Posted on 01/10/2008 11:55:44 AM PST by AdamSelene235
Who is a Fedophile?
A man who never spent a single day of his life in the private sector but somehow is wiser than the markets and capable of leaping recessions in a single bound.
If I had to choose between Bernanke and Ron Paul, Bernanke wins easily.
Friday is Gumbo Day, down at the mission.
Why don't you just stock up on gold, and quit worrying about it?
They should, but they won't. The Fed likes to stay behind the curve since they are never held accountable.
Had Bernanke thought the yield curve was relevant, all this could have been avoided with small moves several months ago.
It's not time to make a change,
Just relax, take it easy
You're still young, that's your fault,
There's so much you have to know
Find a girl, settle down, if you want, you can marry
Look at me, I am old but I'm happy
I was once like you are now,
And I know that it's not easy
To be calm when you've found
Something going on
But take your time think a lot, think of everything you've got
For you will still be here tomorrow but your dreams may not
I am truly beginning to wonder if the true agenda is something other than the economy. Maybe politics or even the Chairmans next job.
Mmmmmmmm.....gumbo.
The true agenda is to play it safe and make the same mistakes the Fed has been making for over 70 years.
Careful, sir. You're beginning to sound like me!
You are now and forever tainted with the spectre of learning the truth.
Sorry.
And you were such a good FReeper, too.
The use of "substantive action" along with the "easing" of policy sounds like they might well be considering what was called the Quantitative Easing Policy (QEP) in Japan; certainly, it has been discussed before by the Fed.
For instance, a quick search yielded this bit:
III. Expanding the Size of the Central Bank's Balance Sheet
Besides changing the composition of its balance sheet, the central bank can also alter policy by changing the size of its balance sheet; that is, by buying or selling securities to affect the overall supply of reserves and the money stock. Of course, this strategy represents the conventional means of conducting monetary policy, as described in many textbooks. These days, most central banks choose to calibrate the degree of policy ease or tightness by targeting the price of reserves--in the case of the Federal Reserve, the overnight federal funds rate. However, nothing prevents a central bank from switching its focus from the price of reserves to the quantity or growth of reserves.
When stated in terms of quantities, it becomes apparent that even if the price of reserves (the federal funds rate) becomes pinned at zero, the central bank can still expand the quantity of reserves. That is, reserves can be increased beyond the level required to hold the overnight rate at zero--a policy sometimes referred to as "quantitative easing." Some evidence exists that quantitative easing can stimulate the economy even when interest rates are near zero; see, for example, Christina Romer's (1992) discussion of the effects of increases in the money supply during the Great Depression in the United States.
Quantitative easing may affect the economy through several possible channels. One potential channel is based on the premise that money is an imperfect substitute for other financial assets (in contrast to the view discussed in the previous section that emphasizes the imperfect substitutability of various nonmoney assets). If this premise holds, then large increases in the money supply will lead investors to seek to rebalance their portfolios, raising prices and reducing yields on alternative, non-money assets. Lower yields on long-term assets will in turn stimulate economic activity. The possibility that monetary policy works through portfolio substitution effects, even in normal times, has a long intellectual history, having been espoused by both Keynesians (Tobin, 1969) and monetarists (Brunner and Meltzer, 1973). Recently, Javier Andres, J. David Lopez-Salido, and Edward Nelson (2003) have shown how these effects might work in a general equilibrium model with optimizing agents. The practical importance of these effects remains an open question, however.
Quantitative easing may also work by altering expectations of the future path of policy rates. For example, suppose that the central bank commits itself to keeping reserves at a high level, well above that needed to ensure a zero short-term interest rate, until certain economic conditions obtain. Theoretically, this action is equivalent to a commitment to keep interest rates at zero until the economic conditions are met, a type of policy we have already discussed. However, the act of setting and meeting a high reserves target is more visible, and hence may be more credible, than a purely verbal promise about future short-term interest rates. Moreover, this means of committing to a zero interest rate will also achieve any benefits of quantitative easing that may be felt through non-expectational channels.
Lastly, quantitative easing that is sufficiently aggressive and that is perceived to be long-lived may have expansionary fiscal effects. So long as market participants expect a positive short-term interest rate at some date in the future, the existence of government debt implies a current or future tax liability for the public. In expanding its balance sheet by open-market purchases, the central bank replaces public holdings of interest-bearing government debt with non-interest-bearing currency or reserves. If the open-market operation is not expected to be reversed too quickly, this exchange reduces the present and future interest costs of the government and the tax burden on the public. (Effectively, this process replaces a direct tax, say on labor, with the inflation tax.) Auerbach and Obstfeld (2003) have analyzed the fiscal and expectational effects of a permanent increase in the money supply along these lines. Note that the expectational and fiscal channels of quantitative easing, though not the portfolio substitution channel, require the central bank to make a credible commitment to not reverse its open-market operations, at least until certain conditions are met. Thus, this approach also poses communication challenges for monetary policy makers.
Japan once again provides the most recent case study. In the past two years, current account balances held by commercial banks at the Bank of Japan have increased about five-fold, and the monetary base has risen to almost 30 percent of nominal GDP. While deflation appears to have eased in Japan recently, it is difficult to know how much of the improvement is due to monetary policy, and, of the part due to monetary policy, how much is due to the zero-interest-rate policy and how much to quantitative easing. The experience of the United States with quantitative policies is limited to the period 1979 to 1982, when the Federal Reserve targeted nonborrowed reserves. Of course, nominal interest rates were not close to zero at that time. The U.S. experience does suggest, however, that the demand for reserves may be sufficiently erratic that the effects of quantitative policies may be intrinsically hard to calibrate.
(From Conducting Monetary Policy at Very Low Short-Term Interest Rates by Bernanke and Reinhart.)
In Japan, QEP did seem to work; at least its use did coincide with a resurgence of the Japanese economy from its deflationary spiral.
I also noticed a decent writeup with a bit more on the mechanical side of this at Pimco: Tomoya Masanao Discusses the End of Quantitative Easing in Japan.
Exactly! We need some good old fashioned deflation. And soup lines. I like soup.
Those people on the soup lines would need to watch for the folks jumping out of the windows
Going back to the gold standard would be just about the worst thing fiscally we can do as policy. Trying to squeeze a 50 lb economy back into a 5lb bag
Thursday is steak night, up in the bush camps.
Keep lowering rates, Ben old bud, my gold stocks are starting to move!
Would they manufacture a crisis, just so they can prove how well they can “support” the nation through it?
The whole thing reeks to me.
Excellent way to put it!
See tagline.
Most goldbugs think deflation would be a good idea. Idiots!
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