PLEASE READ THE PALLEY ARTICLE. YOU WILL SEE HE WRITES FOR THE AFL-CIO AND NOT FROM AN INVESTMENT STANDPOINT THAT ALL MAINSTREAM MEDIA TAKE!!! THE FEDERAL RESERVE MUST BE REFORMED.
BELOW YOU WILL SEE THE NEW FEDERAL RESERVE POLICY AS RELATES TO THE 0% INTEREST RATE FOR AS LONG AS IT TAKES TO REACH A 6% UNEMPLOYMENT LEVEL. THOSE FIGHTING FOR THE MIDDLE/LOWER CLASS AND NOT THE SHAREHOLDER CLASS (THE 5%) KNOW THAT THIS IS WORKING AGAINST MAIN STREET, NOT FOR IT. I OFTEN SPEAK OF THE FREE MONEY THAT ALLOWS CORPORATIONS TO LIVE ON INVESTMENTS RATHER THAN WORK, BUT THE OTHER SIDE IS THE NEED TO RETURN TO A HIGHER RATE OF INFLATION......SOME WANTING A 3-5% RATE OF INFLATION. WHEN YOU HAVE NO INFLATION, YOU ARE BASICALLY CAUSING STAGNATION OF WAGES, OF SAFETY NET PAYMENTS, AND MATERIAL PRODUCTION. WE FEEL THIS IN PERPETUAL LOW WAGES, OUR ZERO AND 1% COLA INCREASES RATHER THAN THE 3% ANNUAL RAISES IN THE PAST, AND THE SUPPLY IMBALANCE WITH DEMAND THAT STOPS PRODUCTION.
THE FACT THAT AMERICANS ARE FORCED TO LISTEN TO THE FED AND BERNANKE RATHER THAN SEEING HIM IN JAIL IS GALLING ENOUGH. REMEMBER, 50 STATES ATTORNEY GENERAL WENT TO THE FEDERAL RESERVE AND GREENSPAN IN 2005 TO SAY STOP THE MASSIVE MORTGAGE INDUSTRY FRAUD AND GREENSPAN SAID 'NO', LET THE GAMES CONTINUE. BERNANKE WAS THEN HIS DEPUTY. THEN WITH ALL OF THE BAILOUT TWISTS THAT SENT TRILLIONS OF DOLLARS TO ALL BANKS TO RECAPITALIZE THEM RATHER THAN LETTING THEM FALL FROM ACCEPTING AND PLAYING WITH BAD DEBT, WE KNOW THIS IS A CRIMINAL ENTITY. ONE ALSO KNOWS THAT DESPITE HIS CONSTANT CLAIM TO BE AIDING MAIN STREET WITH THIS FED POLICY.......IT IS ACTUALLY THE OPPOSITE.
I AM NOT AN 'END THE FED/GO THE THE GOLD STANDARD FED HATER', BUT I AM A GREAT BIG 'PUT THE FED IN A BOX UNTIL WE GET THESE BANKS UNDER CONTROL' PROMOTER. OBAMA HAS PROVEN HIS COMMITMENT TO THE FEDERAL RESERVE STATUS QUO SO WE NEED TO LOOK TO NEXT ELECTION FOR A CANDIDATE THAT SHOUTS LOUDLY AND STRONGLY AGAINST THIS FED POLICY. DO YOU HEAR YOUR INCUMBENT SHOUTING?
VOTE YOUR INCUMBENT OUT OF OFFICE!!!!
THE FED NOT ONLY REGULATES MONETARY POLICY, IT POLICES THESE BANKS. HOW DO YOU THINK THEY ARE DOING?
WE ARE DEMANDING A RISE IN THE FED INTEREST RATE TO 3-5% AND STOP PROPPING UP HOUSING MARKET BY ALLOWING A BUYING FREE-FOR-ALL FOR THE FORECLOSURE BUNDLERS.......PROP UP THE HOUSING MARKET BY MAKING THE BANKS PAY THE HUNDREDS OF BILLIONS IN FRAUD BY WRITING DOWN AND WRITING OFF BAD MORTGAGES!!!!!!!!
