- Bloomberg.com – Jim Bianco: The Fed Has Given MMT Proponents Ample Ammunition
The idea that the government can print money to spark the economy is not that much different than quantitative easing – with one big exception.
If this sounds familiar, it should. MMT is basically a sibling of quantitative easing. While QE allowed the Fed to print money to buy securities such as U.S. Treasuries, mortgage bonds and bad loans, MMT proposes printing money to fund the government. The Fed has hailed QE as a success, bringing the economy back from the brink. Former Fed Chairman Ben S. Bernanke was even anointed as Time magazine’s “Person of the Year” for 2009. Vice Chairman Richard Clarida said last month the central bank would solicit opinions on how to round off the edges of its new tools such as QE. Simply put, these tools are here to stay.
- The Wall Street Journal – (November 15, 2010) Open Letter to Ben Bernanke
The following is the text of an open letter to Federal Reserve Chairman Ben Bernanke signed by several economists, along with investors and political strategists, most of them close to Republicans
We believe the Federal Reserve’s large-scale asset purchase plan (so-called “quantitative easing”) should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed’s objective of promoting employment.
- Bloomberg – (July 14, 2016) Bernanke Floated Japan Perpetual Debt Idea to Abe Aide Honda
Prominent foreign economists drawn into nation’s policy making
Honda emerges as an ideas matchmaker for the prime minister
Bernanke at the Tuesday meeting said Japan should carry on with Abenomics policies by supplementing monetary policy with fiscal stimulus, according to Hamada. Bernanke told Abe that the BOJ still has instruments to further ease monetary policy, said Yoshihide Suga, Japan’s top government spokesman. The central bank didn’t reveal what Kuroda and Bernanke discussed. Hamada said helicopter money wasn’t mentioned with Bernanke on Tuesday. Suga denied an earlier report in the Sankei newspaper that officials around Abe were considering helicopter money as a policy option…in April the former Federal Reserve chief warned there was a risk Japan at any time could return to deflation. He noted that helicopter money — in which the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them — could work as the strongest tool to overcome deflation, according to Honda. Bernanke noted it was an option, he said.
- Liberty Blitzkrieg (blog) – Michael Krieger: Federal Reserve Chairman Appears on 60 Minutes – Why Now?
The increased popularity of MMT in the public conversation is proof of this. People are starting to wonder why the central bank can print money and buy assets to save the portfolios of baby boomers, yet the public can’t simply print money for stuff like healthcare, education and roads. The Fed intentionally obfuscates what it does (money printing) with terms like “quantitative easing,” but people are starting to get the joke. The Fed doesn’t want people thinking about such things.
- CBS News – 60 Minutes: Fed Chairman Jerome Powell gives a rare interview to 60 Minutes
Correspondent Scott Pelley interviews Powell along with his predecessors Ben Bernanke and Janet Yellen.
Powell sat with Pelley this week in Washington, D.C. for a wide-ranging discussion that includes the Fed Chairman’s remarks on interest rates, the outlook for America’s economy and whether the U.S. financial system is vulnerable to cyberattacks.
The interview comes almost 10 years to the day since Pelley’s groundbreaking interview with then-Fed Chairman Ben Bernanke during the Great Recession. Bernanke and his successor, Janet Yellen, appear alongside Powell in one of the interviews for this report to discuss how they advised him to handle the job and the criticism that comes with it.
- CNBC – Fed Chair Powell says balance sheet decision market is waiting for is ‘close’ to happening
* Fed Chairman Jerome Powell said Wednesday the central bank is close to a timetable on when its balance sheet reduction will end.
* The balance sheet is currently just over $4 trillion, most of which is Treasurys and mortgage-backed securities bought to stimulate the economy.
* An announcement will be coming “fairly soon,” the central bank chief told House members.
* “We are not looking at a higher inflation target, full stop,” Powell also said
- The Wall Street Journal – Powell Says Fed Is Close to Agreement on Plan to End Portfolio Runoff
Federal Reserve Chairman Jerome Powell said Wednesday the central bank is close to announcing plans for ending the runoff of its $4 trillion portfolio of bonds and other assets this year. “We’re going to be in a position…to stop runoff later this year,” Mr. Powell told members of the House Financial Services Committee. Mr. Powell said Fed officials are near agreement on a plan. “My guess is we’ll be announcing something fairly soon,” he said. The Fed’s rate-setting committee next meets on March 19-20.
