How about some reasonable interest rates for our savings so we can get out of the stock market casino?
1
"...say it is time for the Fed to consider a new approach to managing the economy." Definitely. Here's one: LEAVE IT ALONE!
If you are not scared for the future, this article should do it. After ten years of extreme monetary policy enacted by a bunch of failed academic economists, we are still proposing weird ideas that are extensions of the past weird ideas. Economist's never considered debt problems in their fancy models.
1
Which "Economy" is under discussion here?
Is it the one in which 4/5ths of Americans just had their taxes raised, their deductions eliminated and will soon have their pubic services cut, to lower the deficit? Is it that "Economy"?
Is it the "Economy" that sets mortgage, lending rates, and interest rates on bonds? If they go up, fewer can invest in this "Economy". If they go down, those with bonds will be sunk.
Is it the "Economy" that appears on the Dow, and which is quite bullish? These numbers are good, but in no way reflect the American condition and lack of employment. Despite the great sounding 4.1% unemployment rate, the National Bureau of Labor Statistics, from which that number is derived, defines "employed" as a respondent to their monthly survey who worked for 1 hour during the week of the survey. This in no way qualifies as full-time employment.
So, this "Economy" of which people speak, those who say America has recovered from the recession, which planet are they living on? People are financially struggling everywhere. They are under-employed and under-paid. They live from paycheck to paycheck, even homeowners, most of whose taxes will be going up. Health care costs will go up.
Americans do not have discretionary income to circulate in this "Economy" herein described. The funds that prop up the U.S. come from U.S. borrowing, and corporations setting up businesses in foreign lands.
The American "Economy" suffers. Forced inflation will not help.
4
The fundamental flaw in economic policy is the implicit assumption that people exist to serve economic agendas. The fact is that economies exist to serve the people. So when economic policies are floated that would seek to coerce people into various economic actions that the elites would impose on people so as to obtain the econimic "outcome" they want irrespective of what the people want for themselves, that's a huge miscarriage of policy.
For example people may want a differ balance between leisure and consumption (thus implicitly productiviry) or between consumption today versus consumption tomorrow...and debt accumulation. But the elite don't seem to care about that. Furthermore they only seem to be concerned with maximal consumption today, tomorrow be damned. No debt accumulation is too high if it serves maximal consumption today.
Karl Marx might put it that the dividends of productivity gains from automation have accrued to workaholic plutocrats.
People cannot borrow because they owe too much? And you complain about capitalism?
Besides, consumption increases global warming.
Macroeconomic policymakers like Lawrence Summers continue to struggle with the aftermath of the 2008/9 economic imbroglio.
Another economic correction will take place sooner or later. Economic prediction of recessions, however, is similar to human uncertainty regarding death. We all die but no one knows when.
2
The new tax plan will touch the rich (those who earn over $100K) very little, because even if they lose property tax and state tax deductions, they gain 16%-19% lower income taxes.
Their spending in the U.S. economy is not expected to change, that is to say, they will bank and reinvest their assets (frequently off-shore), and pay their normal living expenses. "The Economy" will touch them only in so far as it might increase or decrease their interest rates on investments.
For the other 4/5ths of Americans, the tax plan will leave them with less discretionary income, because, with the loss of property and state tax deductions, and the increased cost in medical care, they will have little-to-nothing to add to "The Economy".
Many families, even pre-tax plan, lived from paycheck to paycheck. I do not see how forced inflation will help Americans. They will have to pay more out-of-pocket expenses, and there are no incentives out there to bolster "The Economy", like a jobs training program, or a mandatory hourly living wage increase.
"The Economy" is more and more created overseas. The Dow does well.
Investors and multinational companies are doing well. But these figures reflect global activity, and investments of the few.
The U.S. Economy, the one where 4/5ths of us struggle to stay alive each day, is suffering. The Dow in no way reflects American financial reality.
Keeping inflation low is a good, stable idea that does not menace the majority of Americans.
3
Uh, no. I am lower middle class and will benefit from these tax changes. Oh, you will, too.
