The dollar has performed remarkably well under their power, and indeed the Fed is a part of the reason the United States became the dominant global economy in the 20th century.
Nonsense but considering the writer is from NPR no surprise.
The dollar as other commenters have noted has lost 95% of its value since the Fed's founding. The US became the dominate economy is spite of the Fed not because of it.
Nonsense but considering the writer is from NPR no surprise.
The dollar as other commenters have noted has lost 95% of its value since the Fed's founding. The US became the dominate economy is spite of the Fed not because of it.
2
I don't want to hear another word from the Ron / Rand Paul acolytes about killing the Fed and bringing back the gold standard. Their approach has been thoroughly discredited and, as the article persuasively argues, provides only the illusion of certainty in financial markets that are inherently volatile.
1
No government in human history has survived more than 50 years from the point in time that they created a fiat currency. Nixon did that to the dollar in 1971. Does anyone really believe that the current Federal government is going to survive to 2021? There has already been one crisis of confidence in the dollar during the Carter administration, when Carter had to issue US bonds valued in German Marks and Swiss Francs and Paul Volker had to increase the Interest rates into the high teens. In 2013 world confidence in the dollar was nearly that low again. If you adjust for inflation and taxes, for every dollar you had invested in a Stock Index Fund at the peak in 2000, you are still in negative territory even with the market hitting all time highs. If you put that dollar in a savings account or bought a US bond with it you lost even more. Lets not even talk about real estate. The only investment that has made an actual inflation-adjusted, after-tax return over the last 15 years is metals. That says the dollar is dying and you better not bet on it or with it.
1
The last paragraph of an entertaining, instructive article suggests:
“...if we let go of faith in the dollar, just a little bit,...we might find...a world without certainty can be richer...”
Personally, I would “let go of faith in the dollar” (as it is currently configured) a whole bunch.
The historical answers to uncertainty in money (namely government currencies and the politics that influence and ultimately decide the fate of those currencies) have been the most liquid, genuine-commodity stores of wealth like gold and silver. Only when these metals become subservient to government schemes by incorporating them into government currencies do they become part of the problem rather than the answer to problematic uncertainties.
Ultimately the answer to uncertainty in finance engendered by changes in the political landscapes that determine the nature and value of moneys in today’s government-currency world is to let these things be determined by totally free market action—in other words, a laissez-faire, anti-/non-governmental approach to the creation and banking of money. Then the scope of coping with uncertainty will be reduced to individual market decisions, individual successes and failures, rather than snow-balling to governmentally influenced central authorities who can only smother and obfuscate uncertainties until they become catastrophic and call for dictatorial domestic price/life controls and/or international warfare as the only means of quelling disaster.
“...if we let go of faith in the dollar, just a little bit,...we might find...a world without certainty can be richer...”
Personally, I would “let go of faith in the dollar” (as it is currently configured) a whole bunch.
The historical answers to uncertainty in money (namely government currencies and the politics that influence and ultimately decide the fate of those currencies) have been the most liquid, genuine-commodity stores of wealth like gold and silver. Only when these metals become subservient to government schemes by incorporating them into government currencies do they become part of the problem rather than the answer to problematic uncertainties.
Ultimately the answer to uncertainty in finance engendered by changes in the political landscapes that determine the nature and value of moneys in today’s government-currency world is to let these things be determined by totally free market action—in other words, a laissez-faire, anti-/non-governmental approach to the creation and banking of money. Then the scope of coping with uncertainty will be reduced to individual market decisions, individual successes and failures, rather than snow-balling to governmentally influenced central authorities who can only smother and obfuscate uncertainties until they become catastrophic and call for dictatorial domestic price/life controls and/or international warfare as the only means of quelling disaster.
1
I can't see how anyone could read this article and possibly come away better informed.
The crisis was "at least in part as a result of bad Fed policy." The article doesn't describe the policy, though. It says only that the Fed made "obtuse assertions of health about a financial system that was collapsing." Assertions and policy are obviously not the same thing. If the author chooses to characterize the policy as bad, he owes his readers a description of the policy.
The author credits Yellen with keeping the value of the currency stable, but doesn't explain how her actions may have achieved this.
He says she is failing to ensuring the availability of "decent jobs." The Fed's employment mandate has to do with the level, not the quality, of employment.