- Bloomberg.com – Powell Gets Sharp Warning From Senator Over Fed Inflation Target
Low interest rates over the past four decades have made it more likely that the Fed’s policy rate will drop to zero again during future recessions, Powell said, making it more difficult for the central bank to stimulate economic growth. That, in turn, may help lower inflation expectations, a force Powell called “the most important driver of actual inflation.” “We’re trying to think of ways of making that inflation 2 percent target highly credible, so that inflation averages around 2 percent, rather than only averaging 2 percent in good times and then averaging way less than that in bad times,” Powell said during his testimony before the Senate Banking Committee.
- The Financial Times – Fitch flags risks of forced sales for bond mutual funds
The rapid growth of corporate bond funds could present a threat to financial stability, according to Fitch Ratings, if a combination of investor runs and deteriorating trading conditions sends shockwaves through markets. Concerns over the growth of corporate debt funds and the implications for “liquidity” — a gauge of how easy it is to buy and sell financial securities — have been rising since the financial crisis. Figures such as Blackstone’s Stephen Schwarzman and economist Nouriel Roubini have warned that the mismatch between how easy it is to pull money out of a fund and how hard it can be to sell the underlying bonds could exacerbate or even cause another market crunch.
- The Wall Street Journal – Apple and the Art of Guidance
CEOs and their finance chiefs are in a tight spot this month as they report quarterly financial data, aiming for a delicate balance of realism and optimism.
The art of guidance is always a delicate dance between realism and optimism, but a misstep in these febrile times can lead to a fall. Anything cautious that a CEO or CFO says about consumer demand, supply chains, inventory or credit conditions could be read as proof the sky is falling. When making predictions about the economy, “you don’t want to be the guy that sticks his head above the water and all the sudden, two months later, have The Wall Street Journal writing about how wrong your comments were,” said Ken Goldman, Yahoo’s former CFO.
- Bloomberg – Tim Duy: The Economy’s Too Robust for the Fed to Bow to Markets
Growth would need to slow to around 1.8 percent before the central bank considers slowing the pace of interest-rate hikes.
The nasty sell-off in equity markets has raised doubts about the Federal Reserve’s willingness to follow through with its plan to boost interest rates again in December. It shouldn’t. The odds that market participants place on a rate hike had dropped to around 65 percent from a high of more than 80 percent a few weeks ago. The decline comes even as central bankers give little reason to doubt that another rate hike is coming. New York Federal Reserve President John Williams, a permanent voting member on the Federal Open Markets Committee, reiterated this week his expectation that the Fed would “be likely raising interest rates somewhat but it’s really in the context of a very strong economy.”
- The Wall Street Journal – Greg Ip: Amidst Roaring Economy, Troubled Markets Sound Alarms
By most measures the U.S. economy is in excellent health. Yet stocks are sinking, yields on corporate bonds are rising and commodity prices are tumbling—all typical precursors of a slowdown or recession. The dichotomy is rooted in two unusual features of the world today. First, while the U.S. is surfing a wave of fiscal stimulus, growth in the rest of the world is slowing. That’s undercutting prospects for companies that do business abroad. Second, the Federal Reserve is steadily withdrawing the unprecedented monetary stimulus that buoyed the economy and almost every asset class over the last decade. The question is whether markets, in adjusting to these new realities, will overreact to the point that they endanger the expansion, on track to become the longest ever next summer. The answer for now appears to be no, but the trends are troubling.
- The Wall Street Journal – Real Time Economics: What Are Markets Telling Us About the Economy?
Stan Druckenmiller is a legend among hedge fund managers, as lieutenant to George Soros and head of his own firm. The market has him worried. “The defensive stocks have been going straight up since May. All the economically sensitive stocks have been going down since May. They’re predicting we’re in a very, very late cycle,” he said Tuesday. The signs are the “same stuff I screamed about in 2007.” He’s not saying the Fed shouldn’t tighten, ever; but it should wait, and “see what happens.” The time to tighten was a few years ago; now, it’s more dangerous: “The leveraged loan market is two times what it was in 2007.” He pins the blame on the Fed’s quantitative easing which “encouraged more malinvestment…than at any time I can ever remember. We’re in the most economically disruptive period since the 1880s and there’s been no bankruptcies. As quantitative easing turns to quantitative tightening, all these zombies are going to be exposed.”