Macroeconomics 101 as I remember it taught that there had to be a combination of monetary and fiscal policy in a Keynesian economy. The fiscal policy aspect has been absent since at least the demise of the GHW Bush administration from its tax increase to pay for the Gulf War. When we have Republicans who will never consider a tax surcharge, and Democrats who will never consider a tax reduction, both playing to farthest wings of their respective parties with no concern for the middle class or the middle of the road voter, the Fed is caught trying to address the entire economy without the full set of tools. If fiscal policy is dead, as it appears to be, then the Friedman concept mentioned by another commenter i.e. steady growth of M2 and let the interest rates cycle based on the market makes eminent sense. Smaller, more frequent recessions and smaller but also more frequent expansions are vastly more beneficial for the middle class, real businesses, and retirement oriented investors than speculative booms followed by spectacular busts. These only enrich sharpies at the expense of the expense of the rest of the economy, and that is the nub of the problem.
2
It really is a farce to watch all these highfalutin academic economists failing to separate variables to simplify calculations. Monetary policy regulates how much money there is, and fiscal policy regulates how fast it changes hands. "Economic product" is equal to the total amount of money divided by the average residency time of a unit of currency in an economic entity's account.
Monetary policy alone cannot maintain stable interest rates, stable currency values, and full employment.
1
The crash will come, history doesn't lie. This has been true through out the history of tax cuts. Authors are dreaming.
1
The macro economics of evaluating the total economy based on GDP, CPI & inflation and total growth are misleading in evaluating the micro economic realty of the "average" American. As Buffet has written the top 400 wealthiest Americans went from ~$90B in 1982 to ~$3T total wealth in 2017 a 30x (or 3,000%) increase while the "average" American trended steady or downward (including true inflation). This is why up to 80% of working Americans are living paycheck to paycheck in any given month of the year.
Another factor is how do you accurately measure inflation? This is a number based on a limited number of items including some that go up and down over time. ie Let's say you measure the COLI (cost of living) using needs such as housing, health care, healthy food and education inflation has been running at 5-10% annually for decades. Throw in wants such as technology (from Asia), consumer goods (from China), transportation (a need) and unhealthy food (from big Ag) inflation is much lower.
As has been stated if the Fed truly wants to stimulate the economy for the "average" American it will get the most money into the poorest half of Americans, more money will go back into the US economy quicker and more efficiently than any other way possible. Instead by keeping interest rates artificially low for too long they let the wealthiest "invest" in xyz which creates bubbles that eventually pop. Look out for high end RE & The Market crash...again!
1
Ordinary bank depositors paid to bail out the banks from the Crash of 2008 under the Fed's decision to relive banks of the obligation to pay depositors for the use of their money.
1
It's fortunate that the Fed is at least thinking about change. We are in the middle of huge paradigm shifts. The monetization of the Dow means that there is little or no growth at the top - it's all just borrowing for share buybacks and dividends.
Since the 1% now holds all the wealth, consumers have no money to spend to drive the economy. And, there is no next iPhone. Whatever technology consumers need, they already have it. Robots and smart refrigerators are for the 1%.
If we're going to have a healthy country and economy going forward, it will have to come from giving money back to the middle and lower classes, something that doesn't seem likely as, with Citizens United, Congress is now well-bought and paid for.
Sad that the America my father fought and risked his life for is gone for good. All that's left to do is the funeral.
1
These mathematical models created by Economists assume the economy is growing as capital becomes more concentrated, thereby creating greater and greater inequality in income and wealth.
Corporations doing well lead to buybacks and then "buyouts" of legislators that nurture wealth maintenance over wealth sharing with those that produce the higher gains.
What the Economists do is just play with mythical numbers, so how about they play a new game with rise in everyone's income as the measure of "winning" points.
1
If it aint broke, don’t fix it. Probably the greatest reason the economy is doing so well today was the standoff between Republicans and the President for the last eight years effectively doing nothing. The economy entered a period of steady but slow improvement without the roller coaster ride of economic stimulus and decline which are never timed well.
Who is the economy doing so well for? When 80% of American workers are living paycheck to paycheck (one job loss away from becoming broke) in any given month of the year that means only 20% or 1 out of 5 working Americans has a safety net and feels financially secure. No wonder most Americans do not vote (they have given up on American style democracy) and out of the ones that did in 2016 ~50% decided to vote for a NYC used car salesman - most of them figured why not, maybe he can bring us financial stability...