WHAT CROOKS!!!!!!
THIS ARTICLE BY THE ECONOMIST GIVES YOU THE CORPORATE AND LIBERAL VIEW OF THE FED POLICY. YOU CAN SEE WHERE THEY BUILD THE POLICY POSITIVES IN HOLDING RATES AT 0% FOR WHAT WILL BE A LONG TIME AS UNEMPLOYMENT IS SEEN TO BE MOVING HIGHER. THE NUMBER OF PEOPLE NO LONGER LOOKING FOR WORK IS AT 20-30%, SO GETTING ALL THESE PEOPLE INTO THE EMPLOYMENT PIPELINE MEANS THE UNEMPLOYMENT NUMBERS WILL REMAIN HIGH. THAT MEANS LONG-TERM MONEY FOR FREE.
Monetary policy Clearer now Dec 12th 2012, 19:08 by R.A. | WASHINGTON
The Economist
Free exchange Economics
HAIL Charles Evans:
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
The Federal Open Market Committee surprised many today in announcing specific data thresholds for decisions on eventual interest rate increases, replacing the old calendar date guidance. This step has looked possible since Mr Evans, president of the Federal Reserve Bank of Chicago, first pushed a 7% unemployment/3% inflation combination in 2011, and it has seemed a probable evolution of policy since September. But until today it appeared that the FOMC was still debating how to implement the policy. The news is very encouraging; it is the closest yet the Fed has come to acknowledging the need for above-target inflation given weak demand, high unemployment, and the constraints imposed by the zero lower bound.
The FOMC buoyed the change in guidance by tweaking its purchase plan. At the conclusion of its "Operation Twist" style programme, in which short-term securities in the portfolio are swapped for long-term ones, which occurs at the end of this year, the Fed will resume outright purchases of long-run Treasuries, adding to the balance-sheet expansion already underway via ongoing purchases of mortgage-backed securities.
Whether this will be enough to decisively change expectations for the better remains to be seen. The new policy is pushing against the headwinds of uncertain fiscal cliff negotiations and the possibility of a round of tax rises and spending cuts to start 2013. One wonders whether faster adoption of specific thresholds was motivated by a perceived need to bolster recovery amid fiscal uncertainty.
While we wait to observe the impact of the policy, we can nonetheless appreciate the pragmatism and intellectual flexibility of the FOMC. Though behind the curve for much of the recovery, it has evolved relatively quickly over the past year in response to changing data and a changing academic debate. Perhaps it will evolve a bit more if conditions demand it.
____________________________________________________
HERE IS A GOOD ASSESSMENT OF THE POLICY FROM SOMEONE LOOKING AT IT FROM THE MAIN STREET PERSPECTIVE. WHEREAS THOMAS PALLEY DOESN'T USE WORDS LIKE CRIMINAL IN HIS POLICY DESCRIPTIONS, HE DOES SHOW WHY THE 0% RATE IS KILLING THE WORKING-CLASS FAMILIES.
The Fed’s 2% Inflation Target Trap by David Lawson on August 2nd, 2012 at 10:28 am
Thomas I. Palley
Senior Economic Policy Advisor, AFL-CIO
The Federal Reserve has now openly adopted a two percent inflation target, with both Chairman Bernanke and the Federal Open Market Committee publicly committing to holding inflation at that level. Though not a problem today, this two percent target represents a policy trap that will undercut the possibility of future wage increases despite on-going productivity growth. That promises to aggravate existing problems of income inequality and demand shortage.
The Fed’s new policy is tactically and analytically flawed. Tactically, at this time of global economic weakness, the Federal Reserve should be advocating policies that promote rising wages rather than focusing on inflation targets. Analytically, its inflation target is too low and will inflict significant future economic harm.
There is little reason to believe a two percent inflation target is best for the economy. Those economists who claim it is are the same economists who should have been discredited by the financial crisis of 2008 and the economic stagnation that has followed. Their claims are based on the so-called “Great Moderation”, the two decade period of modest inflation and stable growth, which preceded the crisis. However, it is now clear the Great Moderation was the product of a twenty-five year credit bubble, supported by the artifact of persistently lower interest rates that can fall no further.
