United States House of Representatives
Committee on Financial Services
Subcommittee on Domestic Monetary Policy
Hearing on
"The Price of Money: Consequences of the Federal Reserve's Zero Interest Rate Policy"
September 21, 2012
Hearing on the Price of Money Sept 21, 2012
Showing posts with label Monetary Policy. Show all posts
Showing posts with label Monetary Policy. Show all posts
Saturday, September 22, 2012
Tuesday, September 4, 2012
Central Banks Debate Limits of Power at Jackson Hole
Central bankers who traveled to the wilds of Wyoming to figure out if more policy action was needed to curb stubbornly high unemployment heard powerful arguments on both sides of the debate, and leave with many questions unanswered.
Policymakers in Europe and the United States facing weak growth and painfully high unemployment are struggling with the issue of whether additional monetary stimulus could do more harm than good.
As the annual Jackson Hole gathering came to a close on Saturday and some of the world's most important central bankers headed back home, a former vice chairman of the U.S. Federal Reserve summed up the key issue confronting the prestigious policy retreat.
"What is holding the economy back? Why is it that we've had such incredibly accommodative monetary policy for so long (but) we've had so little growth? I think it remains a puzzle," said Donald Kohn, who is now a senior fellow at the Brookings Institution think tank in Washington.
Fed Chairman Ben Bernanke, citing "grave" concerns about stagnation in the labor market in remarks that were seen as advancing the case for another round of bond purchases by the U.S. central bank, talked about headwinds obstructing a recovery that included the debt crisis in Europe and U.S. fiscal policy.
European Central Bank President Mario Draghi canceled his attendance at the conference to stay home to prepare for a meeting on Thursday, at which he may advance a controversial plan for the ECB to buy Spanish and Italian government bonds to win time for the region to tackle its festering debt crisis.
Adam Posen, who finished his final day as a member of the Bank of England's monetary policy on Friday and is a powerful advocate for more forceful central bank action, asked the same question as Kohn: "Why has all this lower short-term interest rates failed to make the economy go go go?"
But he scornfully blamed "defeatism" by central banks concerned about interfering in the proper functioning of markets and damaging their credibility. He argued that policymakers in Europe and the United States should waste no time in extending asset purchase programs to spur growth.
"The idea that this is somehow a pristine, virgin central bank that would be tainted forever by intervening ... is a prehistoric way of thinking," he said.
A Reuters poll this week revealed a strong expectation that Draghi will expound on plans for the ECB to buy government debt to reduce crippling Spanish and Italian borrowing costs.
But the ECB is not likely to set a cap, or a defined level at which it will step into the market, on those yields, according the survey.
Economists were divided over whether the bank will cut its main refinancing rate from 0.75 percent to a record low of 0.5 percent next week. An October rate cut instead looked equally likely.
A Reuters Poll also found the Bank of England is likely to beef up its 375 billion pound quantitative easing program with a final extra 50 billion pound round of bond purchases - but not until November.
LIMITS TO THE POWER OF POLICY
From the other side of the debate, Lawrence Lindsey, who was an adviser to former Republican President George W. Bush, told central bankers to display some "modesty" about the limits of their authority and power.
Bernanke has enraged many Republicans for the Fed's aggressive action to prop up the U.S. economy, including the purchase of $2.3 trillion worth of Treasury and mortgage-backed bonds. Critics claim the Fed's bond buying has enabled profligate spending by Congress and Democratic President Barack Obama.
"We should recognize that caution in respect to the views and insight of others in society is the right way to go," Lindsey said.
A hotly debated paper presented on Saturday discussed the damage done to U.S. households by the collapse in the housing market, raising the question of what monetary policy could do to help people whose assets have been wiped out and who were now saving like crazy to rebuild them.
Alan Blinder, another former Fed vice chair who now teaches economics at Princeton, ticked off the two most blatant culprits for why the U.S. economy continued to struggle: government spending cuts and the drag from the depressed housing market.
Kohn was not convinced that various headwinds fully explained why growth had been weak for so long, and wondered whether the unusually low level of interest rates was impacting economic activity in a way that was not understood.
"We keep trying to bring spending from the future into the present with lower and lower interest rates. ... There is a lot we don't understand about what is going on," he said.
A paper presented by Edward Lazear, another former Bush aide, sought to tackle whether the rise in U.S. joblessness was simply due to economic weakness or whether it reflected a fundamental structural shift in the economy.