1
Treasuries/Mortgage bonds and other financial instruments have less and less effect because growing income inequality means that less and less people are able to take advantage.
Pundits have noted that it's atypical to see the stock market and "economy" doing so well and the President's approval rating so low. It seems the consensus among this class is that it is primarily because of Trump's outrageous and distasteful behavior, and while I'm sure that's a big part of the story, the disconnection between macro economic indicators and the real economy that is experienced by the general population continues to grow. This is also why many voted for Trump instead of Hillary, who they saw as maintaining the status quo which by these same indicators was doing quite well.
The question isn't so much as how to effect the economy as which economy to effect.
2
Wealth concentration is drying up the supply of securities to invest in. That is what is driving the indices now.
1
The Federal Reserve needs to fund a locally-directed Job Guarantee (see: https://medium.com/@producersteve/demand-jobs-now-f3c9f15dc83b).
That is how we fix the economy, barring massive redistribution from the 1% (which would also work).
A Job Guarantee would create some of the same benefits as a Universal Basic Income (plus more benefits that a UBI couldn't guarantee), it would cost a tiny fraction of what UBI would require, and would be entirely funded by new money. In order to continue controlling inflation, the Fed would need to raise interest rates.
In short, to stabilize the economy, more of our currency should be actual DOLLARS, and less of it should be debt. Because defaults cascade (see "Minsky Moment"), depending on debt to create currency is inherently risky.
Learn more about Modern Monetary Theory here: https://www.youtube.com/watch?v=TDL4c8fMODk
3
How about some more transparency on how inflation is calculated? This formula is a total black box, and it doesn't square with the experience of most people.
Housing, health care, college, and healthy food are getting more and more expensive every year. Far faster than 2% a year.
4
Yes! If you calculate the needs - housing, health, education and healthy food inflation has been 5-10% for decades. Throw in the wants of cheap consumer goods (from China), tech (from SE Asia) and cheap food (from big Ag) inflation is steady at ~2%.
1
Quoted: “for reasons that remain unclear. Inflation in the United States has been below that level for the last six years, although most Fed policymakers continue to predict that higher inflation is around the corner”
The digital economy taking hold is zero marginal cost and the people who actually have money are spending more there. As people’s aspirational spend shifts to zero marginal cost goods and their needs for physical goods and products are met and no longer increasing, then inflation targets will be increasingly difficult to hit.
Also, technology requires far higher rates of inflation for inflation to fulfill its purpose.With tech, if I put off my purchase till tomorrow, I receive more, even if my dollar is “worth” marginally less.
1
However there is no discussion on the implications of Fed put on the financial markets. That put undergirds the potential for financial bubbles that can overwelm monetery policy.
The Fed has been asleep at the wheel since the Paul Volcker era ended. The Fed has also been complicit in the manipulation of a money supply which is always in favor of those in the same 1% "club." Their complacency, timidity, blindness, and ignorance is unforgivable. If the various Fed Presidents still claim that more research is needed to find alternatives, then where have they been? What world do they see? Consideration should also be given to the out-dated notion that all growth is beneficial. The Fed has no vision.
3
Trouble with these idiots is the same problem we have with state budgets. A 2% increase doesn't sound like much but it depends on whose wallet its coming out of because the more money you have the less likely you are to feel it. Since 1990 with health care, cost of goods, taxes, utilities, fuel, heating oil and so on it now cots me $26,000 dollars more living in the same house. That 2% tax adds up over the years. If they spent more time looking for ways to reduce inflation we would all be better off but they don't think that way. Same as the government cutting costs, they find a way to spend the savings on something else.
2
Be wary of plutocrats suggesting ways to adjust monetary policy to allow their pile of money to grow faster. I wonder if any of these would-be-economic-luminaries gave read Piketty?
"https://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in..."
2
They front-run every move their stooges in government make for them.
1
As the US economy changes the measures of economic activity need to change as well. While the interest rate and inflation rate seem to dominate the Federal Reserve's attention and policies the Federal Reserve Act mandates that the Fed attempt to achieve full workforce employment. This mandate too often seems like an afterthought to the Federal Reserve Bank appointees.