If, in the future, the Federal Reserve feels it must set inflation targets, there are strong grounds for believing a slightly higher inflation rate of three to five percent produces better outcomes by lowering the unemployment rate and creating labor market bargaining conditions that help connect wages to productivity growth. Over the last thirty years, American workers have faced prolonged wage stagnation despite significant productivity growth. The one exception was the late 1990s and 2000 when the unemployment rate fell to four percent, briefly creating conditions in which workers were able to win wage increases. That history shows the importance of full employment for shared prosperity.
The two percent inflation target represents a cruel trap. The unemployment rate will eventually come down, and when it does the economy will bump against the Federal Reserve’s new self-imposed inflation ceiling. That ceiling likely coincides with an unemployment rate of six percent or higher. Under the new policy regime, the Federal Reserve will then have reason to pull the trigger and raise interest rates, thereby trapping millions in unemployment and ensuring continuation of the second round of wage stagnation which began after the stock market bust of 2001.
The Federal Reserve’s two percent inflation target constitutes a backdoor way of forcing society to live with a “new normal” of permanent wage stagnation and unemployment far in excess of full employment. In effect, by adopting this target, the Fed has surreptitiously abandoned its legislated mandate to also pursue “maximum employment”.
The two percent inflation target would not pass muster if society were to have an open debate about what constitutes maximum employment with stable prices, and whether the economic crisis has created structural change that warrants abandoning previously attained employment goals. However, rather than engaging in democratic policy deliberation befitting an open society, the Federal Reserve has opted for a quiet end run that will make restoring shared prosperity even more difficult.
The political and economic logic of the moment makes it difficult to challenge the Fed. First, inflation is now low so that the public’s ear is not attuned to the threat of the two percent target. Second, compared to most of his cohort of leading economists, Chairman Bernanke has been a force for humane and sensible economic policy, understanding of the misery inflicted by mass unemployment and willing to do something about it. Criticizing him can therefore appear unappreciative. Third, in a period of wage stagnation, opposition to low inflation and support for higher future inflation can sound like support for higher prices. That is a misunderstanding. The opposition is to an inflation target that will permanently elevate unemployment and prevent workers from bargaining a fair share of productivity growth.
Thirty years ago the wages of ordinary people started to stagnate. A big reason for that is working families lost the economic policy battle. This must not be allowed to happen again after the economic crisis of the last several years. Whether intended or not, the Federal Reserve’s two percent inflation target will turn out to be a below the radar policy cruise missile aimed at the heart of shared prosperity. It must be shot down.
This op-ed was posted on the FT Economists’ Forum on Tuesday July 31, 2012.
__________________________________________________
ALL DEMOCRATS MUST BE AWARE OF BARNEY FRANK'S AND CHRIS DODD'S INVOLVEMENT IN THIS MASSIVE MORTGAGE FRAUD AS LONG TIME DEMOCRATIC MEMBERS OF THE BANKING COMMITTEE. DID YOU HEAR THESE POLS SHOUTING OUT AGAINST THE POLICIES THAT LET THE MARKET GO WILD? EVEN WHEN A PARTY IS IN A MINORITY YOU CAN HEAR THEM......THINK THE REPUBLICANS LAST TERM.
WHAT THESE TWO POLS ARE PROPOSING WAS MEANT AS A CHALLENGE BUT IT IS ACTUALLY WHAT WE NEED TO SEE AS RELATES TO GAINING CONTROL OF FED POLICY. NOW, YOU MAY BE RIGHT THAT WHEN THE CONGRESS IS CORRUPT WHAT IS THE DIFFERENCE, BUT ONE MUST HAVE POLICY IN PLACE AS WE VOTE THE RIGHT PEOPLE INTO OFFICE!!!