The question is essential because monetary policy would be traditionally aimed at cyclical unemployment, while structural changes demand intervention by the government to do things like improve skills training or change incentives to get people back to work.
Lazear concluded that most of the rise in U.S. unemployment was probably cyclical, but he left some unconvinced.
"I think it is kind of the elephant in the room for this conference - whether the U.S. economy went through some sort of structural shift associated with this very large financial crisis," said St. Louis Federal Reserve President James Bullard, who has publicly questioned the need for more Fed action.
"It sure looks like the economy was on one trend pre-crisis and it is on a very different trend post-crisis," he added. "I think the longer this goes on the stronger the evidence will be that we're on a different trend (and) ... it does have policy implications," he said.
Reservations were also voiced by several politically connected Republican economists who could be influential if their party's candidate for president, Mitt Romney, wins the White House on November 6.
"It really is a fiscal problem," said Martin Feldstein, a Harvard economist who is seen as a possible candidate to lead the Fed if Romney wins, as he pointed to the harm done by the housing collapse. "None of that is going to be fixed by monetary policy, and that is why the economy is just moving along at this very low rate with a lot of excess capacity."
Source: Reuters - Central Banks Debate Limits of Power at Jackson Hole
Policymakers in Europe and the United States facing weak growth and painfully high unemployment are struggling with the issue of whether additional monetary stimulus could do more harm than good.
As the annual Jackson Hole gathering came to a close on Saturday and some of the world's most important central bankers headed back home, a former vice chairman of the U.S. Federal Reserve summed up the key issue confronting the prestigious policy retreat.
"What is holding the economy back? Why is it that we've had such incredibly accommodative monetary policy for so long (but) we've had so little growth? I think it remains a puzzle," said Donald Kohn, who is now a senior fellow at the Brookings Institution think tank in Washington.
Fed Chairman Ben Bernanke, citing "grave" concerns about stagnation in the labor market in remarks that were seen as advancing the case for another round of bond purchases by the U.S. central bank, talked about headwinds obstructing a recovery that included the debt crisis in Europe and U.S. fiscal policy.
European Central Bank President Mario Draghi canceled his attendance at the conference to stay home to prepare for a meeting on Thursday, at which he may advance a controversial plan for the ECB to buy Spanish and Italian government bonds to win time for the region to tackle its festering debt crisis.
Adam Posen, who finished his final day as a member of the Bank of England's monetary policy on Friday and is a powerful advocate for more forceful central bank action, asked the same question as Kohn: "Why has all this lower short-term interest rates failed to make the economy go go go?"
But he scornfully blamed "defeatism" by central banks concerned about interfering in the proper functioning of markets and damaging their credibility. He argued that policymakers in Europe and the United States should waste no time in extending asset purchase programs to spur growth.
"The idea that this is somehow a pristine, virgin central bank that would be tainted forever by intervening ... is a prehistoric way of thinking," he said.
A Reuters poll this week revealed a strong expectation that Draghi will expound on plans for the ECB to buy government debt to reduce crippling Spanish and Italian borrowing costs.
But the ECB is not likely to set a cap, or a defined level at which it will step into the market, on those yields, according the survey.
Economists were divided over whether the bank will cut its main refinancing rate from 0.75 percent to a record low of 0.5 percent next week. An October rate cut instead looked equally likely.
A Reuters Poll also found the Bank of England is likely to beef up its 375 billion pound quantitative easing program with a final extra 50 billion pound round of bond purchases - but not until November.
LIMITS TO THE POWER OF POLICY
From the other side of the debate, Lawrence Lindsey, who was an adviser to former Republican President George W. Bush, told central bankers to display some "modesty" about the limits of their authority and power.
Bernanke has enraged many Republicans for the Fed's aggressive action to prop up the U.S. economy, including the purchase of $2.3 trillion worth of Treasury and mortgage-backed bonds. Critics claim the Fed's bond buying has enabled profligate spending by Congress and Democratic President Barack Obama.
"We should recognize that caution in respect to the views and insight of others in society is the right way to go," Lindsey said.
A hotly debated paper presented on Saturday discussed the damage done to U.S. households by the collapse in the housing market, raising the question of what monetary policy could do to help people whose assets have been wiped out and who were now saving like crazy to rebuild them.
Alan Blinder, another former Fed vice chair who now teaches economics at Princeton, ticked off the two most blatant culprits for why the U.S. economy continued to struggle: government spending cuts and the drag from the depressed housing market.
Kohn was not convinced that various headwinds fully explained why growth had been weak for so long, and wondered whether the unusually low level of interest rates was impacting economic activity in a way that was not understood.
"We keep trying to bring spending from the future into the present with lower and lower interest rates. ... There is a lot we don't understand about what is going on," he said.
A paper presented by Edward Lazear, another former Bush aide, sought to tackle whether the rise in U.S. joblessness was simply due to economic weakness or whether it reflected a fundamental structural shift in the economy.
The question is essential because monetary policy would be traditionally aimed at cyclical unemployment, while structural changes demand intervention by the government to do things like improve skills training or change incentives to get people back to work.
Lazear concluded that most of the rise in U.S. unemployment was probably cyclical, but he left some unconvinced.
"I think it is kind of the elephant in the room for this conference - whether the U.S. economy went through some sort of structural shift associated with this very large financial crisis," said St. Louis Federal Reserve President James Bullard, who has publicly questioned the need for more Fed action.
"It sure looks like the economy was on one trend pre-crisis and it is on a very different trend post-crisis," he added. "I think the longer this goes on the stronger the evidence will be that we're on a different trend (and) ... it does have policy implications," he said.
Reservations were also voiced by several politically connected Republican economists who could be influential if their party's candidate for president, Mitt Romney, wins the White House on November 6.
"It really is a fiscal problem," said Martin Feldstein, a Harvard economist who is seen as a possible candidate to lead the Fed if Romney wins, as he pointed to the harm done by the housing collapse. "None of that is going to be fixed by monetary policy, and that is why the economy is just moving along at this very low rate with a lot of excess capacity."
Source: Reuters - Central Banks Debate Limits of Power at Jackson Hole
Thursday, July 26, 2012
BREAKING! Federal Reserve Audit Bill Overwhelmingly Passes The House 327-98
In a rare moment of bipartisanship, the House overwhelmingly passed a bill by Rep. Ron Paul (R-Texas) to audit the Federal Reserve.
The bill, which has 270 co-sponsors, passed 327 to 98. All but one Republican -- Rep. Bob Turner of New York -- voted for it, along with 89 Democrats.
Paul teamed up with former Rep. Alan Grayson (D-Fla.) in 2010 to pass similar legislation that became part of the final Wall Street reform bill. But Paul has said new audit legislation is needed because the 2010 bill didn't go far enough. Specifically, he states on his website that the audit called for in the 2010 bill only focused on emergency credit programs and procedural issues, rather than on the substantive details of the lending transactions. The 2012 bill doesn't limit the focus of the audit.
Fed Chairman Ben Bernanke recently told the House Financial Services Committee that he agrees with the "basic premise" that the Fed should be transparent, but raised concerns that Paul's bill doesn't exempt monetary policy and deliberations from its reach.
Not including an exemption on this point could create "a political dampening effect on the Federal Reserve's policy decisions," Bernanke warned.
But Rep. Dennis Kucinich (D-Ohio) pointed out that the House vote on the bill comes on the same day that the Washington Post reported that the New York Fed "did not communicate in key meetings with top regulators that British bank Barclays had admitted to Fed staffers that it was rigging LIBOR,” the index which sets interest rates worldwide.
"The Fed creates trillions of dollars out of nothing and gives it to banks. Congress is in the dark. The Fed sets the stage for the subprime meltdown. Congress is in the dark. The Fed takes a dive on LIBOR. Congress is in the dark. The Fed doesn’t tell regulators what is going on. Congress is in the dark," Kucinich shouted on the House floor, just before the vote.
"It is time for us to bring the Fed into the sunshine of accountability," he said.
Despite the broad support in the House, a senior Senate Democratic aide signaled the bill isn't likely to go anywhere in that chamber in the near future.
"Not this work period," the aide said about the Senate acting on the bill ahead of the month-long August recess. "Don’t know about September, but I doubt it."
Another top Senate Democratic aide concurred that the bill likely won't go anywhere, but speculated it could resurface in a different form.
"We probably won’t bring it up," said the aide, adding that Paul's son, Sen. Rand Paul (R-Ky.), "will probably start insisting on this as an amendment to everything under the sun, so it's possible it comes up for an amendment vote at some point."
"It would not be the craziest amendment we've voted on," the aide said.
Source: HuffPo: Federal Reserve Audit Bill Overwhelmingly Passes The House
Congressman Ron Paul's Floor Speech on Audit the Fed July 24, 2012
Ron Paul's Audit the Fed Bill PASSES!