2
Only taxation and spending act directly to employ people. Monetary policy just pushes on a rope.
Check the statistics, JMT. We are at full employment.
The labor participation rate hasn't recovered since the crash of 2008. It peaked in back in 2000.
https://data.bls.gov/timeseries/LNS11300000
Forget 4% inflation as a goal. I have lived through high inflation. The only result was less ability on my part to pay for the basics my children needed.
Deal with the fact that for the last 3 decades too much of the growth of this country has generated extreme wealth for a tiny number, and minimal to no growth for everyone else. Our economy requires consumers. Move the money back into the pockets of those who both have to and want to spend more on real needs.
Deal with the fact that the demographics of this country mean we have fewer and fewer workers supporting more and more retirees. (And fewer still if the current administration's plans on immigration are fulfilled.) My first increase in several years resulted in $9 per month more in my check. The rest of the increase went to my portion of Medicare. which has almost tripled since 2002. Include health care costs in the inflation rate, and take further steps to contain the costs, particularly drugs. (I realize the Fed cannot do the latter.)
Few retirees borrow much money, but we do both have to spend and sometimes want to. And while we are making changes, get the student debt off the backs of young people, and some not so young anymore.
9
The EU and the US found that setting draconian inflation levels and cutting spending were a major drag on an economy during a recession. The problem is that the tax cut bill is going to unleash huge amounts of money into the economy and unleash another round of deficit spending. This prospect will give cover for cynical Republican efforts to make giant cuts in domestic spending.
5
Because of the imbalance in the economy - the top 1% owns 40% of the wealth - anything the Fed does can and will be manipulated by those at the top to serve themselves. Until inequality is addressed none of the rest of it really matters.
13
The problem with monetary policy has been the pursuit of "perpetual prosperity" -- heading every looming recession off at the pass -- ever since Greenspan became "rescuer-in-chief" in 1987. By preventing or seeking to ameliorate the natural ebb of the economic cycle, the Fed also discourages the beneficial effect of recessions, namely to restrain the issuance of credit from time to time. During recessions, lenders and borrowers are disinclined to lend and borrow respectively. Without such restraint, the expansion of credit continues unabated until overburdened borrowers begin defaulting massively and a major economic contraction ensues. So by avoiding a series of mild, manageable recessions, the Fed sets up the economy for "cascading defaults," a stock-market crash and a deep, potentially catastrophic economic contraction.
Rather than manipulating short-term interest rates to avoid recessions, the Fed should follow Milton Friedman's notion of expanding the M2 money supply at a constant rate equal to the long-term rate of growth of the economy (thereby fueling long-term growth and stable prices), and let the markets set interest rates. This approach will produce more frequent, mild, manageable recessions (preventing the unsustainable growth of credit) thereby avoiding a major credit crunch and financial/economic meltdown like 2008 or worse.
2
Atif Mian, an economist at Princeton University, has argued in his research that high levels of household debt are limiting the impact of monetary policy because many households cannot or will not continue borrow.
Household debt yes. But a subset of that is more important to wit: What is the household debt for those earning under (pick your number) $250,000 per year? Those households are the drivers. And what is the debt of college graduates?
I was lucky to get an almost free 8 years of university education, to pay off my little debt in 2 years and buy a house 4 years after I graduated (with down payment help from my parents).
Todays graduates, who's parents cannot afford tuition, will never be in that position. They will have little or no purchasing power. That is and will continue to be a large drag on our economy.
7
I’m no expert, but sometimes the true experts can overlook the obvious. Minuscule interest rates beginning after the Great Recession have amounted to a war on the middle class by putting wealth building, and therefore social mobility, out of reach to those who cannot afford to risk money in the stock market. Small savers essentially receive negative interest in that they pay more in bank feees than they receive in interest. They are, therefore, encouraged to spend and incur more and more debt, while the wealthy use their money to make even more money. Retirees who accumulated a nice nest egg are being forced to spend down principle for lack of safe investments.
9
Amen, the only comment worth reading. Bernanke stole the wealth of savers and transferred it to debtors and speculators. Savers will never recover the wealth he stole and the older they were, the worst effect thefe was, in the trillions of $$. 80 and 90 year olds avoid equities. Bernankes experiment was a tax on retirees and savers. A tax without representation and a violation of the 5th amendment on the taking of proprty without just compensation by the government. The Feds actions were shameful.