Frank, Miller Try to Open Up Accountability for Fed, OCC By: David Dayen Thursday April 19, 2012 7:35 am
Barney Frank and Brad Miller tried to shake up a House Financial Services Committee hearing yesterday. As per usual, Republicans wanted to go after the CFPB’s funding and subject it to the appropriations process. As it stands, CFPB derives its funding from a portion of the funding of the Federal Reserve, which comes from sources independent of Congress. The argument goes, why should CFPB be exempt from Congressional oversight in terms of its funding? The real agenda is that Republicans would then squeeze funding for CFPB to render them ineffective, or attach strings to the funding, either explicitly or implicitly.
Very well then, said Frank and Miller. They offered up amendments saying that, if CFPB funding must come from the hands of Congress, then so should money from other banking regulators, like the OCC and the Fed.
Interestingly, the CFPB isn’t the only Federal banking regulator that has its own dedicated revenue stream free from Congressional pressure. In fact, they all do. The Office of the Comptroller of the Currency, for instance, is funded via assessments on banks, or “clients”, as OCC Chief Counsel Julie Williams calls them (or so I’m told). Williams is the key villain behind most bank-friendly regulatory decisions over the past two decades, but her general anti-consumer and predatory behavior is baked into the DNA of the regulator [...]
And then there’s the big enchilada, the Federal Reserve, which is of course not subject to Congressional appropriations because of its vaunted “independence”. Interestingly, the Fed, when it was officially controlled by Treasury in the 1930s and 1940s (up until the mostly unknown and critical fight with Truman that produced the Fed-Treasury Accord), financed the New Deal, World War II, and saw unemployment drop to 1% as inequality collapsed and America became a middle class nation. The Fed finances itself through interest on the bonds in its portfolio, essentially printing money to do so. The Fed’s reserve banks are still private entities, and they still pay dividends to member banks. No member of Congress can do anything to the Fed, it’s an unaccountable set of quasi-private banks that often respond to Wall Street.
This can all change if Congress wants it to, and that process starts with the budgeting recommendations put out by the Financial Services Committee. Frank and Miller are responding to the Republicans in a partisan fashion – you want the CFPB funded by Congress? Fine, we’ll put that on the OCC and the Fed, as well. These proposals, while they are in some ways kabuki, are fundamentally getting at the undemocratic nature of our banking regulators. The Republicans have a point – the CFPB shouldn’t be funded without guidance from Congress. But there’s a much more significant problem here – the far more powerful and important OCC and Federal Reserve should also be subject to some sort of democratic check on their power. I’d take the trade on all of these regulators – subject them all to Congressional appropriations.
Both measures failed, sadly. Frank’s amendment to subject the Fed to the appropriations process failed 24-33, though he did pick up two Republican votes (Steve Stivers and Lynn Westmoreland). Ron Paul was on the campaign trail and didn’t vote. I suspect it would have been a far different scenario then. On the Democratic side, Joe Donnelly, Jim Himes, Gary Peters and Chris Carney voted against it. Flip those four and it’s within one vote of passing. Miller’s amendment on OCC got one more Republican (Huizenga – not familiar with him), but lost more Democrats and failed 22-35.
The best that can be said is that we’re clear now who wants to keep banking regulation in the hands of unaccountable elites responsible for complete incompetence during the financial crisis.
With all the fireworks around CFPB funding, not a peep was uttered about the cancellation of HAMP. Even the most partisan Democrats wouldn’t defend the program.
Democrats did not take any steps on Wednesday to protect the centerpiece of the Obama administration’s housing effort—the Home Affordable Modification Program—as Republicans moved to eliminate the initiative.
The effort to kill HAMP came during a House Financial Services Committee markup of a broader package of proposals designed to reduce the budget deficit and prevent automatic defense cuts from going into effect.
While committee members spent nearly two hours arguing fiercely over a Republican proposal to strip one of the core provisions from the Dodd-Frank financial reform law, no debate followed when the chairman opened the discussion of HAMP. No amendments were put forward and no one on either side of the aisle said a word, despite the presence of several members, including ranking member Barney Frank, D-Mass.
The debate then quickly moved onto another tense fight over subjecting the Consumer Financial Protection Bureau to the appropriations process.
