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  • Commentary posted August 28, 2015 by Norbert J. Michel, Ph.D. Market Swing No Cause for Fed Action, or Non-Action

    Back in grad school (not all that long ago), we pondered whether a central bank should target equity (or other asset) prices to conduct monetary policy. In theory, as the value of consumers' stock portfolios rise, they will spend more because they are wealthier. It turned out, though, that the empirical link between monetary policy, equity prices, and consumption has…

  • Commentary posted August 17, 2015 by Norbert J. Michel, Ph.D. The Financial Deregulation That Never Was

    Why do I write so much about the myth that financial market deregulation caused the financial crisis? Because that false narrative has spread so far and wide. Even some folks who are otherwise friendly to free-markets have bought into it. So here’s one more shot: financial markets were not deregulated in any meaningful way during the last 100 years. It is true that…

  • Commentary posted July 29, 2015 by Norbert J. Michel, Ph.D. Milking Banks For Highways

    The U.S. Senate’s newest plan to save the highway trust fund is a great example of how short-term interests tend to dominate politics. As my colleague Michael Sargent has pointed out, the Senate developed a six-year plan that pays for only three years, and “does so by relying on unacceptable gimmicks and tax increases.” One of those tax increases provides another…

  • Commentary posted July 2, 2015 by Norbert J. Michel, Ph.D. Two Months To Go, Two Jackson Hole Conferences

    In exactly two months the Federal Reserve Bank of Kansas City will hold its annual symposium in Jackson Hole, Wyoming. It is here that, for more than 30 years, “participants from across the globe gather…to discuss important policy issues of mutual interest.” Previous topics have included labor market dynamics and unconventional monetary policy, but this year’s theme is…

  • Issue Brief posted July 1, 2015 by Salim Furth, Ph.D., James M. Roberts, Mike Gonzalez, Norbert J. Michel, Ph.D. Puerto Rico Needs Economic Freedom, Not Bailouts

    Puerto Rico is in a debt crisis, and Governor Alejandro García Padilla (D) has announced that “the debt is not payable” given the commonwealth’s large deficits and collapsing economy.[1] Presenting a government-commissioned report, economist Anne Krueger explained that the origin of Puerto Rico’s debt is decades of stimulus spending and economic stagnation: Since 1996,…

  • Commentary posted June 18, 2015 by Norbert J. Michel, Ph.D. Basel III Does Not Justify The Export-Import Bank

    I’ve mostly stayed out of the debate over reauthorization of the U.S. Export-Import (Ex-Im) Bank. My colleague Diane Katz, and some others, have run with the issue. And they’ve done a great job of pointing out the hyperbole that Ex-Im supporters rely on to make their case. Ex-Im financing supports only about 2 percent of the nation’s exports, but we’re supposed to…

  • Issue Brief posted June 4, 2015 by John Gray, Norbert J. Michel, Ph.D., Michael Sargent House Transportation, Housing and Urban Development Appropriations: The Highway to Bankruptcy

    The House of Representatives will soon consider the Transportation, Housing and Urban Development (THUD) appropriations bill. The THUD appropriations bill provides funding for the Departments of Transportation and Housing and Urban Development. The bill provides $55.3 billion in discretionary budget authority. This represents a $1.5 billion increase above the current…

  • Commentary posted June 2, 2015 by Norbert J. Michel, Ph.D. Changing U.S. Bankruptcy Law Will Not Help Puerto Rico

    Imagine a small U.S. city that owns and operates its own electric power company. The business has been poorly run for decades. But it’s backed by the government, so it’s been able to borrow huge sums of money. Much of the borrowing was done via a set of special tax-exempt bonds, with contracts that spell out exactly what the power company can and can’t do in the event it…

  • Backgrounder posted May 11, 2015 by John L. Ligon, Norbert J. Michel, Ph.D. The Federal Housing Administration: What Record of Success?

    More than 80 years ago, Congress passed a series of laws that significantly expanded the federal government’s presence in the housing finance system. These federal programs have grown and contributed to an explosion of mortgage debt over the past few decades. Homeownership rates, however, have barely changed since the late 1960s. The long-term increase in mortgage debt…

  • Commentary posted May 5, 2015 by Norbert J. Michel, Ph.D. End -- Don't Mend -- The Fed's Emergency Lending

    There’s still a widespread belief that the federal government will bail out large financial firms if there’s another crisis. Curbing the Federal Reserve’s ability to spread money around would be a great way to lower the chances of future bailouts. So it’s encouraging to learn that Senators Elizabeth Warren (D-Mass.) and David Vitter (R-La.) have joined forces in an…

  • Commentary posted April 22, 2015 by Norbert J. Michel, Ph.D. Status Quo On Housing Finance Keeps Failed System In Place

    The status quo. It’s a powerful force in Washington, D.C. No matter how destructive or inefficient an existing program, institution or system may be, it’s always safer for politicians to maintain the status quo rather than meaningfully change direction. Exhibit A: federal housing finance policy. Prior to the 2008 financial crisis, the federal government spent decades…

  • Commentary posted April 7, 2015 by Norbert J. Michel, Ph.D. Risks From Fed's Interest On Reserves Threaten More Than Monetary Policy

    The Federal Reserve started paying interest on reserves (IOR) in October 2008. Many now suggest this policy has blunted the effectiveness of its expansionary monetary policies. One possibility is that IOR has helped keep all the excess reserves the Fed created in check. That is, because banks receive interest on these excess reserves, they’re not using them to create new…

  • Commentary posted March 25, 2015 by Norbert J. Michel, Ph.D. Congress Should Not Treat Financial Companies As Public Utilities

    Last week a group of eight U.S. Senators sent a letter to Federal Housing Finance Agency (FHFA) Director Mel Watt regarding concerns over what’s known as the Common Securitization Platform. This “platform” is meant to standardize the process of issuing mortgage-backed securities (MBS) in the U.S., and the FHFA has been working on it for more than two years. The FHFA is…

  • Backgrounder posted March 20, 2015 by Norbert J. Michel, Ph.D. Financial Market Utilities: One More Dangerous Concept in Dodd–Frank

    An underreported problem with the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act is that it broadens the concept of what constitutes a public utility. In particular, Title VIII of Dodd–Frank confers a special status on firms that it identifies as financial market utilities (FMUs).[1] This change marks a dangerous shift in the relationship between…

  • Commentary posted March 11, 2015 by Norbert J. Michel, Ph.D. Has Bitcoin's Time Come? The Market--Not Public Policy--Should Decide

    Victor Hugo, author of The Hunchback of Notre Dame, famously said “All the forces in the world are not so powerful as an idea whose time has come.” Perhaps Bitcoin is just such an idea? Digital currencies are still rather new, so it’s hard to know for sure. But for all of their faults, they do seem to be catching on. In less than eight years we’ve gone from zero to…