"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Thursday, January 20, 2011

Really good links - QE2 - ECB and BoE - