News & Analysis
Central Banking Premises Are Lacking?
How Would Mitt Romney Influence the Fed? ... Binyamin Applebaum discusses who Mitt Romney would likely tap to replace Ben Bernanke at the Federal Reserve and says we'd likely get either Greg Mankiw or Glenn Hubbard whose views seem similar to Bernanke's or else we'd get John Taylor who seems like more of a hawk. Neil Irwin offered a longer list of contenders at the beginning of the month, but I think also has those three as his leaders. From my viewpoint, one thing I think we've learned over the past five years is two modes of inference that don't hold up. One is "the president is sure to appoint someone who'll deliver strong nominal growth to ensure his re-election" and the other is "new Fed Chairman X is sure to do Y because Y is what he said we should do in his academic work." Unfortunately that leaves the situation inherently murky. – Slate
Dominant Social Theme: "When I use a word, it means just what I choose it to mean, neither more nor less." – Humpty Dumpty
Free-Market Analysis: This article at Slate illustrates the growing radicalization of the Fed conversation and also how words and premises make it increasingly difficult to discuss central banking logically.
It is an analysis of whom Mitt Romney would pick for Fed Chairman if he became president – but the subtext is that the US central bank ought to adopt certain specific targets as related to employment especially.
It is written by Matthew Yglesias, "son of novelists Jose Yglesias, of Cuban and Spanish descent, and Helen Bassine Yglesias, daughter of Jewish Polish immigrants," Wikipedia informs us. "Yglesias went to high school at The Dalton School in New York City and later attended Harvard University where he studied philosophy [and] was editor-in-chief of The Harvard Independent, a weekly newsmagazine."
Yglesias is evidently a liberal who supported the Iraq war and reportedly voted previously for Mitt Romney. He has also written for the American Prospect and for The Atlantic magazine before taking up his post at Slate.
As might be expected given his progressive credentials, this article is a subdued argument for yet more central banking activism, which Yglesias refers to as "regime change." He's a bit coy about it but he seems to be arguing for greatly stepped up stimulation to cure the US "employment" problem. This is part of a larger argument that is gathering strength regarding Fed policy: that it is too timid.
The logic is that whatever the Fed has been doing (printing money) hasn't worked very well and therefore the Fed ought to do MORE of it. Of course, free-market oriented types believe the problem is that the Fed is already doing too much. But this is obviously not the perspective of Fed activists.
Additionally, such individuals often want the Fed to be clearer about its goals. They want the Fed to adopt numerical goals, in fact, and work toward meeting those goals by manipulating monetary volume.
Those around the Fed have been reluctant to adopt formal goals because of the dual mandate to control "inflation" (really, price inflation) while supporting "employment." Within a larger context, the US central banking brain trust has been reluctant to take the step toward numerical goals because the Fed is traditionally (and once again) a target of US populist resentment.
To announce that the Fed – a purposefully ruinous instrument of elite policy in many eyes – will now seek to mimic various scientific disciplines is akin to attaching a bullseye to its metaphorical back. Here's a little more from the article:
Rather than focus on individuals, lets look at what's promising and what's not promising about a Romney influence on monetary policy.
The promising element is that when Rick Perry, Ron Paul, Herman Cain and others were leading the GOP down the path of hard money mania, Romney was clearly reluctant to follow. He did notably little Bernanke-bashing and even appeared to defend him at times. So Romney has a foot in the camp of good sense and also perhaps has a grasp of the importance of this issue, making a topic he didn't want to immediately flip-flop on when opportune.
The non-promising element is that we're in the era of the "partisan presidency." A Democratic White House is staffed by Democratic Party bigshots and a GOP White House is staffed by GOP bigshots.
And there's no doubt that the prevailing winds in the GOP are toward hard money. Paul Ryan is passionate about monetary policy and is committed to hard money views he learned from Atlas Shrugged. The new conservative think tank E21 is a bastion of hard money thinking and Senator Robert Corker and other Republican members of congress have rallied to urge the Federal Reserve to care even less about unemployment and real output.
The salient point of this article is to suggest that Romney would choose a "hard money" chairman – and this would further separate the Fed from the laudable effort (in the eyes of some) of becoming more scientific and goal oriented. Of course, one must put "hard money" into context in order to discuss this suggestion logically.