The House already passed a bill killing HAMP, which died in the Senate. But the lack of support for it from the Democratic side is striking. Nobody’s going to stick out their neck for a failed program.
BELOW YOU WILL SEE THE NEW FEDERAL RESERVE POLICY AS RELATES TO THE 0% INTEREST RATE FOR AS LONG AS IT TAKES TO REACH A 6% UNEMPLOYMENT LEVEL. THOSE FIGHTING FOR THE MIDDLE/LOWER CLASS AND NOT THE SHAREHOLDER CLASS (THE 5%) KNOW THAT THIS IS WORKING AGAINST MAIN STREET, NOT FOR IT. I OFTEN SPEAK OF THE FREE MONEY THAT ALLOWS CORPORATIONS TO LIVE ON INVESTMENTS RATHER THAN WORK, BUT THE OTHER SIDE IS THE NEED TO RETURN TO A HIGHER RATE OF INFLATION......SOME WANTING A 3-5% RATE OF INFLATION. WHEN YOU HAVE NO INFLATION, YOU ARE BASICALLY CAUSING STAGNATION OF WAGES, OF SAFETY NET PAYMENTS, AND MATERIAL PRODUCTION. WE FEEL THIS IN PERPETUAL LOW WAGES, OUR ZERO AND 1% COLA INCREASES RATHER THAN THE 3% ANNUAL RAISES IN THE PAST, AND THE SUPPLY IMBALANCE WITH DEMAND THAT STOPS PRODUCTION.
THE FACT THAT AMERICANS ARE FORCED TO LISTEN TO THE FED AND BERNANKE RATHER THAN SEEING HIM IN JAIL IS GALLING ENOUGH. REMEMBER, 50 STATES ATTORNEY GENERAL WENT TO THE FEDERAL RESERVE AND GREENSPAN IN 2005 TO SAY STOP THE MASSIVE MORTGAGE INDUSTRY FRAUD AND GREENSPAN SAID 'NO', LET THE GAMES CONTINUE. BERNANKE WAS THEN HIS DEPUTY. THEN WITH ALL OF THE BAILOUT TWISTS THAT SENT TRILLIONS OF DOLLARS TO ALL BANKS TO RECAPITALIZE THEM RATHER THAN LETTING THEM FALL FROM ACCEPTING AND PLAYING WITH BAD DEBT, WE KNOW THIS IS A CRIMINAL ENTITY. ONE ALSO KNOWS THAT DESPITE HIS CONSTANT CLAIM TO BE AIDING MAIN STREET WITH THIS FED POLICY.......IT IS ACTUALLY THE OPPOSITE.
I AM NOT AN 'END THE FED/GO THE THE GOLD STANDARD FED HATER', BUT I AM A GREAT BIG 'PUT THE FED IN A BOX UNTIL WE GET THESE BANKS UNDER CONTROL' PROMOTER. OBAMA HAS PROVEN HIS COMMITMENT TO THE FEDERAL RESERVE STATUS QUO SO WE NEED TO LOOK TO NEXT ELECTION FOR A CANDIDATE THAT SHOUTS LOUDLY AND STRONGLY AGAINST THIS FED POLICY. DO YOU HEAR YOUR INCUMBENT SHOUTING?
VOTE YOUR INCUMBENT OUT OF OFFICE!!!!
THE FED NOT ONLY REGULATES MONETARY POLICY, IT POLICES THESE BANKS. HOW DO YOU THINK THEY ARE DOING?
WE ARE DEMANDING A RISE IN THE FED INTEREST RATE TO 3-5% AND STOP PROPPING UP HOUSING MARKET BY ALLOWING A BUYING FREE-FOR-ALL FOR THE FORECLOSURE BUNDLERS.......PROP UP THE HOUSING MARKET BY MAKING THE BANKS PAY THE HUNDREDS OF BILLIONS IN FRAUD BY WRITING DOWN AND WRITING OFF BAD MORTGAGES!!!!!!!!
WHAT CROOKS!!!!!!