No debate whatsoever about reducing inflation and the deficit, paying off the debt, raising interest rates so as to not throttle savers and senior citizens, maintaining a sound currency. They only speak of easy and easier money. High inflation and a loose economy will gut the middle class.
1
While 4 out of 5 dentists were able to recommend sugarless gum, 4 out of 5 economists could only recommend a new debate as to whether one stick or two sticks of said gum is sufficient to maintain full gum chewing potential or whether consuming gum is in fact an expansionist policy that will result in inflationary pressure and a bubble in said gum at some point in the future.
2
Inflation has not been at "about 2% a year" since at least 2008. The target has never been achieved.
2
baloney. 2% is a manipulated number. laiars figure a d figures lie.
"...high levels of household debt are limiting the impact of monetary policy because many households cannot or will not continue borrow."
Ding ding ding ding! We have a winner folks! Imagine a 25 year old who graduated with ~3-4 years of private college student loans and asking them to do things such as buy a car or take out a mortgage. Our country's blind devotion to capitalism has hobbled an entire generation with life long debt, which ironically, will stymie the growth of this country's economy in the long term.
2
I'm apprehensive about the Fed broadening its focus beyond monetary policy, but much of the economy is now being manipulated in a partisan fashion by our Congress. We need true public servants willing to manage our economy for the good of all.
I don't know what the answer is, but weaponizing tax policy to punish non-supporters (for example) is surely a recipe for disaster.
1
the fed is always prepared to destroy jobs and wages.
it was designed to crush labor gains. it needs to narrow its focus, that is provide liquidity to solvent banks, period. the rest is just designed to bailout the bad actors they work for.
1
Increasing growth doesn't necessarily lead to increasing wages for most American workers, but is a pre-condition. Afterall, the growth that has occurred over the last 30-40 years has been captured by the extremely wealthy and huge corporations. The GOP and Trump didn't think capturing all the growth for the rich was enough so they passed the ridiculous tax cut of 2017.
By raising the inflation target, the Fed would not raise rates as they are prepared to do, according to Fed officials. Keeping rates low would at least allow for more job hiring and assist the economy to grow, setting up the potential for raising wages for most working people. If we want the economy to grow, people need higher wages in order to spend. Afterall, consumer spending accounts for 70% of the economy.
5
It's pretty obvious to me that both the economists and the politicians have no real idea or basic fundamental understanding of how current global economics work. Remember, inflation was supposed to sky rocket after 2008, and inflation should rise when you print money day and night like was done after 2008, but alas inflation never rose, the deficit hawks screamed bloody murder and said that the debt was supposed to make America's economy tank just like Greece's etc, etc, etc,.,. At the end of the day it's hard to model and predict the moves an undulations of the ever corrupt ever changing ponzi scheme that we all know of today as free market capitalism. Regardless, the current ponzi scheme (economy) is long over due for a major correction, and we are also long over due for the next unprecedented event. At which point the ponzi scheme will catastrophically collapse, and central banks will once again bail out the so called free-market bankers, ensuring that the rich will continue to get richer and the poor will continue to get poorer.
10
Monetary policy was less effective over the past decade in part because simply providing banks with free money didn't create enough of an incentive for them to lend it out to anyone. The Fed created plenty of cash, but there was no increase in lending. No wonder we had poor results. If the Fed wants to stimulate the economy, it needs to figure out how to do it in ways other than just giving banks a flood of cash. In a recession, banks and businesses need different types of help. The old "trickle down theory" (provide cheap money so banks can lend it out profitably and the economy will thus be stimulated) no longer works. Banks have a mind of their own. Just because banks can lend, doesn't mean they will lend. Now, of course, you can't borrow without having collateral. Home values are the largest source of collateral available to small business owners. So what did Trump do? His tax plan reduced the mortgage interest deduction for everyone and capped the SALT deduction. That doesn't help. You encourage home ownership so you can provide collateral for small business owners to use to start new businesses. Now, that has become more difficult. To combat a severe recession, the Fed will need to either guarantee (insure) bank loans to small businesses (to take the risk out of their loans) or skip over the banks who won't lend and create new institutions (bank utilities) that will lend directly to the public. Why not try such a direct approach?
