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Seems like Ben Bernanke has tried to get the final word before the next FOMC meeting, as sort of ex officio member. In a blog post he strongly defends negative interest rates and rails against raising the inflation target as if people were proposing 10% inflation targets. It seems no more than 2% inflation or we are all doomed. He does mention NGDP targeting but misunderstands it badly. His post is so full of errors that it has hard to know where to start. “Nominal interest rates are very low, and in a world of excess global saving, low inflation,… Read More

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In the last day of public comments by FOMC members before the whole committee entered purdah the market was treated to three separate statements. Kashkari First off was Neel Kashkari. He knows little about monetary economics and it showed he hasn’t bothered to find out anything since his appointment. He should take this course for starters. At least is he is enthusiastic and inquisitive. In a blog post entitled “Nonmonetary Problems: Diagnosing and Treating the Slow Recovery” he rather airily dismissed the idea that the slow recovery was due to poor monetary policy. He tasked his economics team at the Minneapolis Fed… Read More

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From a recent Vox post: “The tail that wags the economy: The origin of secular stagnation”: The Great Recession has had long-lasting effects on credit markets, employment, and output. This column combines a model with macroeconomic data to measure how the recession has changed beliefs about the possibility of future crises. According to the model, the estimated change in sentiment correlates with economic activity. A short-lived financial crisis can trigger long-lived shifts in expectations, which in turn can trigger secular stagnation. The typical post-WWII recession has a distinct trough, followed by a sharp rebound toward a stable trend line. Following… Read More

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There is a still-popular framework in some monetary circles (including parts of the Alt-M crowd) that fiat-money central banks are statist-inflationist redoubts, despite the last 35 years of global disinflation and then deflation, along with falling interest rates. The track record of the last few decades suggests that major fiat-money central banks are actually disinflationist and then deflationist, and appear unwilling to alter course. The old argument was that nations want to pay off debts with cheap money. So nations deploy central banks to print money—the word “debauchery” and “theft” are often used—and pay off bondholders with devalued currency, cheating the… Read More

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Watching Bank of England Governor Mark Carney joust again with Jacob Rees-Mogg MP at the UK’s Treasury Select Committee yesterday got me looking back to the May press conference when Carney launched his warnings about the riskiness of voting Leave, that were then repeated at the May Treasury Select Committee hearings. There was a lot going on at the time but Carney had a secret weapon, a new monetary policy tool whose importance is still being overlooked. Carney took sides, but … The intensity of the debate over Brexit was terrific during May and June. The Bank of England was clear… Read More

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Back in Autumn last year I was concerned  by the negative trend in Swiss NGDP during 3Q 2015. In January 2015 the new head of the Swiss National Bank broke the fixed ceiling on the currency vs the Euro that had prevented appreciation and a consequent monetary tightening. The ceiling had been so credible that after early attacks the SNB had not had to defend it by selling currency and thus expanding its balance sheet – a major cause of concern inside Switzerland. On breaking the ceiling the currency duly rose dramatically and the SNB was forced to sell currency… Read More

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The woeful record of independent fiat-money central banks and inflation targets is one of nearly universal economic asphyxiation. Everywhere on the globe where a central bank has an IT, one sees inflation below targets, deflation and anemic growth. Right to it: The Reserve Bank of Australia has an inflation target of 2% to 3%, but with inflation at 1% the RBA is below target. Growth is subpar—and this is the best of the lot. Thailand has a1.5% inflation band around 2.5% IT, and has no inflation and subpar growth. The People’s Bank of China has a 4% IT, and a… Read More

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To many, the economy is strong enough to sustain a jolt of higher rates. Richmond´s Jeff Lacker is a case in point: The U.S. economy appears strong enough to warrant significantly higher interest rates, Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday. Lacker, who is not a voting member of the U.S. central bank’s rate-setting committee this year, said he still favors raising rates sooner than later and that the Fed’s last policy meeting in July would have been a “good time” to tighten policy. Speaking to a group of economists in Richmond, Lacker argued that a range… Read More

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In “Years of Fed Missteps Fueled Disillusion with the Economy and Washington”, Jon Hilsenrath gives his contribution to the “Great Unraveling” series. He starts off writing: In the past decade Federal Reserve officials have been flummoxed by a housing bubble that cratered the financial system, a long stretch of slow growth they failed to foresee and inflation persistently undershooting their goal. In response they engineered unpopular financial rescues, launched start-and-stop bond buying and delayed planned interest-rate boosts. “There are a lot of things that we thought we knew that haven’t turned out quite as we expected,” said Eric Rosengren, president of the… Read More

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Stephen King (not the popular author) but HSBC’s senior economic adviser, elaborates on Larry Summers´ comments on San Francisco Fed president John Williams´ letter. King´s conclusion, however, in effect disparages the idea of NGDP Targeting. Maybe he doesn´t understand the concept: In these circumstances, the entire monetary policy framework is up for grabs. Shibboleths will have to be dispensed with. At zero rates, central banks may have to work increasingly closely with finance ministries, prioritising the need for co-ordinated action over the desire for independence. Inflation targeting may have to be ditched, perhaps replaced by nominal gross domestic product targeting:… Read More

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