A Win For The Constitution - Ron Paul Gets His Bill To Audit The Fed Passed
Kucinich Stands for 99%, Demands Audit of the Federal Reserve
Harry Reid vows Federal Transparency Act will never be voted on in the Senate
Supporters of Rep. Ron Paul and sound monetary policy rejoiced online as they heard of the passage of H.R. 456, the Federal Transparency Act, on Wednesday. Their joy, however, was short-lived as within an hour of the bill passing word spread from the office of the Harry Reid. The Senate Majority Leader and Nevada Democrat has vowed the Federal Reserve Transparency Act will not be put to a vote in the Senate.
Source: Harry Reid vows Federal Transparency Act will never be voted on in the Senate
In '95 Harry Reid wanted to Audit the Fed, and now he doesn't want to because Republicans have supported it--the very definition of bipartisan hypocrisy. This is the most important institution that controls all of our money/interest rates. Very important and he won't even put it to a vote in the Senate.
Harry Reid: "I think we should audit the Federal Reserve" in 1995!
Thursday, July 19, 2012
Monetary Policy and the State of the Economy | Ron Paul vs Ben Bernanke
Before the United States House of Representatives, Committee on Financial Services, Hearing on Monetary Policy and the State of the Economy, July 18, 2012
Mr. Chairman, I thank you for calling this hearing today on monetary policy and the state of the economy. For the past few years the Federal Reserve has received criticism from all sides of the political spectrum, and rightly so, for its unprecedented intervention into the economy and its bailouts of large Wall Street banks and foreign central banks. Yet this criticism risks losing sight of the most insidious result of the Fed's actions, which is to enable the growth of government.
For nearly the first 40 years of its existence, the Fed operated as an adjunct of the Treasury Department, tasked with purchasing government debt in order to keep the government's borrowing costs low. Even after gaining its vaunted "independence" from Treasury in 1951, the Fed never shrank from enabling the growth of government. The extraordinary monetary policy of the last four years has reaffirmed that the Fed, its protestations to the contrary notwithstanding, is only too willing to enable growing government spending and massive fiscal deficits.
For centuries, banks have received special privileges from government in exchange for funding the government's wars. The creation of the Federal Reserve System in 1913 formalized and centralized this arrangement in the United States. From the very beginning, the Fed was intended to provide a more liquid market for federal government debt, enabling the growth of big government.
What we’ve seen over the last century is nothing less than the remaking of American government, thanks in large part to the Fed. Its loose monetary policy gave rise to: (i) the welfare state, encouraging dependency on government largesse and destroying the work ethic and family life of lower-income Americans; (ii) the warfare state, allowing the U.S. government to involve itself in wars of aggression around the world; and (iii) the regulatory state, the mammoth bureaucracy that relentlessly grinds away at the rights of the American people.
Little more than a decade ago, Fed economists were wringing their hands over the prospect that the federal government might pay off the national debt. Nothing could be worse for the Fed, because the Fed's monetary policy operations require the existence of government debt. Treasury debt is purchased from or sold to banks on the open market in order to influence interest rates. Without government debt, the Fed would have no idea how to conduct monetary policy. From a free market perspective this would be wonderful, as it is Fed monetary policy which largely creates the booms and busts of the business cycle. Unfortunately, the federal government has run up the national debt to unprecedented levels over the past decade, and the Federal Reserve has been right there, monetizing that debt to ensure that none of it goes unsold.
While the desire of foreign countries and private investors to purchase Treasuries was drying up, the Federal Reserve was only too willing to step in and enable the government to continue its deficit spending. The Fed's balance sheet exploded as it purchased over one trillion dollars in Treasury debt over the past few years. And before it did that, the Fed also purchased over a trillion dollars of overrated mortgage-backed securities from Wall Street banks, giving those banks the cash they needed to purchase Treasury debt of their own. Were it not for the Federal Reserve's actions, the federal government would not have been able to run trillion-dollar deficits for the past several years.
In fact, had the Federal Reserve never been created, the federal government never would have been able to run up a $16 trillion debt. No market actor would lend money to such a major debtor at such low interest rates. The only reason that banks are willing to buy Treasury debt at such low interest rates is because they can easily resell that debt to the Fed.
Without the Fed, interest rates would rise to such levels that the federal government would have no choice but to curtail its expenditures and focus only on doing what is truly necessary. With market discipline allowed to prevail, the size of the federal government would be drastically smaller. If Congress were really serious about limiting the size of government, it would eliminate the most important enabler of government profligacy by ending the Fed.
