is on this very topic; I examine how different statements by Fed officials move equity markets. The link between communications and bond markets is established, but the equity market reactions are a lot more dubious. To some extent, all of the Fed chatter gets baked into the market so fast that it is hard to pinpoint how and when the Fed influences stocks or if they seek to do this more/less than other asset classes.
That data is supported by hundreds of independent assessments and it supports my point that the Yuan is strengthening because the easing by the PBOC is less effective than easing by the Fed. So, absent a major new Chinese stimulus initiative or a sudden revival of consumerism in the U.S. and Europe, it is unlikely that the Chinese economy is going to rebound to double digit growth in the next couple years.
Did The Fed Just Announce Plans For QE4? [View article]
Just a quick point of clarification, Evans did not pull $85 billion out of a hat, that is what the Fed is currently investing in MBS. QE3 invests $40 billion and the remaining $45 billion comes from rolling over investment income directly into MBS.
When Twist ends at the end of 2012, this $85 billion number will be reduced, but indefinite QE plus whatever the Fed can still roll over into the MBS market will be a significant amount of continued "stimulus." That said, the Fed is unlikely to extend Twist because it would take extreme accounting tricks and redefining short, medium and long-term debt to continue extending the maturity of the Fed's portfolio. So, the issue is not whether the Fed will do QE4, but whether they will alter QE3 to invest more in MBS once Twist expires and they can't roll as much money into QE.
You are absolutely right to point to the precision of the Yen and the fact that the Fed is not really able to target one sector of the economy (although they have tried with real estate). That said, the Fed's actions have had and will have a relatively larger effect on some sectors and little effect on others and policymakers definitely understand that ahead of time.
Has The United States Started A Currency War? [View article]
I think it is unfair to say that the U.S. has "started" a currency war, but the point is well taken. As Europe, Japan, China, England etc have all taken steps to weaken their currencies this year, the Fed has had to do the same just to remain competitive in manufacturing and export oriented industries. That said, the U.S. economy is still much more stable than Europe or Japan, so I doubt that additional QE will imminently devalue the dollar since our trade partners are all engaging in comparable actions already. I hinted at this fact in my immediate reaction to the announcement of QE3: http://bit.ly/Rx4Kpm
Asby, you highlight many of the complex issues that are going in to the Fed's policy decision, but you are under-weighting the international component. The Sept 13 FOMC press release actually referenced global pressures in a way that I have never seen before in a Fed press release. This indicates to me that the international division of the Fed is really concerned about both global liquidity and the dollar keeping up (down) with the falling value of other currencies. All of that said, the U.S. economy is systemically stronger than Europe or Japan right now, so I still think we will see a dollar rebound even with the QE.
Souring On Bernanke And The Fed: Could The Bashers Be Right? [View article]
While I understand your sentiment, the question is not whether the Fed is insane, but how their objectives have shifted. If anything, the seemingly irrational step to QE3 demonstrates a shift in Fed policy that under the old paradigm of Fed policymaking might have seemed insane, but under a new paradigm makes a great deal of sense. Basically, the Fed has different goals than they used to; I go into detail about this change in objectives here: http://bit.ly/Rx4Kpm
ECB Plan Not A Bull Market Guarantee [View article]
Although I think you overstate some of your points, all of them only lend further credence to my larger goal in this article. Essentially, my intention was to point out that yesterday's ECB announcement is not a cure-all for Europe and thus not a reason for a bull market.
Interesting and thorough analysis, but I think you missed a series of other Fed policy options. In particular, the Fed has discussed a couple of methods for stimulating lending lately, so those might be on the table rather than asset purchases. Moreover, the Fed's move today to provide small amounts of liquidity through the 28-day term deposit facility indicates that they are seeking other ways to inject liquidity where it is needed, not just a broad brush set of asset purchases. So, while I appreciate your various views about QE3, I think this perspective is incomplete.
Bernanke's term as Chairman is not up until 2014 and regardless of who wins the election, I doubt he will be stepping down before the end of his term. The more important issue is that if Romney wins, the Fed's forward guidance to late 2014 is simply untrue since a Romney appointed Chairman will not continue zero-rate policy.
112th Congress Averts Fiscal Cliff But Leaves A Mess For The 113th [View article]
The Fed Should Stop Buying Bonds [View article]
Stagnant Bank Of England Policy Hints At Fed Inaction [View article]
New Blood At The Bank Of England: Good Show! [View article]
The Political Fed-Chairman Choice [View article]
Second, if all 19 participants in the meeting had a vote right now, at least 3 and probably 4 or 5 would be dissenting.
Third, you clearly missed the point of the article; several commentators have recently begun acting as though John Taylor and Larry Summers are viable Fed Chairman options. All of these commentators have failed to acknowledge the constraint a President faces with nominees requiring a super-majority Senate conformation. This means that the viable choices need to be much less political and are therefore unlikely to stray very far from current policy. Essentially, this means that future policy constraints will continue to come from other voting members of the FOMC, not the Chairman.
This Is Not A Currency War, It Just Looks Like One [View article]
Understanding Chinese Monetary Stimulus [View article]
That data is supported by hundreds of independent assessments and it supports my point that the Yuan is strengthening because the easing by the PBOC is less effective than easing by the Fed. So, absent a major new Chinese stimulus initiative or a sudden revival of consumerism in the U.S. and Europe, it is unlikely that the Chinese economy is going to rebound to double digit growth in the next couple years.
Did The Fed Just Announce Plans For QE4? [View article]
When Twist ends at the end of 2012, this $85 billion number will be reduced, but indefinite QE plus whatever the Fed can still roll over into the MBS market will be a significant amount of continued "stimulus." That said, the Fed is unlikely to extend Twist because it would take extreme accounting tricks and redefining short, medium and long-term debt to continue extending the maturity of the Fed's portfolio. So, the issue is not whether the Fed will do QE4, but whether they will alter QE3 to invest more in MBS once Twist expires and they can't roll as much money into QE.
Evaluating QE3 In A Global Context [View article]
Has The United States Started A Currency War? [View article]
Evaluating QE3 In A Global Context [View article]
Souring On Bernanke And The Fed: Could The Bashers Be Right? [View article]
ECB Plan Not A Bull Market Guarantee [View article]
Can The Fed Save The Economy? [View article]
Ben Bernanke: The Defender [View article]