The article fails even to attempt to explain the mechanisms by which loose monetary policy in the US affects other countries. Low interest rates motivate investors to move capital from US government bonds and assets linked to to them to assets offering higher returns such as equities and real investments. This has happened in the US and around the world.
The biggest issue with the article is its blind spot when it comes to fiscal policy and aggregate demand. Saying low interest rates stifle entrepreneurship is nuts. A growing economy, driven by demand, is what motivates companies to invest. Fiscal policy can stimulate demand, but that's outside the purview of the Fed.
These pages deserve better economic journalism.
The crisis was "at least in part as a result of bad Fed policy." The article doesn't describe the policy, though. It says only that the Fed made "obtuse assertions of health about a financial system that was collapsing." Assertions and policy are obviously not the same thing. If the author chooses to characterize the policy as bad, he owes his readers a description of the policy.
The author credits Yellen with keeping the value of the currency stable, but doesn't explain how her actions may have achieved this.
He says she is failing to ensuring the availability of "decent jobs." The Fed's employment mandate has to do with the level, not the quality, of employment.
The article fails even to attempt to explain the mechanisms by which loose monetary policy in the US affects other countries. Low interest rates motivate investors to move capital from US government bonds and assets linked to to them to assets offering higher returns such as equities and real investments. This has happened in the US and around the world.
The biggest issue with the article is its blind spot when it comes to fiscal policy and aggregate demand. Saying low interest rates stifle entrepreneurship is nuts. A growing economy, driven by demand, is what motivates companies to invest. Fiscal policy can stimulate demand, but that's outside the purview of the Fed.
These pages deserve better economic journalism.
3
The Western World has three reserve currencies.
Dollar; Euro; Pound.
If there is Western World, there is Eastern World.
The Euro, being, not a compound currency but a mixture currency, might fall and break, as strife between the West & East escalates.
When W. Buffet says Germany is a good place to invest' i don't think, he means all of Europe. I think, he feels, Germany will survive the EU break-up in good shape.
Dollar; Euro; Pound.
If there is Western World, there is Eastern World.
The Euro, being, not a compound currency but a mixture currency, might fall and break, as strife between the West & East escalates.
When W. Buffet says Germany is a good place to invest' i don't think, he means all of Europe. I think, he feels, Germany will survive the EU break-up in good shape.
since its invention, belief in money has been man's greatest fiction not the belief in a god
1
See, that's part of the problem - people are look at money and NOT looking at actual value. People mistake money for economic value. It is not, money is an emergent property of economic value. And that value of money is given rise by that for which it can be exchanged. Economic value is in the exchange of goods and services and the value of money is the value of that for which it serves as proxy in that exchange.
Do you want and have money for the sake of having money or to be able to obtain that for which money can be exchanged? It's not money that has value in and of itself, it's that for which it can be exchanged that has the value. And to the extent money can be exchanged for that, that is how it has value. Imagine if money could not be exchanged for goods and services, how much value would it have? None.
What should we be looking at instead? Economic value. That is, the value of goods and services that are produced and exchanged for goods and services to be consumed. And one persons goods and services produced, is another persons goods and services consumed. Well, to the extent that they are wanted for consumption.
That's how I knew the dot com bubble was a bubble and the real estate bubble was a bubble. Prices were decoupled from economic value. Look first for the value - if the money doesn't reflect it, it's a problem.
Do you want and have money for the sake of having money or to be able to obtain that for which money can be exchanged? It's not money that has value in and of itself, it's that for which it can be exchanged that has the value. And to the extent money can be exchanged for that, that is how it has value. Imagine if money could not be exchanged for goods and services, how much value would it have? None.
What should we be looking at instead? Economic value. That is, the value of goods and services that are produced and exchanged for goods and services to be consumed. And one persons goods and services produced, is another persons goods and services consumed. Well, to the extent that they are wanted for consumption.
That's how I knew the dot com bubble was a bubble and the real estate bubble was a bubble. Prices were decoupled from economic value. Look first for the value - if the money doesn't reflect it, it's a problem.