The dollar is not backed by anything specifically and on top of that the world's largest oil producer, Saudi Arabia, demands payment for oil in dollars, forcing other countries to hold dollars. This has allowed the US Fed, with the connivance of Congress, to spend trillions more than the US could otherwise afford. Countries are forced to buy these dollars even if they don't want to.
At this point it is obvious that people would not hold dollars if they did not have to do so. The dollar is seen as a degrading investment. There are too many of them. For this reason among others it is strange to refer to certain Fed-centric economists as "hard dollar." A hard dollar viewpoint is one that espouses commodity backing for the currency, even full-reserve backing. To speak of those espousing fiat of any kind as hard dollar is surely to misuse the term.
What is meant by the term "hard dollar" is that those to whom the term is applied are in favor of FEWER soft dollars – fiat dollars. But to apply the term "hard dollar" to these folks is surely a misuse of the term.
"What we need is regime change," the author writes. But what is actually needed is a clarification of what is logical from a monetary standpoint.
Conclusion: We are told on good authority to check our premises because premises color conclusions. This article is a good example of how debasement of the fiscal conversation has made it difficult even to discuss necessary remedies.
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Posted by Danny B on 10/23/12 10:01 PM
This is only vaguely related to the topic. We all know that austerity has backfired in that it severely diminishes the economy. The end result is that debt-to-GDP increases rather than decreases. Christine wants to give the Greeks 2 more years to adjust to austerity. She had a sudden realization that Greece was disintegrating faster than anyone imagined;
Click to view link
Further reinforcing the idea that GOV is oblivious to unintended consequences, there is a second problem arising. As GOV raises taxes, more of the economy moves underground. I suspect that once it moves underground, it will thrive there.
Click to view link
It appears that the PTB want more socialism in Europe. MORE socialism take MORE money. A crashing economy won't provide more money.
Here is an interesting article on the cost of socialism. The author is quite contemptuous of socialism.
"A country that feels the need to socialize has, in my view, already failed culturally. It is an open admission by the public that they are unwilling or unable to take responsibility for their own prosperity."
Click to view link
Socialism is a negation of incentive. It always crashes. We are generally agreed that the crash of the EU was a manufactured occurrence. I believe that the crash is FAR more dire than the PTB planned for. I also believe that the PTB planned for the CBs to keep the various sovereigns afloat to an acceptable degree while the socialist consolidations were implemented.
For the IMF to backpedal and propose a jubilee is an admission that the original plan has gone FAR astray. A 2 year extension for Greece is retrenchment. Germany wants to wait a full year before any action is taken on Spanish debt. The Spanish have other plans;
Click to view link
I don't believe that the CBs can keep the sovereigns afloat without any defaults for very much longer. One year Greek notes are at 426% interest.
As more of the economy moves underground, the sovereigns will have even less ability to introduce socialism.
Related: California state tax revenues declined 40% in one year.
Socialism is a buffet of handouts. As the bond investors flee, there won't be any handouts. The CBs are in a losing game.
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Posted by expatriot on 10/23/12 09:51 PM
Frankly I forget how charades works, but do remember it is a dada like guessing game of sorts... and indeed that seems like a rather good description of the Fed...
What seems laughable is the idea that incumbent presidents (every one in my life time, members of the CFR... a think tank run by one of the visible families who participated in Jekyell Island to plot creating of the fed)
The Federal Reserve Bank is not just a "central bank", it is not "Federal" and since it has NEVER once been seriouslly audited, it is rather not certain if has "reserves" : aside from piles of paper money and IOUs... we can only guess... at what really goes on or who really OWNs the Fed... although we can guess!
One merely needs to study the quoted statements of people like Mayer Amshel Baur Rothschild (and by the way his wife said a few doozies too) Lord Acton, Alan Greenspan, James Madison, JD or David Rockefeller, Paul Warburg, Lindburg and so on to see that the real power is clearly the Private Central Bank... and this "central bank", privately owned , is a corporation which does not appear on any stock market because it's owners are the absolute rulers and simply do not mix with we sheeple whom by they feel they own. You want a few million buck? Go lick the boots of the elite and they'll see what they can do.
The director of the Fed is not an owner. He is an employee. The Public gets unhappy? They change him. New guy! All is well now! Hello! Same boat... same course... new caption. Good lord!
