Fear Not, the Federal Reserve’s Relevance Is Declining by the Day

United States Federal Reserve System symbol.

“The sole use of money is to circulate consumable goods.” – Adam Smith

 

In a recent op-ed for the Wall Street Journal, Morgan Stanley economist Ruchir Sharma observed that while the world is seemingly “turning inward,” this comes “in a period when countries are more beholden than ever to one institution, the U.S. Federal Reserve.” Interesting about Sharma’s piece is that if anything, it revealed the Fed’s growing irrelevance.

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If We Love the Banks, We Must Love Them Enough to Let Them Fail

Photographer: John Taggart/Bloomberg via Getty Images

Commenting on the health of big U.S. banks last week, former Fed Chairman Ben Bernanke wrote on his Brookings blog that “a lot of progress has been made (and more is in train) toward reducing the risks that large, complex financial institutions pose for the financial system and the economy.” Bernanke’s observation came after Minneapolis Fed president Neel Kashkari’s recent commentary about the need to reduce the alleged problem of “Too Big To Fail” within banking. Some readers could be excused for wondering why Bernanke would have any opinion on the matter at all.

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The Courage to Gamble

Large surface covered with US cash notes

Ben Bernanke’s new book, The Courage to Act, demonstrates throughout its 579 pages the fundamental uncertainty faced by central bankers, Treasury officers, and everybody else when dealing with financial cycles, panics and recoveries.  “But if the last few years had taught us anything, it was that we had to be humble about our ability to detect emerging threats to financial stability,” he writes. 

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The Myth of an Independent Federal Reserve: A Conversation with Peter Conti-Brown

federal reservePeter Conti-Brown of the Wharton School comes to Liberty Law Talk to discuss his most recent book, The Power and Independence of the Federal Reserve.

Congress Works

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Huzzah: last week Congress passed, in bipartisan fashion, a five-year, $300 billion-plus transportation bill.   President Obama is expected to sign the legislation. The bill provides for much-needed infrastructure development. Beyond that it fixes a constitutional infirmity; corrects an institutional oddity that’s been with us since 1913; and even promises better food service on Amtrak. Miracles happen, and not just in Bethlehem. Okay, I take that back. Making ready allowance for the usual sausage-making (which I’m happy to tolerate, within bounds) this enactment is mostly smh stuff. Start with the ostensible constitutional fix: the act makes Amtrak’s President, who is appointed by its…

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Obama’s Wrecking Ball Administration

miley cyrus sulla palla demolitrice

This past Friday, the U.S. Department of Justice filed its expected petition for certiorari in Texas v. United States, involving several states’ challenge to the administration’s “deferred action” program (“DAPA”). DAPA would grant deferred action—and, along with it, work permits and other benefits—to several million immigrants who are unlawfully present in the United States. The Fifth Circuit Court of Appeals affirmed a preliminary injunction against DAPA on November 9; DoJ’s petition to review that preliminary ruling on an expedited schedule arrived within a fortnight. Why the haste, my child? Well, on an expedited schedule this case could still be heard and…

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The Central Bank of Switzerland Announces a Huge Loss: Would the Fed Ever Be This Honest?

swiss_national_bank

The Swiss National Bank (SNB) has just announced an eye-popping net loss for the first quarter of 2015: 30 billion Swiss francs, or $32 billion[1]. A participant in its recent shareholders meeting shortly before the announcement told me “the directors looked very stressed.”

How does a money-printing central bank lose money?

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Should the Federal Reserve Be Free of Supervision While It Carries Out Vast Monetary Experiments?

fed

The “Audit the Fed” proposal of Senator Rand Paul (R-Ky.) elicits a surprising amount of emotion, from opponents and supporters alike. Why should this be?

“Monetary policy” purposefully sounds technical and dull—you like it that way if you want to keep it the domain of supposedly objective experts who don’t want any mere politicians interfering in their elite central banking club. But money affects everybody and is an emotional topic, especially if the Fed is on purpose crushing you, as it currently is doing to savers, in order to benefit borrowers and speculators.

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The Economic Crash that Cured Itself: A Conversation with James Grant

Grant

What if a profound economic downturn occurred and the federal government basically ignored it? Couldn't happen, right? In his latest book, The Forgotten Depression, James Grant details for us the depression of 1921 and how it was permitted to cure itself. We discuss in this podcast how the Wilson* and Harding administrations let prices and wages fall, balanced the budget, and raised interest rates through the Federal Reserve. The result was a painful and, more importantly, quick depression that righted itself by late 1921, setting the stage for the economic growth of the 1920s. The comparisons are easy and telling. The…

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A Cheer or a Bronx Cheer for the Fed?

Federal-Reserve-BuildingIn the financial crisis of 2007 through 2009, the Federal Reserve expanded its balance sheet to finance the bust, just as intended by its legislative fathers of a century ago. They did not, of course, intend for their creation to have stoked the housing bubble in the first place. This dramatic action to make up for its own mistakes was not a first—recall the Fed’s celebrated anti-inflation strategy of the early 1980s, a reaction to its 1970s blunders that had created the Great Inflation of that previous time.

The latest crisis has been over for five years, but the Fed’s balance sheet is more bloated than ever. Its much-discussed “taper” only slowed down the rate of bloating.

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