1
The real stain on the collective memory in the US has been the complete lack of criminal prosecutions of those who were responsible for the Financial Crisis of 2008. The fact that neither Jamie Dimon, nor Lloyd Blankfein were removed from their penthouse offices in handcuffs is an outrage to most informed Ameicans. Even if no one has been able to tie them directly to broken banking and securities law, they were responsible for events that seriously threatened the national security of the U.S.. A trip to Gitmo could have easily been justified. After that, teams of auditors could have identified the lower level henchmen and seen to their incarceration as well. Fines? Of course. However the fines should have been the equivalent of all profits made during the inflation of the massive real estate bubble, and the proceeds used to make whole those who lost homes and savings due to this abomination of fiduciary mismanagement. Instead it was the wealthy bond holders who were made whole. This is just the most egregious example of why people have lost faith in government, and look at our justice system with utter contempt.
1
While I've read about the San Francisco earthquake and the British response to the gold drain as a cause of the Panic of 1907, I've seen it blamed more often on the failed attempt of Augustus Heinz to corner the market on copper stock. I think that's what led to the failure of the Knickerbocker Trust, which sent Mr. Morgan into action. I'll have to look at that history again, I guess.
1
"Venture capital, often seen as the most vibrant part of our economy, collapsed in 2000 and has barely budged upward since. In the language of finance, the world’s money is crammed at the safest part of the risk curve. This is bad, because further out on the curve, in the riskier precincts, is where new ideas and new businesses are created."
If that's true, then there's a huge inefficiency in the market, and that's an opportunity for someone. Google? the biggest venture capital firm in the world? Maybe their stock is still a good bet.
If that's true, then there's a huge inefficiency in the market, and that's an opportunity for someone. Google? the biggest venture capital firm in the world? Maybe their stock is still a good bet.
It is so nice to see an economist admit that economics has seriously lagged behind other fields in bringing in a critical/decontructive perspective as a central tenant of the field.
While taking an introduction to economics course in school, I pointed this very thing out to my economics professor. She replied, "I think you are right, but we are really trying to make up for it now!"
While taking an introduction to economics course in school, I pointed this very thing out to my economics professor. She replied, "I think you are right, but we are really trying to make up for it now!"
Adam Davidson is not an economist, he is a journalist who is interested in this sort of thing.
Background here:
https://en.wikipedia.org/wiki/Adam_Davidson_(journalist)
"Studied for a B.A. in religion and humanities at the University of Chicago." No indication that he earned the degree.
I like Adam Davidson's "Planet Money" series and listen to it by podcast. He's evidently educated himself well about the subject of this passion of his. But please, don't inflate his credentials.
Background here:
https://en.wikipedia.org/wiki/Adam_Davidson_(journalist)
"Studied for a B.A. in religion and humanities at the University of Chicago." No indication that he earned the degree.
I like Adam Davidson's "Planet Money" series and listen to it by podcast. He's evidently educated himself well about the subject of this passion of his. But please, don't inflate his credentials.
1
Anybody who thinks that the US Federal Debt at $18 Trillion or $154,120 per taxpayer is responsible Government must be dreaming. Total US Debt is now $54 Trillion and $184,895. per citizen. The US economy is a Train wreck waiting to happen and the Federal Reserve is indirectly responsible.
4
So what is "debt"? Is this term the total obligations the US government is responsible for repayment? I'm not an expert in this area but where did you come up with is amount?
Some people still insist on comparing government financing with household financing. Can you consider the possibility that the absolute level of debt is less important than the ratio of the debt to the size of the economy?
Gross federal debt to GDP was as high as 110% when the GI Bill was passed and peaked at 120% when WWII ended. By comparison It was 103% when the Affordable Care Act was passed; it should drop below 100% shortly. Under Obama, things are going in the right direction.
The last time the ratio went in the wrong direction was under Bush. Clinton handed Bush 60%; then Bush cut taxes and waged two wars pushing up the ratio beyond 90%. That was the biggest increase in the nation's debt ratio of any president since WWII. Now that is irresponsible governance.
Gross federal debt to GDP was as high as 110% when the GI Bill was passed and peaked at 120% when WWII ended. By comparison It was 103% when the Affordable Care Act was passed; it should drop below 100% shortly. Under Obama, things are going in the right direction.
The last time the ratio went in the wrong direction was under Bush. Clinton handed Bush 60%; then Bush cut taxes and waged two wars pushing up the ratio beyond 90%. That was the biggest increase in the nation's debt ratio of any president since WWII. Now that is irresponsible governance.
7
Keep waiting but don't bet on it.
