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  • Commentary posted October 28, 2014 by Norbert J. Michel, Ph.D. Consensus Building That the Fed's Policies Were Too Tight

    It’s certainly true that the Fed dropped its target federal funds rate in 2008.  In fact, the Fed started steadily cutting its target in September 2007.  In that month, it cut the target from 5.25 percent to 4.75. By the end of 2008, the target had been slashed to 1 percent. But those cuts don’t mean the Fed’s policies could not have been too tight. Nominal interest…

  • Backgrounder posted October 27, 2014 by Norbert J. Michel, Ph.D. Federal Reserve Performance: What Is the Fed’s Track Record on Inflation?

    Central banks … will do wisely to lay aside their inexpert ventures in half-baked monetary theory, meretricious statistical measures of trade and hasty grinding of the axes of speculative interests with their suggestion that by so doing they are achieving some sort of vague “stabilization” that will, in the long run, be for the greater good. —H. Parker Willis, first…

  • Backgrounder posted October 24, 2014 by Norbert J. Michel, Ph.D. Federal Reserve Performance: Have Business Cycles Really Been Tamed?

    Central banks … will do wisely to lay aside their inexpert ventures in half-baked monetary theory, meretricious statistical measures of trade and hasty grinding of the axes of speculative interests with their suggestion that by so doing they are achieving some sort of vague “stabilization” that will, in the long run, be for the greater good. —H. Parker Willis, first…

  • Commentary posted October 16, 2014 by Norbert J. Michel, Ph.D. Let's Fully Devalue the Devaluation Idea, Once and For All

    Many bad ideas survive as urban legends. No field is immune, economics included. The list goes on: Unions care more about consumers than about their own members. Minimum wage laws don’t raise the cost of hiring low-skilled workers. Keynesian stimulus policies have worked wonders in the past. And so on. The latest bad idea that refuses to die is that countries should…

  • Commentary posted October 1, 2014 by Norbert J. Michel, Ph.D. The Pseudoscience of Inflation: Part II

    A few weeks back this column discussed some of the basic problems with measuring inflation in the macro economy.  It pointed out that economists use several different price indices because there’s no one, purely objective way to measure inflation. It’s nothing like measuring the volume of water in a container or the chemical makeup of a natural substance.  Still, we…

  • Commentary posted September 17, 2014 by Norbert J. Michel, Ph.D. Tarullo Wants Banks to Pay for Being Too Big: Who Will Pay the Banks?

    The Federal Reserve’s Daniel Tarullo, the Fed governor who oversees regulatory policies, testified before the Senate that the central bank is going to propose new capital requirements for large banks. It appears these new requirements will be even more stringent than those called for under the latest round of international regulations.  According to Tarullo, the Fed…

  • Commentary posted September 8, 2014 by Norbert J. Michel, Ph.D. Is the Federal Reserve Running On Empty?

    Politico ran an attention-grabbing headline last week: The Mystery Woman Who Runs Our Economy.  The article itself offered an interesting look at what makes Yellen tick, but the title presupposed way too much. No single person or committee runs our economy, no matter how hard the Federal Open Market Committee tries.  Far from harmless, this notion that someone in…

  • Commentary posted September 8, 2014 by Stephen Moore, Norbert J. Michel, Ph.D. The Fed Can’t Fix the Economy

    A strange thing happened at the Federal Reserve Bank’s summer-end conference in Jackson Hole, Wyo. Usually these are boring affairs, but liberal protesters crashed the party this time, and demanded that the Fed help the poor by holding interest rates close to zero and injecting more dollars into the economy. An exchange between Reggie Rounds of Ferguson, Mo., and Fed…

  • Commentary posted August 22, 2014 by Norbert J. Michel, Ph.D. Bitcoin Currency: The New Frontier for the CFPB

    The Consumer Financial Protection Bureau (CFPB) has unparalleled powers over nearly every consumer financial product and service.  Given that virtual currencies can serve as a form of electronic money, the CFPB has, predictably, decided to weigh in on this topic. A CFPB statement this week warned people about the dangers of private digital currencies such as Bitcoin,…

  • Commentary posted August 20, 2014 by Norbert J. Michel, Ph.D. Housing finance reform: It’s still about investment guarantees

    The 2010 Dodd-Frank Act was sold as a reform bill that would reduce risk in financial markets, yet it barely touched the single biggest source of that risk: the government-sponsored enterprises Fannie Mae and Freddie Mac. Several GSE reform proposals have since surfaced in Congress, but those that have garnered the most political support still would perpetuate the old…

  • Backgrounder posted August 20, 2014 by Norbert J. Michel, Ph.D. The Fed’s Failure as a Lender of Last Resort: What to Do About It

    It is not obvious that the Fed should be involved in emergency lending, however, since expectations of such lending can increase the likelihood of crises. Arguments in favor of this role often misread history. Instead, history and experience suggest that the Fed’s balance sheet activities should be restricted to the conduct of monetary policy. —Renee Haltom, Research…

  • Issue Brief posted August 14, 2014 by Norbert J. Michel, Ph.D. Federal Reserve’s Expansion of Repurchase Market Is a Bad Idea

    The Federal Reserve has been expanding a new “test” program it calls the Overnight Reverse Repurchase Facility (ON RRP). This program is a drastic departure from its regular open-market operations and potentially expands the federal financial safety net to the entire money market. Such an expansion increases systemic risk and increases the likelihood of unintended…

  • Backgrounder posted August 14, 2014 by Norbert J. Michel, Ph.D., Stephen Moore Quantitative Easing, The Fed’s Balance Sheet, and Central Bank Insolvency

    More than five years after the 2008 financial crisis, the Federal Reserve’s role is still the subject of much debate. One source of controversy has been the extent to which the Fed allocated credit directly to possibly insolvent institutions. Critics argue that the Fed should have allowed insolvent firms to restructure through bankruptcy and should have provided credit…

  • Issue Brief posted August 11, 2014 by Norbert J. Michel, Ph.D., John L. Ligon Five Guiding Principles for Housing Finance Policy: A Free-Market Vision

    The two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, remain under government conservatorship with the federal government standing behind all of their obligations. Housing finance reform is likely to be addressed during the next congressional session, but it appears the House and the Senate may offer very different reform proposals. Congress…

  • Commentary posted August 6, 2014 by Norbert J. Michel, Ph.D. The Pseudo Science of Inflation

    Many economists were quick to jump all over the Federal Reserve for its expansionary monetary policies surrounding the 2008 financial crisis. After its typical open-market purchases did little to get the economy moving again, the Fed embarked on several rounds of quantitative easing (QE), the most expansive policies it has ever orchestrated. The fear has always been that…