4
The Fed could have backstopped the retirement CD's held by millions of ordinary people at the 5-7% pre-crisis yields those CD's were getting.
Because once the Fed dropped rates to near zero, so also dropped granny's and gramp's income generated by those CD's. For millions it is the only other source of income besides their Social Security checks.
20
Unless I am overlooking something, this seems like a simple idea that has minimal downside and an important upside. As one of the "grannies" I had no choice but to turn to stock market in 2009 with my minimal savings and learn how to trade, etc in order to generate income. I did pretty well actually, but it took a lot of daily attention, time and stress. And I made some real mistakes. I do now feel competent about my investments and no longer trade stocks to any great extent, but frankly if someone offered me 5-6%, I would sell most of the stocks just to gain a sense of security.
3
Why would anyone invest in any other asset (stocks, bonds, new businesses, etc.) if they could get a 5-7% risk free return while inflation is below 2%?
1
great, but when u are 94 years old it doesnt hppen. instead u spend ur principal while ur banker yucks it up with the Fed at Jackson Hole or Davos.
A steady economy is a blessing. In order to have a steady economy you need a rational government dedicated to the good of the people. Since we don't have that, we need to rely on the Fed to resist calls to return to the wild swings of the past. The stock market bubble is going to burst sometime soon, I don't see more inflation as doing anyone any good.
8
The reason why the U.S. was able to survive the Great Recession was due to the creativity of Chairman Bernanke. The Republicans in Congress opposed the use of fiscal policy; one might reasonable suggest they wanted the economy to crash so that they would have an excuse to enact a brutally recessive attack on programs (e.g., Social Security, Medicare, Medicaid, food stamps) that make up the social safety net. Any freshman econ major would have known that the failure of Republicans to act would crash the economy even more than occurred. Fortunately, Bernanke was an expert on the Great Depression, and developed alternatives.
14
Technocrats get a lot of dismissive criticism, but having a genuine expert in the role was a godsend.
1
When the next financial crisis comes to the U.S. economy, the Fed should change it's focus from rescuing failing private companies and investors, to insuring continuing consumption and demand. The banker of last resort should assume consumer debt from illiquid financial institutions, at current market value, then drop the rates of interest on those loans to provide more consumer purchasing power. If capitalism is to continue as a viable economic model, weak, poorly managed companies must be allowed to fail, even as consumer demand is maintained to fuel growth in new better managed suppliers.
9
The Bush GOP tax cuts and financial deregulation threw us into what was virtually a depression in 2008. But the Fed and the Obama administration minimized the impact and prevented the country going into a complete tailspin like 1929. Now we have the most inept, rash presidential administration ever. We have to keep an open mind, but we also have an institution here that has been very successful at its job this last 20 years. Exercise caution.
4
It's a dangerous fallacy that the Federal Reserve can "manage the economy."
Ask the immiserated and bankrupt former middle-class if they think the economy has enjoyed any sort of recovery. The stock market is not the economy.
8
The whole concept of value underlying fiat currencies is their capacity to make more of themselves when deposited in banks. This is what the Fed plays with like a child.
1
The Fed sure can't fill the void left by the grotesque incompetence of Congress at fiscal policy.
3
What the Fed is actually doing by manipulating interest rates is regulating the money supply. All money is created through debt, and lower rates encourage borrowing, and therefore more money. When there is too much money, which causes inflation by allowing buyers to bid ever higher, rates are raised to limit the supply.
The problem lately has been that the increased supply has gone mostly to the top, where it doesn't get spent. It sits in investments, trust funds and Corporate Treasure Troves. It does not "trickle down" in mythological fashion, so it does not chase resources as it would if it were to go into the hands of ordinary people who spend most of what they earn.
The new tax bill will exacerbate this. So the real solution, is tax policy that puts money in the hands of people who spend it. Not into the hands of the wealthy who spend a small portion of their resources infrequently, and large corporations who spend only what they need to, regardless of cash on hand.
