President Trump was considering nominating Stephen Moore and Herman Cain to serve on the Board of Governors of the Federal Reserve system. All three men support a return to the gold standard for U.S. monetary policy. Here’s why they’re dead wrong. Continue Reading →
But the real problem is that the Fed has not understood why banks are holding all those reserves. There are two reasons. First, there is incredible risk aversion caused by the random, frequent regulations and lawsuits emanating from the Obama administration. Second, there is the small matter of loan demand. Banks are holding reserves because they don’t see demand for loans whose return is worth the risk. The only way loan demand will increase is for the economy to ascend to a decent growth rate. Until that happens, the Fed should just give up. Continue Reading →
So why raise interest rates? The only explanation I can think of is signaling. By raising interest rates the Fed believes they can send a signal to markets about the Fed’s confidence in the economic recovery. The Fed is playing a monetary policy confidence game. Continue Reading →
Not, mind you, because the Fed will raise interest rates any time soon. No, the geniuses at the Federal Open Market Committee and the Board of Governors seem to be leaning in a different direction: NIRP. … Better get used to seeing those initials. They stand for negative-interest-rate policy. That’s right. The Fed thinks they can drive nominal short-term interest rates below zero. Continue Reading →
I don’t think ECB will force Greece out of euro; I think it will have to devalue if it wants to reopen its banks ever. Continue Reading →
Another pair of startups is using bitcoins as an intermediate currency in foreign exchange transactions. Today the intermediate currency is the U.S. dollar. Continue Reading →
A two percentage point increase in the interest rate would double the U.S. government budget deficit. Continue Reading →
The Fed’s attempt to rescue the economy using monetary policy alone has been a fool’s errand. Now they face a Sophie’s choice: (1) Do nothing and watch inflation increase, or (2) drain the excess reserves from the system and watch interest rates rise. Actually, interest rates will rise either way. Continue Reading →
Average annual growth rates of M1 and M2 are in the 6% – 8% range. Reserves have averaged 215.25% per year. Reserves are not being loaned. And until lending picks up the Fed might as well close up shop. Continue Reading →
It happens that the Fed critics are exactly right. While interest rates on debt held by those in the bottom 80% may be slightly cheaper, much of that debt is probably credit cards. Those interest rates are still way, way above 1%. Continue Reading →