Posts Tagged ‘monetary policy’

Heckuva job, Brownie (UK edition)

8 June 2009

Paul Krugman has mixed feelings about the Labour Party’s shellacking in this week’s elections.   Me too.  It’s hard to feel sorry for Prime Minister Gordon Brown, who as Tony Blair’s Chancellor of the Exchequer was a Big Swinging Deregulator to rival the Greenspan-Rubin-Summers axis in the U.S.  Krugman:

‘Do Mr. Brown and his party really deserve blame for the crisis here? Yes and no.

‘Mr. Brown bought fully into the dogma that the market knows best, that less regulation is more. In 2005 he called for “trust in the responsible company, the engaged employee and the educated consumer” and insisted that regulation should have “not just a light touch but a limited touch.” It might as well have been Alan Greenspan speaking.

‘There’s no question that this zeal for deregulation set Britain up for a fall. Consider the counterexample of Canada — a mostly English-speaking country, every bit as much in the American cultural orbit as Britain, but one where Reagan/Thatcher-type financial deregulation never took hold. Sure enough, Canadian banks have been a pillar of stability in the crisis.’

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The Fed does the expected, sort of

16 December 2008

I don’t think anybody was expecting the new federal funds rate target to be a range, but everybody was expecting a rate cut, and we got one, from an already-low 1% to a new-record-low 0 – 0.25%.  I also don’t think anybody is expecting it to turn the economy around, considering the failure of already-low short-term rates to do that, but Wall Street’s broad stock indexes were up 5% for the day.   My guess is the traders see the move as a sign the Fed is still doing all it can and then some.

fed funds chart 2008 dec 16

All the way down

Please tell me that this was just a slip of the tongue

14 December 2008

As President-elect Barack Obama and Congress shape a stimulus package, the president-elect made a strange departure from his prepared remarks to a governors conference, telling them that despite his support of a fiscal stimulus, “We are not, as a nation, going to be able to just keep on printing money” (Washington Post, 2 Dec. 2008.  Not surprisingly, conspiracy-minded commenters on a Ron Paul bulletin board were all over this one).

Hello?  Does Obama believe we currently finance our deficits by printing money, as opposed to selling Treasury bonds?  I sincerely hope that this was just a garbled version of his usual, and reasonable, point that although we need a big fiscal stimulus now, we need to bring the national debt under control in the long term.   (Some, like David Stockman back in the 1980s, have sketched a worst-case scenario in which our national debt gets so out of control that eventually the government has to print money to pay its bills, thereby causing a hyperinflation.  Possibly Obama was alluding to those fears, but since they’ve been basically groundless all along in the U.S. case, he’d be better off not feeding those fears.)

My larger concern is that when President Obama’s brilliant economic advisers disagree with each other, as economists are known to do, will he be knowledgeable enough to make the right call for the right reason?

(modified from a 2 Dec. 2008 post)

UPDATE, 17 DEC.:  Listening to NPR’s Marketplace this morning, it occurred to me that Obama just might have been referring to the dramatic steps taken by the Federal Reserve this year, which are basically equivalent to creating money.   But his next sentence — “So at some point, we’re also going to have to make some long-term decisions in terms of fiscal responsibility” — implies he was talking not about monetary policy but fiscal policy.  The concern still stands.