I think it was Will Rogers in 1932, paraphrasing, who said - Give a dollar to a poor man and it will surely end up in the hands of a rich man. Not the other way around. Money trickles UP, not DOWN. And that is why the Fed's powers are limited in the current environment and going forward. The money supply they are causing the expansion of is ending up in inflationary asset bubbles. That kind of inflation is not reflected in the cost of living.
45
Correct. The Marginal Propensity to consume is still the same -- the poor and working classes spend all their dollars. The upward distribution of income keeps producing asset bubbles that accumulate and then destroy "excess money." If the "new money' went to the working classes, demand would be stimulated.
12
The Fed's interest rate games only generate instability and opportunities for insiders to front run its moves.
2
Money is created when the Fed buys busted debt instruments too.
If the Fed does not raise interest rates by at least a full point in 2018, they are conceding to a boom and bust cycle that has been the bane of our economy. The only way to control excessive stock speculation is to provide investors with a reasonable rate of return on their savings through CD's and bonds.
14
The missing ingredient in this debate is the government's fiscal policy, which could be a huge lever in combating a severe downturn. As we saw during the Great Recession, a too-small stimulus, plus a too-soon pivot towards deficit reduction, crimped the economy's growth, despite the Fed pulling out all the stops. The Fed can debate all the new methods it wants. But until the politicians do their part, they're figuring out how to move a stalled car with the parking brake set.
28
Monetary policy attempting to substitute for fiscal policy just pushes on a rope.
"During a period of lower inflation, like the last decade, [and NGDP] target would require the Fed to dictate more aggressive stimulus." Well, yes: but so would an inflation target, provided the Fed took the target seriously.
The advantage of an NGDP target is that in periods like the last several years of below-average productivity growth it such a target automatically allows for an above-average inflation rate, and thereby allows for greater stimulus that efforts to maintain a constant inflation rate would. On the other hand, when productivity grows especially rapidly, as it did in the years leading to the crisis, an NGDP target would call for less stimulus (and less deflation) that an inflation target would. NGDP targeting is for both reasons likely to have better counter-cyclical capabilities than inflation targeting.
2
For nearly 10 years, the Fed failed to achieve its existing inflation target. Until they figure out how why they failed and how to succeed next time, it seems premature to debate changes to the target.
10
Wage and price controls inflicted by Nixon, magnified by Reagan's trickle-down expansion, are eating us alive 45-50 years later. If wages for labor were still based on the needs of one earner our present situation might not feel quite so desperate.
8
The Federal Reserve should look more like the country. Could it have a more diverse group of expert citizens with differing perspectives?
5
The Fed has the academic advice purchased by plutocrats donating to university endowments.
The Fed and the academics cited in this article may have grossly underestimated the impact of the Great Recession on the psyche of the American consumer. Those that lost homes and/or jobs, or remain trapped in homes with negative or no equity are not likely to jump on the debt merry-go-round any time soon no matter how low the borrowing costs. It is possible that average Americans are learning to live within their means - eschewing debt for savings. Add to their burden the grotesque inequality in wealth, plus tax "reform" that favors the wealthy, do the economic pundits really believe that the 99% can continue to be the engine of American economic growth?
11
Unfortunately the data contradict your assertions that consumers are refraining from borrowing. Debt levels are around what they were before the meltdown in 2008. Consumers still fill the gap between their rising aspirations for consumption and stagnant wages with debt, obligingly supplied by the rich who, in gathering up all the fruits of economic progress with minimal taxation, have plenty to lend, creating a bubble in housing prices. They also have plenty of money to invest in the stock market, creating a bubble there as well. Eventually bubbles burst and the whole house of cards collapses. Brace yourselves.
2
I expect "tax reform" to knock between 10 and 20% off the value of my properties in high tax states. Some people's mortgages will probably go back under water.
2
We have had spectacularly irresponsible fiscal policy fro the last 30 years.
Reagan cut taxes for what would have been a massive Keynesian stimulus, but he also had Volker tighten the money supply, driving interest rates (high demand for money and low supply) so high that foreigners wanted to buy our debt, and as the dollar rose (as foreigners sought dollars to buy our debt) our manufacturing was priced out of world markets, and our high wage manufacturing jobs were largely destroyed and exported. In short, actual demand for goods and services was pushed overseas, and demand for domestic products tanked due to this mis-match (for all but the Wall Street class) between monetary and fiscal policy.
