5 ms·

The Federal Reserve Needs New Thinking

8 points by roymurdock 10y ago

rskar 10y ago
The "too-long-didn't-read": A Governor on the Federal Reserve Board (Kevin Warsh), is motivated to write this by this week's gathering at Jackson Hole, Wyo., where "the Federal Reserve Bank of Kansas City hosts the world’s leading central bankers and academics to consider monetary reform." In it he mostly decries the application of old/current methods directed at raising inflation, in a strategy that is in accordance with the "groupthink within the academic economics guild". He then says via the Dodd-Frank Act the Fed "now micromanages big banks and effectively caps their rate of return." His essay doesn't convey even the smallest hint of what any alternatives may resemble - only a platitude is offered: "The guild tightens its grip when it should open its mind to new data sources, new analytics, new economic models, new communication strategies, and a new paradigm for policy." The one clear idea is how "in bed" the Fed is with the financial industry: (1) "[The Fed] appears in thrall to financial markets, and financial markets are in thrall to the Fed..." (2) "A new inflation target ... would please the denizens of Wall Street who pine for still-looser Fed policy." (3) "From the beginning of 2008 to the present, more than half of the increase in the value of the S&P 500 occurred on the day of Federal Open Market Committee decisions." (4) "Long after the financial crisis, the Fed holds trillions of dollars of assets that would otherwise be in private hands." (5) "...[I]ts compulsion to keep asset prices elevated..." In the end, though, the only message that comes loud and clear is "inflation bad", but no mention of the apparent worldwide deflation that brought on the very idea of encouraging inflation per the "groupthink".
cpr 10y ago
What many people don't realize is that the Federal Reserve Banks are private, for-profit banks, with only very tenuous oversight by Congress. It's a very strange set-up and I think high time for a serious audit of what they've been doing for decades. For example, though Congress authorized $600B of bank bail-out money during the 2008 crisis, the Fed actually extended $6T to domestic and (many) foreign banks. It's clear the whole notion of privately-controlled "central banks" is a very dubious one, with profits lining a few people's pockets, all the while exerting a huge influence over a whole country's economy.
- milcron 10y ago
  The Fed is already rather audited... from Bernanke's blog: The Fed is already thoroughly audited in the usual sense, by an independent inspector general and by an outside accounting firm (currently, Deloitte and Touche), and the resulting financial reports are made public online. Every security owned by the Fed, up to the detail of the identifying CUSIP number, is also available online. Moreover, the Government Accountability Office (GAO), which does in-depth reviews and analyses (“audits” of a different type) of government activities at the request of Congress, has wide latitude to review Fed operations, including supervision and regulation as well as other functions. For example, as required by the Dodd-Frank Act of 2010, the GAO conducted reviews of the Fed’s emergency lending programs during the crisis and of the Fed’s governance structure. Since the financial crisis, the GAO has done some 70 reviews of aspects of Fed operations. What other sorts of auditing do you want? It's also worth mentioning that the US Fed acts as central bank to the world -- US taxpayers are not on the hook for that $6T.
- kahirsch 10y ago
  The Federal Reserve Banks are sort-of private, but making a profit is not their goal and almost all of the profit goes to the federal government. Most important policy decisions are made by the Board of Governors or the Federal Open Market Committee, where the Governors make up the majority of members. The Board of Governors is not private, it is an independent federal agency led by the 7 governors who are nominated by the President of the United States and confirmed by the Senate.

8 points by roymurdock 10y ago

rskar 10y ago

The "too-long-didn't-read": A Governor on the Federal Reserve Board (Kevin Warsh), is motivated to write this by this week's gathering at Jackson Hole, Wyo., where "the Federal Reserve Bank of Kansas City hosts the world’s leading central bankers and academics to consider monetary reform." In it he mostly decries the application of old/current methods directed at raising inflation, in a strategy that is in accordance with the "groupthink within the academic economics guild". He then says via the Dodd-Frank Act the Fed "now micromanages big banks and effectively caps their rate of return." His essay doesn't convey even the smallest hint of what any alternatives may resemble - only a platitude is offered: "The guild tightens its grip when it should open its mind to new data sources, new analytics, new economic models, new communication strategies, and a new paradigm for policy." The one clear idea is how "in bed" the Fed is with the financial industry: (1) "[The Fed] appears in thrall to financial markets, and financial markets are in thrall to the Fed..." (2) "A new inflation target ... would please the denizens of Wall Street who pine for still-looser Fed policy." (3) "From the beginning of 2008 to the present, more than half of the increase in the value of the S&P 500 occurred on the day of Federal Open Market Committee decisions." (4) "Long after the financial crisis, the Fed holds trillions of dollars of assets that would otherwise be in private hands." (5) "...[I]ts compulsion to keep asset prices elevated..." In the end, though, the only message that comes loud and clear is "inflation bad", but no mention of the apparent worldwide deflation that brought on the very idea of encouraging inflation per the "groupthink".

cpr 10y ago

What many people don't realize is that the Federal Reserve Banks are private, for-profit banks, with only very tenuous oversight by Congress. It's a very strange set-up and I think high time for a serious audit of what they've been doing for decades. For example, though Congress authorized $600B of bank bail-out money during the 2008 crisis, the Fed actually extended $6T to domestic and (many) foreign banks. It's clear the whole notion of privately-controlled "central banks" is a very dubious one, with profits lining a few people's pockets, all the while exerting a huge influence over a whole country's economy.

milcron 10y ago
The Fed is already rather audited... from Bernanke's blog: The Fed is already thoroughly audited in the usual sense, by an independent inspector general and by an outside accounting firm (currently, Deloitte and Touche), and the resulting financial reports are made public online. Every security owned by the Fed, up to the detail of the identifying CUSIP number, is also available online. Moreover, the Government Accountability Office (GAO), which does in-depth reviews and analyses (“audits” of a different type) of government activities at the request of Congress, has wide latitude to review Fed operations, including supervision and regulation as well as other functions. For example, as required by the Dodd-Frank Act of 2010, the GAO conducted reviews of the Fed’s emergency lending programs during the crisis and of the Fed’s governance structure. Since the financial crisis, the GAO has done some 70 reviews of aspects of Fed operations. What other sorts of auditing do you want? It's also worth mentioning that the US Fed acts as central bank to the world -- US taxpayers are not on the hook for that $6T.
kahirsch 10y ago
The Federal Reserve Banks are sort-of private, but making a profit is not their goal and almost all of the profit goes to the federal government. Most important policy decisions are made by the Board of Governors or the Federal Open Market Committee, where the Governors make up the majority of members. The Board of Governors is not private, it is an independent federal agency led by the 7 governors who are nominated by the President of the United States and confirmed by the Senate.