THIS ARTICLE BY THE ECONOMIST GIVES YOU THE CORPORATE AND LIBERAL VIEW OF THE FED POLICY. YOU CAN SEE WHERE THEY BUILD THE POLICY POSITIVES IN HOLDING RATES AT 0% FOR WHAT WILL BE A LONG TIME AS UNEMPLOYMENT IS SEEN TO BE MOVING HIGHER. THE NUMBER OF PEOPLE NO LONGER LOOKING FOR WORK IS AT 20-30%, SO GETTING ALL THESE PEOPLE INTO THE EMPLOYMENT PIPELINE MEANS THE UNEMPLOYMENT NUMBERS WILL REMAIN HIGH. THAT MEANS LONG-TERM MONEY FOR FREE.
Monetary policy Clearer now Dec 12th 2012, 19:08 by R.A. | WASHINGTON
The Economist
Free exchange Economics
HAIL Charles Evans:
To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. In particular, the Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that this exceptionally low range for the federal funds rate will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. The Committee views these thresholds as consistent with its earlier date-based guidance. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.
The Federal Open Market Committee surprised many today in announcing specific data thresholds for decisions on eventual interest rate increases, replacing the old calendar date guidance. This step has looked possible since Mr Evans, president of the Federal Reserve Bank of Chicago, first pushed a 7% unemployment/3% inflation combination in 2011, and it has seemed a probable evolution of policy since September. But until today it appeared that the FOMC was still debating how to implement the policy. The news is very encouraging; it is the closest yet the Fed has come to acknowledging the need for above-target inflation given weak demand, high unemployment, and the constraints imposed by the zero lower bound.
The FOMC buoyed the change in guidance by tweaking its purchase plan. At the conclusion of its "Operation Twist" style programme, in which short-term securities in the portfolio are swapped for long-term ones, which occurs at the end of this year, the Fed will resume outright purchases of long-run Treasuries, adding to the balance-sheet expansion already underway via ongoing purchases of mortgage-backed securities.
Whether this will be enough to decisively change expectations for the better remains to be seen. The new policy is pushing against the headwinds of uncertain fiscal cliff negotiations and the possibility of a round of tax rises and spending cuts to start 2013. One wonders whether faster adoption of specific thresholds was motivated by a perceived need to bolster recovery amid fiscal uncertainty.
While we wait to observe the impact of the policy, we can nonetheless appreciate the pragmatism and intellectual flexibility of the FOMC. Though behind the curve for much of the recovery, it has evolved relatively quickly over the past year in response to changing data and a changing academic debate. Perhaps it will evolve a bit more if conditions demand it.
____________________________________________________
HERE IS A GOOD ASSESSMENT OF THE POLICY FROM SOMEONE LOOKING AT IT FROM THE MAIN STREET PERSPECTIVE. WHEREAS THOMAS PALLEY DOESN'T USE WORDS LIKE CRIMINAL IN HIS POLICY DESCRIPTIONS, HE DOES SHOW WHY THE 0% RATE IS KILLING THE WORKING-CLASS FAMILIES.
The Fed’s 2% Inflation Target Trap by David Lawson on August 2nd, 2012 at 10:28 am
Thomas I. Palley
Senior Economic Policy Advisor, AFL-CIO
The Federal Reserve has now openly adopted a two percent inflation target, with both Chairman Bernanke and the Federal Open Market Committee publicly committing to holding inflation at that level. Though not a problem today, this two percent target represents a policy trap that will undercut the possibility of future wage increases despite on-going productivity growth. That promises to aggravate existing problems of income inequality and demand shortage.
The Fed’s new policy is tactically and analytically flawed. Tactically, at this time of global economic weakness, the Federal Reserve should be advocating policies that promote rising wages rather than focusing on inflation targets. Analytically, its inflation target is too low and will inflict significant future economic harm.
There is little reason to believe a two percent inflation target is best for the economy. Those economists who claim it is are the same economists who should have been discredited by the financial crisis of 2008 and the economic stagnation that has followed. Their claims are based on the so-called “Great Moderation”, the two decade period of modest inflation and stable growth, which preceded the crisis. However, it is now clear the Great Moderation was the product of a twenty-five year credit bubble, supported by the artifact of persistently lower interest rates that can fall no further.