2
When looking at money as a medium of exchange there is a step away from barter. With the barter system it is easier to value goods and services. Using a fiat like money, gold or bit-coin there is the uncertainty of whether another person, company, government is willing to accept this medium and at what value. In the future someone may come up with an idea of a all encompassing easily applied system that is more like a barter system. Then what?
1
The takeaway is that when the pixelated dollar sneezes the rest of the world catches antibiotic resistant pneumonia.
Pretty good story otherwise.
Pretty good story otherwise.
4
One thing that no one ever talks about (except for Ellen Hodgson Brown) is the fact that the Fed has usurped the nation's ability to control its money supply. By limiting the Treasury to "the coinage" (physical coins and dollar denominated notes), the Fed controls creation of the VAST percentage of the American money supply in the form of credit created. This helps insure the the American government (aka 'we the people') will never be out of debt because the US government always needs to pay interest on all money it is supplied with by the Fed to meet the cost of standard services for America.
By establishing control of its overall money supply (ie. the creation of public credit), this country would be more able to diminish its national debt, eliminate interest paid to the Fed (a consortium of private companies), and have the ability to put all of that commandeered interest to work building infrastructure in areas of this country which have been neglected due to underlying discriminatory policies over generations- blithely justified with the reasoning that short term payoffs in lower economic areas don't bring high enough economic rewards for investors.
By establishing control of its overall money supply (ie. the creation of public credit), this country would be more able to diminish its national debt, eliminate interest paid to the Fed (a consortium of private companies), and have the ability to put all of that commandeered interest to work building infrastructure in areas of this country which have been neglected due to underlying discriminatory policies over generations- blithely justified with the reasoning that short term payoffs in lower economic areas don't bring high enough economic rewards for investors.
10
Mr. Davidson had his faith broken in 2008. That's all to the good if the gauze over his eyes has also been removed. Most of America however just got frightened to death and voted for those who think that government economics run like a household. Wrong. The only one who pretty consistently is in touch with reality has been Paul Krugman. I pray that Janet Yellen also stays in touch with reality.
But the crisis isn't over until those at the bottom have enough to live on and full time jobs. Nothing from this completely ideology driven, dumb as dirt Republican Congress proves that so much as their inability to fund Homeland Security in spite of their saying everyday, in every way, how important our security is. These several hundred don't believe in government though they are part of it and ran for the job [!], don't believe that workers create value and can't figure out why a top heavy economy is still sluggish, continue to blame Obama for everything while they cannot and do not do their own job of legislating: writing and passing laws.
Janet Yellen and the Fed are not the problem. The problem is the fat heads who continue to believe that the "free market" is moral and works for everyone in spite of all evidence to the contrary up to and including the 2008 collapse and after and all those in the hinterland who vote for these people who undercut the voters own economics. Talk about misplaced belief and blind faith.
But the crisis isn't over until those at the bottom have enough to live on and full time jobs. Nothing from this completely ideology driven, dumb as dirt Republican Congress proves that so much as their inability to fund Homeland Security in spite of their saying everyday, in every way, how important our security is. These several hundred don't believe in government though they are part of it and ran for the job [!], don't believe that workers create value and can't figure out why a top heavy economy is still sluggish, continue to blame Obama for everything while they cannot and do not do their own job of legislating: writing and passing laws.
Janet Yellen and the Fed are not the problem. The problem is the fat heads who continue to believe that the "free market" is moral and works for everyone in spite of all evidence to the contrary up to and including the 2008 collapse and after and all those in the hinterland who vote for these people who undercut the voters own economics. Talk about misplaced belief and blind faith.
58
Mr. Rothman: Well said.
The problem is even worse and compounded by recent fiscal policy that reduced the progressiveness of our tax structure and now favors capital over labor (such as treating hedge fund carried interest at low capital gains rates, instead of income).
Its an entrenched elite minority that for some reason, the repubs insist on holding us hostage to. Just look at how many red states are discovering that they face huge budget deficits now as a result of their stupidity.
The problem is even worse and compounded by recent fiscal policy that reduced the progressiveness of our tax structure and now favors capital over labor (such as treating hedge fund carried interest at low capital gains rates, instead of income).
Its an entrenched elite minority that for some reason, the repubs insist on holding us hostage to. Just look at how many red states are discovering that they face huge budget deficits now as a result of their stupidity.
