Entries Tagged as 'Ben Bernanke'

Criticizing Holder is Not Racist

December 20th, 2011 at 12:59 am 77 Comments

In a New York Times piece ostensibly characterizing Eric Holder’s Justice Department tenure as tenacity in the face of partisan beligerence, the US Attorney General gives opponents the equivalent of manna from Heaven: “This is a way to get at the president because of the way I can be identified with him…both due to the nature of our relationship and, you know, the fact that we’re both African-American.”

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Inflation? Where?

David Frum November 2nd, 2011 at 2:27 pm 96 Comments

John Makin cogently explains in his monthly economic newsletter that Federal Reserve policy has not been too loose and that inflation is not a near-term threat.

The latest core inflation data through September show the three-month annualized pace decelerating from more than 3 percent during the second quarter to 2.1 percent during the third quarter. The monthly annualized core inflation rate has dropped even more sharply.

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Meet the Sincere Gold Bugs

October 6th, 2011 at 1:25 am 42 Comments

The Heritage Foundation is currently hosting a conference it bills as a “Conference on a Stable Dollar.” The words “Gold Standard” do not appear in the title of the event but that is what the conference is about.

Near the end of the first panel (entitled: What is a Stable Dollar?), Stuart Varney, a Fox News host and moderator of the panel, asked the audience to raise their hands if they thought that gold should be part of some sort of monetary reform. Nearly the entire audience of wonks, academics, college students, and hedge fund managers raised their hands. How did the conservative movement reach this point?

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Fed Action was not Substantial

September 21st, 2011 at 5:30 pm 10 Comments

The Federal Reserve has announced that it will undertake a policy option that the media is calling “Operation Twist.” It will attempt to stimulate the economy by purchasing long term treasuries and selling off its short term holdings, but what will this mean in practice? FrumForum spoke with AEI economist John Makin to unpack the latest FOMC plan.

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The Hobgoblin of Little Minds

David Frum September 21st, 2011 at 10:29 am 33 Comments

At the end of the 1980s, the US was hit by a severe financial shock: the Savings & Loan crisis. I’ll spare you the antique details of the crisis, but in 1990 the US found itself looking at perhaps $200 billion in federally insured bad loans by the failed S&L industry. The economy slipped into a recession, nothing like so severe as the present-day recession, but bad enough.

Soon afterward, Saddam Hussein invaded Kuwait, shocking global oil prices.

Responding to the crisis, the Federal Reserve rapidly and repeatedly lowered interest rates. It cut the Federal Funds rate 18 times between 1990 and 1992, reducing it from 8% to 3%. These bold monetary actions failed however to produce recovery on a timetable to gain re-election for President George HW Bush.

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The GOP’s Bernanke Letter

David Frum September 21st, 2011 at 8:46 am 85 Comments

I’m not shocked by much any more, but I am shocked by this: the leaders of one of the great parties in Congress calling on the Federal Reserve to tighten money in the throes of the most prolonged downturn since the Great Depression.

One line in the letter caught my eye as summing up the unreality of the Republican leaders’ position:

We have serious concerns that further intervention by the Federal Reserve could exacerbate current problems or further harm the U.S. economy. Such steps may erode the already weakened U.S. dollar or promote more borrowing by overleveraged consumers.

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Bernanke’s Blast

David Frum August 26th, 2011 at 3:39 pm 80 Comments

Ben Bernanke is a very conservative Republican, a student of Milton Friedman, and a George W. Bush appointee. Keep all that in mind as you read these words from his speech today at the annual Jackson Hole conclave:

Our economy is suffering today from an extraordinarily high level of long-term unemployment, with nearly half of the unemployed having been out of work for more than six months. Under these unusual circumstances, policies that promote a stronger recovery in the near term may serve longer-term objectives as well. In the short term, putting people back to work reduces the hardships inflicted by difficult economic times and helps ensure that our economy is producing at its full potential rather than leaving productive resources fallow. In the longer term, minimizing the duration of unemployment supports a healthy economy by avoiding some of the erosion of skills and loss of attachment to the labor force that is often associated with long-term unemployment.