If, in the future, the Federal Reserve feels it must set inflation targets, there are strong grounds for believing a slightly higher inflation rate of three to five percent produces better outcomes by lowering the unemployment rate and creating labor market bargaining conditions that help connect wages to productivity growth. Over the last thirty years, American workers have faced prolonged wage stagnation despite significant productivity growth. The one exception was the late 1990s and 2000 when the unemployment rate fell to four percent, briefly creating conditions in which workers were able to win wage increases. That history shows the importance of full employment for shared prosperity.
The two percent inflation target represents a cruel trap. The unemployment rate will eventually come down, and when it does the economy will bump against the Federal Reserve’s new self-imposed inflation ceiling. That ceiling likely coincides with an unemployment rate of six percent or higher. Under the new policy regime, the Federal Reserve will then have reason to pull the trigger and raise interest rates, thereby trapping millions in unemployment and ensuring continuation of the second round of wage stagnation which began after the stock market bust of 2001.
The Federal Reserve’s two percent inflation target constitutes a backdoor way of forcing society to live with a “new normal” of permanent wage stagnation and unemployment far in excess of full employment. In effect, by adopting this target, the Fed has surreptitiously abandoned its legislated mandate to also pursue “maximum employment”.
The two percent inflation target would not pass muster if society were to have an open debate about what constitutes maximum employment with stable prices, and whether the economic crisis has created structural change that warrants abandoning previously attained employment goals. However, rather than engaging in democratic policy deliberation befitting an open society, the Federal Reserve has opted for a quiet end run that will make restoring shared prosperity even more difficult.
The political and economic logic of the moment makes it difficult to challenge the Fed. First, inflation is now low so that the public’s ear is not attuned to the threat of the two percent target. Second, compared to most of his cohort of leading economists, Chairman Bernanke has been a force for humane and sensible economic policy, understanding of the misery inflicted by mass unemployment and willing to do something about it. Criticizing him can therefore appear unappreciative. Third, in a period of wage stagnation, opposition to low inflation and support for higher future inflation can sound like support for higher prices. That is a misunderstanding. The opposition is to an inflation target that will permanently elevate unemployment and prevent workers from bargaining a fair share of productivity growth.
Thirty years ago the wages of ordinary people started to stagnate. A big reason for that is working families lost the economic policy battle. This must not be allowed to happen again after the economic crisis of the last several years. Whether intended or not, the Federal Reserve’s two percent inflation target will turn out to be a below the radar policy cruise missile aimed at the heart of shared prosperity. It must be shot down.
This op-ed was posted on the FT Economists’ Forum on Tuesday July 31, 2012.
__________________________________________________
ALL DEMOCRATS MUST BE AWARE OF BARNEY FRANK'S AND CHRIS DODD'S INVOLVEMENT IN THIS MASSIVE MORTGAGE FRAUD AS LONG TIME DEMOCRATIC MEMBERS OF THE BANKING COMMITTEE. DID YOU HEAR THESE POLS SHOUTING OUT AGAINST THE POLICIES THAT LET THE MARKET GO WILD? EVEN WHEN A PARTY IS IN A MINORITY YOU CAN HEAR THEM......THINK THE REPUBLICANS LAST TERM.
WHAT THESE TWO POLS ARE PROPOSING WAS MEANT AS A CHALLENGE BUT IT IS ACTUALLY WHAT WE NEED TO SEE AS RELATES TO GAINING CONTROL OF FED POLICY. NOW, YOU MAY BE RIGHT THAT WHEN THE CONGRESS IS CORRUPT WHAT IS THE DIFFERENCE, BUT ONE MUST HAVE POLICY IN PLACE AS WE VOTE THE RIGHT PEOPLE INTO OFFICE!!!