1
I've not seen anything close to resembling a "free market" of fair competition in decades. Try subsidy nation via tax laws and legislation to give regulatory breaks for corporations or impediments through the same system for the competitors. And then the Supreme Court gave corporations more power via freedom to contribute to campaigns. Nothing free about US markets!
1
Leaving the gold standard during the Nixon Administration gave Mr. Burns, then Fed chief, the power to have both "guns and butter." While Nixon was re-elected and more brave soldiers died in Vietnam, it set the stage for the decline of our economy ever since. As everyone beyond Alice in Wonderland surely knows, extend and pretend is no substitute for real means on investment and productivity. Sorely lacking for quire some time now. The elites on the coasts have presided over the hollowing out of America, ossifying the "heartland." While those on Wall Street, K Street and Silly Dot Con Valley enjoy the dance, of this I am sure: One day the piper will be paid.
12
Lots of long and fancy explanations as to why the integrity of the USD will continue indefinitely. Unfortunately, that's simply not the case.
9
before you write a comment, you should read the article to the end!
6
Were we not the world's fave economy to invest in, our traipsing about with cheaply printed paper money would have collapsed, probably after WWII. If we make it to 2040 without a currency collapse, it will be a miracle.
Never bet on miracles. But maybe the incredible inflation since the Fed was created will make the crash ... a civil one.
Never bet on miracles. But maybe the incredible inflation since the Fed was created will make the crash ... a civil one.
5
"The dollar has performed remarkably well under their power,"
From what I can read the dollar has lost more than 90 percent of its buying power since the Fed was implemented. It's kind of hard to reconcile this paean to the dollar and the Fed with the supposed intent of protecting the public.
Protecting the banks might be a better explanation for why the Fed was created.
The banks that own the Fed have surely benefitted mightily but certainly not the public. If someone had squirreled away a few dollars a hundred years ago to provide for his great grandson, that grandson would be very disappointed...
The congress, that many think is owned by the banks, has been constantly doing what the banks want.
From what I can read the dollar has lost more than 90 percent of its buying power since the Fed was implemented. It's kind of hard to reconcile this paean to the dollar and the Fed with the supposed intent of protecting the public.
Protecting the banks might be a better explanation for why the Fed was created.
The banks that own the Fed have surely benefitted mightily but certainly not the public. If someone had squirreled away a few dollars a hundred years ago to provide for his great grandson, that grandson would be very disappointed...
The congress, that many think is owned by the banks, has been constantly doing what the banks want.
15
@checking:
As Adam at least implied, a modest amount of inflation is beneficial -- and in fact, quite necessary -- to the growth of a free market economy. The USD loss of value over the past century is equivalent to a steady annual inflation rate of about 3%. That's a little on the high side perhaps, but not extreme by any means. It would be great for the country to reach 3% in 2015 and persisting for a couple of years.
It's correct to say that the hypothetical grandchild would be disappointed, but if the same old fellow had invested those dollars in a mix of stocks reflecting the Dow Jones Industrial average, making sure that they were reallocated from time to time to match the formula, the value (after correcting for inflation) would have grown to ten times the original.
Putting specie in a pillowcase is a poor wealth strategy. In a strong economy like that of the US, there are many better options!
As Adam at least implied, a modest amount of inflation is beneficial -- and in fact, quite necessary -- to the growth of a free market economy. The USD loss of value over the past century is equivalent to a steady annual inflation rate of about 3%. That's a little on the high side perhaps, but not extreme by any means. It would be great for the country to reach 3% in 2015 and persisting for a couple of years.
It's correct to say that the hypothetical grandchild would be disappointed, but if the same old fellow had invested those dollars in a mix of stocks reflecting the Dow Jones Industrial average, making sure that they were reallocated from time to time to match the formula, the value (after correcting for inflation) would have grown to ten times the original.
Putting specie in a pillowcase is a poor wealth strategy. In a strong economy like that of the US, there are many better options!
1
Dollars are great for buying things and short term storage of wealth; but they have lost over 95% of their value since the Fed was created in 1913. While inflation is currently low, history informs us that the fate of all paper money is to be made progressively worthless by inflation, as the government, from time to time, prints too many of them. I wish it was different this time; I'm told its different this time; I'm an apostate, I don't believe.