The central bank for all practical purposes OWNs the country it prints money for... find out who owns shares in that bank and you will know who owns the corporation called the United States of American... or Europe... and so on... likely the same few people. The Robber Barons of the earth !
The President is not an owner either... he is an employee. The game of charades that is played is that though the various masks in houses of mirrors (think tanks such as the CFR chaired by a likely part OWNer & corporations which are built via the favors of these central banks)... two candidates are chosen and financed... they make all sorts of noise to show signs of being very different on all the surface matters such as abortion, gay marriages (real so what noise issues as such), social "programs' (to program is to control something, by the way) while dodging any sort of deep geopolitical questions. Here they will all do the same thing (dictated by the DFR and such) in office and only mention such things if pushed hard enough into a corner to do so...
In short, the perfectly amazing lie that the President who is financed into power by the bank for the bank will indeed choose who runs the Fed is simply a laugh... a sad laugh at that. The president is chosen by the Fed (via it's thing tanks & clubs) and put into power by the bank for the bank's owners to channel wealth into the OWNer pockets by taxing ours (as we the people create the wealth in reality) ...
if he changes the CEO of the bank... most likely this the other way around behind closed doors... the bank hires both of them. Banks take no risks... they let other's take risks thus always win. Indeed these "leaders" are chosen by the think tanks set up by the banks, pushed forward by the control systems of corporate money, media and so on... and since both sides are bought (because as the money power system, they have set up such a monopoly that very different corporations can be used for candidate ; as well as pretty much control the vote via media. By hook or crook thus direct elections in the way they'd prefer... but then if for some reason it does not go the way they hope, the other candidate is puppet to them too.
The only reason this is rather bleak is because people stubbornly fall for it. They buy the big name corporation products, and do as they are told paying income taxes into a bank which is not obviously even american. It is the dumbed down cult of ignorant bliss... full of canned laugher and processed white sugar and flour devoid of all nutritional value. A huge hoax! In inside job by outsider overlords.
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Posted by dave jr on 10/23/12 09:37 PM
As hard as it is to get people to understand that government does not create wealth, it is even more difficult to suggest that neither does the federal reserve.
Wealth is that which lends to better living, and is only created one way; intelligent application of energy, exhausting work. To keep the standard of living up in a technology rich modern world, several services are needed. Government has a role as protector of life, liberty, property and the rule of law. Banking has a role as accountant of GDP and lender. Investors have a role as providing opportunity in less conventional, riskier ventures.
The point is, it all unravels when the basic unit of production, the thinking motivated individual is violated.
But maybe we have come to a place where the standard of living no longer needs to increase? Existing wealth merely needs to be distributed in a fashion where nobody has any real complaint? Where the resources and production merely have to be controlled in a fair manner? Where the overlords will take care of us? Welcome to the command economy.
Wadeaminit. Hasn't this been tried before?
Coupons backed by nothing other than the threat of violence causes the coupon to be spent immediately, causing shortages, causing price inflation, causing price and wage controls, causing a private sector exodus from the markets, causing nationalization of all resources, causing serfdom and predominant slavery to an artifical economic system.
Only this time it isn't nationalization. It is globalization. Same ploy, different playground, smarter bullies.
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Posted by laceja on 10/23/12 08:19 PM
speedygonzales,
If Argentina is expelled, it will be very natural for most of South America to firm up their agreements and form their own monetary union of sorts. That's exactly what Argentina, Brazil, Bolivia, and Venezuela want. You'll probably see the rest of SA join in, at least in an informal way. Colombia may have some problems, because of its FT agreement with the US but, they'll likely find a way to massage the language so it will work. That's the beauty of Latin America, they can always change the meaning of the words to suit the situation.
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Posted by speedygonzales on 10/23/12 04:41 PM
ARGENTINA: A CASE FOR MONETARY SOVEREIGNITY.And why the IMF wants to punish Argentina.
The Argentina shows that placing the sovereignty and monetary policy, or with the state as a player in economic policy, you can not only resist the imperialist oligarchies, but escape the neoliberal catastrophe.
In Great Britain, have been given a specific name and follow it as if it were a soap opera in the geo-politics: "The Christines at war," the war of Cristine (between the secretary of the International Monetary Fund Christine Lagarde and Argentina President Cristina Kirchner), it would be a fiction series really impossible not to follow.
Click to view link