Frank, Miller Try to Open Up Accountability for Fed, OCC By: David Dayen Thursday April 19, 2012 7:35 am
Barney Frank and Brad Miller tried to shake up a House Financial Services Committee hearing yesterday. As per usual, Republicans wanted to go after the CFPB’s funding and subject it to the appropriations process. As it stands, CFPB derives its funding from a portion of the funding of the Federal Reserve, which comes from sources independent of Congress. The argument goes, why should CFPB be exempt from Congressional oversight in terms of its funding? The real agenda is that Republicans would then squeeze funding for CFPB to render them ineffective, or attach strings to the funding, either explicitly or implicitly.
Very well then, said Frank and Miller. They offered up amendments saying that, if CFPB funding must come from the hands of Congress, then so should money from other banking regulators, like the OCC and the Fed.
Interestingly, the CFPB isn’t the only Federal banking regulator that has its own dedicated revenue stream free from Congressional pressure. In fact, they all do. The Office of the Comptroller of the Currency, for instance, is funded via assessments on banks, or “clients”, as OCC Chief Counsel Julie Williams calls them (or so I’m told). Williams is the key villain behind most bank-friendly regulatory decisions over the past two decades, but her general anti-consumer and predatory behavior is baked into the DNA of the regulator [...]
And then there’s the big enchilada, the Federal Reserve, which is of course not subject to Congressional appropriations because of its vaunted “independence”. Interestingly, the Fed, when it was officially controlled by Treasury in the 1930s and 1940s (up until the mostly unknown and critical fight with Truman that produced the Fed-Treasury Accord), financed the New Deal, World War II, and saw unemployment drop to 1% as inequality collapsed and America became a middle class nation. The Fed finances itself through interest on the bonds in its portfolio, essentially printing money to do so. The Fed’s reserve banks are still private entities, and they still pay dividends to member banks. No member of Congress can do anything to the Fed, it’s an unaccountable set of quasi-private banks that often respond to Wall Street.
This can all change if Congress wants it to, and that process starts with the budgeting recommendations put out by the Financial Services Committee. Frank and Miller are responding to the Republicans in a partisan fashion – you want the CFPB funded by Congress? Fine, we’ll put that on the OCC and the Fed, as well. These proposals, while they are in some ways kabuki, are fundamentally getting at the undemocratic nature of our banking regulators. The Republicans have a point – the CFPB shouldn’t be funded without guidance from Congress. But there’s a much more significant problem here – the far more powerful and important OCC and Federal Reserve should also be subject to some sort of democratic check on their power. I’d take the trade on all of these regulators – subject them all to Congressional appropriations.
Both measures failed, sadly. Frank’s amendment to subject the Fed to the appropriations process failed 24-33, though he did pick up two Republican votes (Steve Stivers and Lynn Westmoreland). Ron Paul was on the campaign trail and didn’t vote. I suspect it would have been a far different scenario then. On the Democratic side, Joe Donnelly, Jim Himes, Gary Peters and Chris Carney voted against it. Flip those four and it’s within one vote of passing. Miller’s amendment on OCC got one more Republican (Huizenga – not familiar with him), but lost more Democrats and failed 22-35.
The best that can be said is that we’re clear now who wants to keep banking regulation in the hands of unaccountable elites responsible for complete incompetence during the financial crisis.
With all the fireworks around CFPB funding, not a peep was uttered about the cancellation of HAMP. Even the most partisan Democrats wouldn’t defend the program.
Democrats did not take any steps on Wednesday to protect the centerpiece of the Obama administration’s housing effort—the Home Affordable Modification Program—as Republicans moved to eliminate the initiative.
The effort to kill HAMP came during a House Financial Services Committee markup of a broader package of proposals designed to reduce the budget deficit and prevent automatic defense cuts from going into effect.
While committee members spent nearly two hours arguing fiercely over a Republican proposal to strip one of the core provisions from the Dodd-Frank financial reform law, no debate followed when the chairman opened the discussion of HAMP. No amendments were put forward and no one on either side of the aisle said a word, despite the presence of several members, including ranking member Barney Frank, D-Mass.
The debate then quickly moved onto another tense fight over subjecting the Consumer Financial Protection Bureau to the appropriations process.
The House already passed a bill killing HAMP, which died in the Senate. But the lack of support for it from the Democratic side is striking. Nobody’s going to stick out their neck for a failed program.
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