15
How have the US and European economies done since 1913? This "gold bug" view explains many of the peacetime economic catastrophies during the past 100 years.
1
There is no reason to believe. In fact, it is the Fed's stated goal to increase the amount of dollars every year by about 2% so that inflation is stable at about 2%. It's called "greasing the wheels."
Gold means no inflation? Ever? Interesting.
The deficit hawks need to take the tranquilizers. US debt is much smaller than our national wealth. Also, we should look at the conditions present when our last significant inflation took place in the early 1970's. Payrolls were 52% of GDP vs 42% now. We also released inflationary pressures that had built by going off the last vestiges of the gold standard. Add to this the rapid growth of personal credit due to baby boomers mortgaging their first home along with the "guns and butter" deficits of the Vietnam war and OPEC asserting itself by raising gas prices at the pump by 400% in a few months, and a serious up tic in inflation was quite predictable. Today none of these factors are present.
The malaise depressing our economy is the result of the ongoing technology revolution which has enabled CEO's to reduce labor costs through automation and outsourcing. That 10% of GDP drop in payrolls represents $1.5 trillion dollars a year diverted from paychecks to corporate earnings and is the principal driver of increasing inequality. The resulting weakness in wage-based demand has led the Federal Reserve to cut interest rates to the bone as well as look the other way while another credit bubble with increasingly higher risk is used to supplement demand.
The continuing elimination of labor is unsustainable and will require a constitutional amendment to ensure payrolls are at least 50% of GDP if our political/economic system along with our dollar are to be saved.
The malaise depressing our economy is the result of the ongoing technology revolution which has enabled CEO's to reduce labor costs through automation and outsourcing. That 10% of GDP drop in payrolls represents $1.5 trillion dollars a year diverted from paychecks to corporate earnings and is the principal driver of increasing inequality. The resulting weakness in wage-based demand has led the Federal Reserve to cut interest rates to the bone as well as look the other way while another credit bubble with increasingly higher risk is used to supplement demand.
The continuing elimination of labor is unsustainable and will require a constitutional amendment to ensure payrolls are at least 50% of GDP if our political/economic system along with our dollar are to be saved.
51
Well, it's nice to see a member of the econogentsia admitting that a lot of his economic reasoning was based on a hugely flawed idea.
But while the world may have shifted its economic faith to the American dollar, we in the U.S. are burdened by a huge segment of the the American society who who is still absolutely convinced that we can grow the American economy with tax cuts (for the rich) and shrinking the federal budget to the point where it can be "drowned in the bathtub."
Keynesian economic theory has been thrown out and replaced with neo-liberal clap-trap that has been tried and proven untrue, over and over. Yet the Republican party -- and not too few Democrats! -- still holds on to this wrongheaded idea like a dog with a meaty bone.
That's the root of our economic problems in this country. You can't grow an economy when large corporations, sitting on piles of cash, refuse to hire workers. Or if banks refuse to lend to small business. (Why should they when Congress still allows them to make money through high-risk gambling?) Or when government is hampered by neo-liberal anti-government, radicals in Congress.
We're in a pickle because because WE ARE the pickles. Too stupid to learn from our mistakes and too stupid change.
But while the world may have shifted its economic faith to the American dollar, we in the U.S. are burdened by a huge segment of the the American society who who is still absolutely convinced that we can grow the American economy with tax cuts (for the rich) and shrinking the federal budget to the point where it can be "drowned in the bathtub."
Keynesian economic theory has been thrown out and replaced with neo-liberal clap-trap that has been tried and proven untrue, over and over. Yet the Republican party -- and not too few Democrats! -- still holds on to this wrongheaded idea like a dog with a meaty bone.
That's the root of our economic problems in this country. You can't grow an economy when large corporations, sitting on piles of cash, refuse to hire workers. Or if banks refuse to lend to small business. (Why should they when Congress still allows them to make money through high-risk gambling?) Or when government is hampered by neo-liberal anti-government, radicals in Congress.
We're in a pickle because because WE ARE the pickles. Too stupid to learn from our mistakes and too stupid change.
66
One must remember that the Fed is so powerful because it is given so much independence from congress and the American people that it can do the necessary things without too much blowback. In 2009, the Fed bailed a lot countries out by setting up 15 different loan vehicles for countries with banks that had bills due in dollars. It did this inspite of the danger of inflation to the U.S. economy. The European banks and countries wouldn't even talk to one another about this so the Feds had to intercede on their behalf as well.