Translated from the central banker-ese that means: The economy needs more monetary and fiscal stimulus now!

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Who Wants Higher Interest Rates?

August 10th, 2011 at 1:40 pm 50 Comments

Over at the Weekly Standard’s blog, online William Kristol reproduces an email he’s received from an unnamed “businessman and investor” for whose judgment Kristol says he has the “highest regard.” The email lambastes the policies of the Federal Reserve and Ben Bernanke in no uncertain terms.

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Bernanke Gives Some Good News

David Frum July 13th, 2011 at 12:14 pm 20 Comments

Some good news in Ben Bernanke’s testimony today:

On the positive side, household debt burdens are declining, delinquency rates on credit card and auto loans are down significantly, and the number of homeowners missing a mortgage payment for the first time is decreasing.

Continuing on the brighter side:

Two bright spots in the recovery have been exports and business investment in equipment and software. Demand for U.S.-made capital goods from both domestic and foreign firms has supported manufacturing production throughout the recovery thus far. Both equipment and software outlays and exports increased solidly in the first quarter, and the data on new orders received by U.S. producers suggest that the trend continued in recent months. Corporate profits have been strong, and larger nonfinancial corporations with access to capital markets have been able to refinance existing debt and lock in funding at lower yields. Borrowing conditions for businesses generally have continued to ease, although, as mentioned, the availability of credit appears to remain relatively limited for some small firms.

Who Really Controls Fed Policy?

June 22nd, 2011 at 9:59 pm 3 Comments

One question that has always hung over Ben Bernanke’s press conferences is: “Why are you doing this?”

Bernanke’s push for increasing transparency at the Federal Reserve seemed poorly timed since it has come right as Fed skeptics are strongest in Congress, whether the skepticism comes from Ron Paul or other politicians.

During his press conference today, Bernanke suggested that if the Fed can be more transparent and gain the trust of Congress, then it might be able take on more innovative policies such as inflation targeting. This would be great if it were true — but it’s unclear that more press conferences are increasing trust in the Federal Reserve.

Currently, the Federal Reserve sets monetary policy usually by announcing what it’s interest rates are, or by announcing if it will conduct large asset purchases. If it adopted an inflation target, the Federal Reserve would announce a goal for inflation that it wants to achieve (for example, two percent) and its success in policy making would be determined by how closely all its activities meets that target.

Bernanke is a self-described “ longtime proponent of an inflation target” and was asked directly about how the Federal Reserve could adopt this policy in practice. He suggested that the policy could take time to develop since it would need to be explained to members of Congress. He also warned that the public might not understand the benefits of inflation targeting and they would fear the Federal Reserve was intentionally abandoning its mandate for employment:

“It is very important first that we communicate to the public what we are doing. Without sufficient explanation and background many people might think are abandoning our employment targets. We need to make sure it’s well understood by the public and by congress that having a target would not mean we are abandoning the other leg of the dual mandate.”

Left unsaid in Bernanke’s response was that many people might also be terrified of the Fed intentionally trying to increase inflation due to the fear of inflation among many members of the population.

As for why Congress would need to be consulted:

“We might have the legal authority to do this, but I think we need some buy in from the administration and Congress to take this step.”

Bernanke said there is “nothing imminent” on the horizon and that actions such as this press conference are part of a longer term strategy of increasing transparency.

The exchange was a revealing look at the limits of the Federal Reserve’s independence. On the one hand, Bernanke believes he has the legal authority to conduct inflation targeting if it would be better policy. On the other hand, he wants to get stakeholders behind him first –but given how skeptical many in Congress are of the Federal Reserve, that doesn’t seem likely to happen.

Given how timid the Fed can be on some policy questions, it’s remarkable that politicians such as Newt Gingrich are claiming the Fed is violating the “rule of law.”