Source: Ron vs. Ben, for the Last Time
Ron Paul "We Talk About Solving A Worldwide Problem Of Insolvency By Just Printing Money"
Ron Paul "It's The Destruction Of The Currency That Destroys The Middle Class!"
Ron Paul "Under Your Philosophy I'd Say You've Done A Pretty Good Job! You Tripled Monetary Base..."
Mr. Chairman, I thank you for calling this hearing today on monetary policy and the state of the economy. For the past few years the Federal Reserve has received criticism from all sides of the political spectrum, and rightly so, for its unprecedented intervention into the economy and its bailouts of large Wall Street banks and foreign central banks. Yet this criticism risks losing sight of the most insidious result of the Fed's actions, which is to enable the growth of government.
For nearly the first 40 years of its existence, the Fed operated as an adjunct of the Treasury Department, tasked with purchasing government debt in order to keep the government's borrowing costs low. Even after gaining its vaunted "independence" from Treasury in 1951, the Fed never shrank from enabling the growth of government. The extraordinary monetary policy of the last four years has reaffirmed that the Fed, its protestations to the contrary notwithstanding, is only too willing to enable growing government spending and massive fiscal deficits.
For centuries, banks have received special privileges from government in exchange for funding the government's wars. The creation of the Federal Reserve System in 1913 formalized and centralized this arrangement in the United States. From the very beginning, the Fed was intended to provide a more liquid market for federal government debt, enabling the growth of big government.
What we’ve seen over the last century is nothing less than the remaking of American government, thanks in large part to the Fed. Its loose monetary policy gave rise to: (i) the welfare state, encouraging dependency on government largesse and destroying the work ethic and family life of lower-income Americans; (ii) the warfare state, allowing the U.S. government to involve itself in wars of aggression around the world; and (iii) the regulatory state, the mammoth bureaucracy that relentlessly grinds away at the rights of the American people.
Little more than a decade ago, Fed economists were wringing their hands over the prospect that the federal government might pay off the national debt. Nothing could be worse for the Fed, because the Fed's monetary policy operations require the existence of government debt. Treasury debt is purchased from or sold to banks on the open market in order to influence interest rates. Without government debt, the Fed would have no idea how to conduct monetary policy. From a free market perspective this would be wonderful, as it is Fed monetary policy which largely creates the booms and busts of the business cycle. Unfortunately, the federal government has run up the national debt to unprecedented levels over the past decade, and the Federal Reserve has been right there, monetizing that debt to ensure that none of it goes unsold.
While the desire of foreign countries and private investors to purchase Treasuries was drying up, the Federal Reserve was only too willing to step in and enable the government to continue its deficit spending. The Fed's balance sheet exploded as it purchased over one trillion dollars in Treasury debt over the past few years. And before it did that, the Fed also purchased over a trillion dollars of overrated mortgage-backed securities from Wall Street banks, giving those banks the cash they needed to purchase Treasury debt of their own. Were it not for the Federal Reserve's actions, the federal government would not have been able to run trillion-dollar deficits for the past several years.
In fact, had the Federal Reserve never been created, the federal government never would have been able to run up a $16 trillion debt. No market actor would lend money to such a major debtor at such low interest rates. The only reason that banks are willing to buy Treasury debt at such low interest rates is because they can easily resell that debt to the Fed.
Without the Fed, interest rates would rise to such levels that the federal government would have no choice but to curtail its expenditures and focus only on doing what is truly necessary. With market discipline allowed to prevail, the size of the federal government would be drastically smaller. If Congress were really serious about limiting the size of government, it would eliminate the most important enabler of government profligacy by ending the Fed.
Source: Ron vs. Ben, for the Last Time
Ron Paul "We Talk About Solving A Worldwide Problem Of Insolvency By Just Printing Money"
Ron Paul "It's The Destruction Of The Currency That Destroys The Middle Class!"
Ron Paul "Under Your Philosophy I'd Say You've Done A Pretty Good Job! You Tripled Monetary Base..."
Tuesday, May 1, 2012
Economy Face Off: Ron Paul vs Paul Krugman
Nobel-prize winning economist Paul Krugman and Republican presidential candidate Ron Paul talk about inflation, monetary policy and the role of the Federal Reserve. They speak on Bloomberg Television's "Street Smart."
Ron Paul vs. Paul Krugman on Bloomberg TV - April 30, 2012
Ron Paul vs. Paul Krugman on Bloomberg TV - April 30, 2012
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