That is why the dollar is so valuable right now. The trust that the Federal Reserve has built up is well deserved.
That is why the dollar is so valuable right now. The trust that the Federal Reserve has built up is well deserved.
36
The mathematical models developed for risk, do in fact cover "uncertainty", black swans, "unforeseen circumstances", etc. Financial institution just choose to ignore "catastrophic risk", because it would drive up the requirement for cash reserves.
26
"unforeseen circumstances" are not foreseeable and while models can try to estimate their risk, it is the unforeseeable nature of unforeseen circumstances that make them not foreseeable. By definition, they cannot be modeled!
Even though Paul Krugman repeats that a country's currency value can be changed by the country's interest rate, it seems that our dollar value has gone up against major currencies in spite of our historically lower interest rate. This is mainly because of the policy mistakes, austerity instead of stimulus during secular stagnation/deflation, done by EC and Japan. Because of their belated QE, a financial stimulus, their currencies dropped sharply against dollar.
The questions is, "Can US economy keep growing in spite of higher dollar?" Paul Krugman says that higher dollar is negative to our economic growth. Though most of the young Wall Street and Main Street do not know the history, there was a time that the US economy suffered from higher dollar. In 1985 the US pressured Japan and Germany to raise their currency value against dollar. This caused the eventual economic disaster to Japan and Germany. Learning from this event, China has never yielded to US pressure to raise her yuan renminbi value against dollar. For long, the dollar looks like keep its high status as the world reserve currency.
The questions is, "Can US economy keep growing in spite of higher dollar?" Paul Krugman says that higher dollar is negative to our economic growth. Though most of the young Wall Street and Main Street do not know the history, there was a time that the US economy suffered from higher dollar. In 1985 the US pressured Japan and Germany to raise their currency value against dollar. This caused the eventual economic disaster to Japan and Germany. Learning from this event, China has never yielded to US pressure to raise her yuan renminbi value against dollar. For long, the dollar looks like keep its high status as the world reserve currency.
10
The LAST economist you ever want to go by is a politically dependent one from either end of the political spectrum. I'm sure PK means well but this would be the first big bet he got right IMHO.
3
I guess he wasn't right (all along) since the crisis in 2008 that we wouldn't get inflation anytime soon due to low interest rates and QE while CNBC and the WSJ and many conservative economists were opining (all along) "hyperinflation is coming this year!" ?
I am just picking what I suppose is the most obvious big bet he's made recently that is right.
I am just picking what I suppose is the most obvious big bet he's made recently that is right.
1
Steve Austin: Why because neither a liberal OR a conservative could ever actually be right? Only those "moderates" have magical insight into Truth?
If a conservative can use reason and facts to prove something is right, this this bleeding heart liberal is more than willing to listen to them and -- gasp!-- believe they are right!
Frankly, I find moderates tend to be wishy-washy people who can't think for themselves. I have a lot more respect for those who think for themselves -- even conservatives.
If a conservative can use reason and facts to prove something is right, this this bleeding heart liberal is more than willing to listen to them and -- gasp!-- believe they are right!
Frankly, I find moderates tend to be wishy-washy people who can't think for themselves. I have a lot more respect for those who think for themselves -- even conservatives.
The author is dead wrong when he says the Federal Reserve was established to "manage the value of the dollar by setting key interest rates." Most central banks do just that; the Federal Reserve does not despite the statements of its less worldly governors to the contrary. The only rate it sets is the "target" rate for 24 hour loans of reserves between banks aka the federal funds rate - a rate that is irrelevant in the best of times because no lender to the real economy borrows money that has to be paid in 24 hours and loans it out into the real economy for months and years for houses, cars, factories, etc etc.
Unlike most central banks which do indeed set interest rates, the Fed's main policy tool to affect the real economy, and thus inflation and unemployment, is to add and subtract dollar reserves held by commercial lenders via its open market operations.
Interested readers would do well to read Professor Lindauer's epic "General Theories of Inflation, Unemployment, and Government Deficits"
or the everyman's readable and witty version recently republished by his graduate students and available on Amazon. It's entitled "Inflation, Unemployment, and Government Deficits: End Them."
Sorry NYT, your fact checkers have let you down.