Bush the First and Clinton gradually got the country back on track, but then Bush II cut taxes (just as now) at a time of full employment -- this was pure macroeconomic incompetence. AND Bush II also wanted a war without raising taxes to pay for it (while Dick Cheney said, "we have learned deficits don't matter"). Due to the excess money flowing upward, we got an asset bubble (inflation) instead of inflation in the price of goods. Crash followed.
Then, Obama failed to implement the massive demand stimulus (a 12 trillion dollar infrastructure stimulus was needed) and so our recovery depended on the Fed to provide stimulus. A "Fed-only" recovery was too slow and also redistributed income upward.
In short, if we had responsible fiscal policy, the current Fed would work fine.
10
We have had total abrogation of fiscal policy to the Fed by a delusional Congress that believes monetary policy is an acceptable and effective substitute.
The Fed can't do much if anything about the real constraint on economic growth which is income and wealth inequality. We need fiscal policy for this. And that means we need the political will for fiscal redistribution. For that we need to get rid of Republican control of the government.
20
That apparently won't happen as long as the vestiges of slavery that empower Republicans disproportionally to their numbers remain in effect.
1
The global economy has undergone structural change of epic proportions, largely as a result of policies such as unbridled neoliberal globalization and the "Washington Consensus" that were advocated by the very same economists that are so thoroughly and utterly confused now.
You can't make this stuff up.
The crisis in 2008 was structural in nature; the economists treated it as cyclical. The opportunity cost of this historic blunder is incalculable.
We are now in the midst of the most profound economic transformation in history, and the members of the economics "profession" are the last to know.
Their incompetence is truly breathtaking.
Meanwhile the developed world is imploding, and heading towards widespread social unrest.
But it's good to know that the best minds in economics have managed to come up with a new acronym (N.G.D.P.) Will there be pie charts, and ones with squiggly lines that two economists can draw opposite conclusions from, too?
There will be more change in the next two decades in every vertical industry, in every country, than there has been since the dawn of the First Industrial Revolution.
We need to start all over, with a new generation. These people have done enough damage.
Burn all the economics textbooks. Shut down, effective immediately, the economics departments of all universities. Fire all the economists. Basically borrow the best practices from the ebola epidemic to contain this toxic intellectual waste.
And start iterating.
3
I agree the Fed has made a complete hash of the economy for decades and seems to understand less and less about how it functions as time goes on. The whole idea that a select group of people should "manage" our economy is a grotesque fallacy. That said, I am not sure how we go about containing the "toxic intellectual waste," nor am I sure what you mean by iterating.
3
Watch the next crash come from an unexpected source like shadow banking.
Does it disturb anyone else that these people have no idea what they should do, but are convinced THEY should do something new. I think we need to be clear, economists problem is how to has manage the economy for the benefit of the wealthy and powerful who hire economists.
There is little doubt that a rising tide lifts all boats, except those that are firmly tied to the pier. Those folks just watch the tide with rising terror. That is where most of us are now. The rising tide of the global marketplace is threatening to drown everyone who is tied to a place or community.
11
Why aren't health care costs included in inflation numbers? This would surely better reflect actual values of the normal economic structure.
17
I think the reason our recovery was slower than it needed to be is because the Republicans would not cooperate with the Obama administration's stimulus. They stated they wanted him to fail and therefore they would not vote for anything he wanted even if it was what the country needed. That was unpatriotic.
38
Obama was not willing to push hard enough for the 12 trillion dollar (infrastructure investment) stimulus that we needed, and so we were stuck with a Fed-led stimulus, which, as a heartening number of commentators have noticed, required massive upward distribution of the Fed's "new money" to create any actual economic stimulus.
2
The tax cuts Republicans insisted on failed, but far be it from them to acknowledge their own responsibility for it.
The Fed needs to look at policies that give the middle class, stuck by the rich for fourty years, an opportunity to share in the profits. Otherwise, it's just a tool for the affluent, more oppression for the rest of us, and a crush of the American Dream.
19
The only thing the Fed can do anymore is buy busted securities for bank credits, so they become "assets".
2