Thus far, Governor Lisa Cook has been winning in the courts. She remains a Governor and so a member of the board of the Federal Reserve Board, entitled to a part in the deliberations of the September meeting, yesterday and today. That fact is a small victory for sanity in an insane moment and is worth celebrating. Also, we hereby note that going into the meeting the general expectation has been and so far as I know remains that there will be a smallish cut in the Fed rate, (probably 25 basis points, or one-quarter of a percent), BUT that it will be a "hawkish cut". The Fed will issue a statement about the cut, saying sternly that it is NOT the beginning of a series of cuts but a one-off and that the rate of inflation is a grave concern. For review: Fed policy commentators have long since used the language of "doves" and "hawks" long used by military-policy pundits. In the case of the Federal Reserve, the old foe is inflation and interest rates ...
Posts
The housing industry is headed for a downturn. Some will be hurt. Yes, some people are hurt by the ups and downs of any given industry. But please let us resolve (or "highly resolve" if you like Lincolnian echoes) NOT to support any sort of bail-out this time. Demand is failing. Mortgage applications are down. This will lead to a collapse in housing prices. That could lead to a fall -- perhaps not just in inflation-adjusted terms but in nominal terms as well -- of rents and a range of other costs of living. Combined with a resolute monetary policy THAT could be the beginning if a return to health for a feverish economy. Let's not screw it up by short-circuiting the healing.
So, how is 2020 going to play out? In terms of the business/financial health of the developed world, my guess would be that the year willbe a mixed bag, with a plateauing of the major indexes but no sharp downturn. Central banks, after all, will continue to keep interests law and likely will get innovative with "non-conventional" measure to keep credit flow and equity valuable. Governments will continue to go into debt. Everybody is taking a "we owe it to ourselves" attitude. Since we, the human race, hold all the debt that we, the human race, have incurred, the gross amounts involved can't really matter, can they? That is facile and stupid. Accordingly, one will continue to hear it. The bullish case depends on that. The bearish case for 2020 looks to geopolitical risk. First, there is a financial crisis underway in Italy. The Italian government is doing everything it can to ensure that this crisis is not only its problem -- that it is the problem ...
Jill Stein is running for President on the Green Party ticket. I believe that Jordan Weissman, of Slate's money box, did a fine job recently of chronicling some of the difficulties in taking her policy positions seriously. Yes, Weissman is probably in the tank for HR Clinton, and probably figures running down Stein helps save the world from Trump. Still, when he's right he's right. I'll simply paraphrase here one of Weissman's contentions, about Stein's ignorance of monetary policy. Student loans, she said, "should be canceled in the same way that the debt of Wall Street was canceled, essentially writing it off as a digital 'hat trick,' which is done in the form of quantitative easing.” Let's ignore this as a contribution to discussion of student loan. The point here is whether she knows an anus from a hole-in-the-ground in the realm of monetary policy. The conclusion is: she does not. I'm against quantitative easing. I think is a...
The back-and-forth over whether Greece (1) wants to stay in the Eurozone, or (2) if it doesn't, whether it will be able to leave, and (3) if it does, whether it will be able to stay, continues, and indeed intensifies. Back in April I wrote here: The problem seems to be that there is no 'clean' way for Greece to leave the Eurozone. Bringing back the drachma would require at the least an extremely complicated period of transition, one with which the rest of Europe would have no incentive to co-operate. So the Eurozone is like the roach motel of yore. Roaches check in, but they can't check out. Yet there is no a priori reason to believe that the single monetary policy maintained by the European Central Bank and related authorities is best for all the countries involved. So one might naturally hope that thought will be given to an orderly exit mechanism. -------------------- I still believe that statement, though brief and simplistic, is roughly speaking a soun...
From the National Archives, here's a letter by Th omas Jefferson discussing monetary policy. This is an explicit explanation of his views on the economic merits of the question, not simply the constitutional question of whether the federal government can charter a national bank (an argument with which I presume the readership of this blog is familiar). Jefferson is an "elder statesman" when he writes this letter, in November 1813. He hasn't been President for more than four years. Further, the original "Bank of the United States," the one that Hamilton created over Jefferson's strident objections, is no longer in operation. Its charter had expired and gone unrenewed during Madison's first term. BUT ... it was proving difficult to finance the ongoing war without a central bank, and this caused some soul-searching within the Republican-Democratic Party, by now the only national political party left. Hence the discussion. Eventually the party w...
It is a truism that "hyperflation in Germany paved the way for Hitler's takeover." Everybody knows this ... right? Everybody has seen the photos of the wheelbarrows -- filling one wheelbarrow with marks was enough to get the bearer of the barrow a loaf of bread. Like much that everybody knows, this isn't quite ... accurate. There is some truth to it, but ... The worst of the hyperinflation in Weimar Germany was over long before Hitler became Chancellor in 1933. It was in the early 20s that those famous wheelbarrows were rolling about with those bills. Late in '23, after a new currency was introduced [one Rentenmark, as above, was pegged to each one TRILLION of the cheapened Reichsmarks ] the govt wisely pegged the new Rentenmarks to the US dollar at a ratio of 4.2:1. A peg to the U.S. dollar was, indirectly, a peg to gold. Then the currency situation gradually normalized. This is worth noting because there was no very direct relationship between th...
I'm reading through a book by Hunter Lewis, co-founder of Cambridge Associates and the Mises Institute. The book is WHERE KEYNES WENT WRONG (2009). I'm mentioning it today because of the material in the chapter "How Keynesian was Keynes?," which I found intriguing. About much of the material in the rest of the book, I'm long since jaded, but some of this was new to me. In 1948, writing in the American Economic Review , John H. Williams said he had had a conversation with Keynes (the famous economist had died between that conversation and this article). Keynes allegedly told Williams "that the easy monetary policy was being pushed too far, both in England and here [the US], and emphasized interest as an element of income, and its basic importance in the structure and functioning of private capitalism. He was amused by my remark that it was time to write another book because the all-out easy money policy was being preached in his name, and replied...
Sloppy thinking is still sloppy, even if the sloppy individual's heart is in the right place. Example: a fake Wilson quote. By way of introduction, please understand that I have become a more and more committed hard-money guy over the last four years. I have come to believe that prices are only going to be rational, that economies are only going to work efficiently, if the money supply is disassociated from the decisions of central bankers, such as members of the board of the US Federal Reserve. I also have come to believe that a link to gold might be one good way of disassociating money from policy, or rather of subordinating policy to money, as is right and proper. So count me among the world's goldbugs if you like. I find, nonetheless, that within this company there is a lot of sloppy thinking, and part of that is the profligate use of willful unchecked quotations. For example, Woodrow Wilson, the president who signed the banking reform act that created the F...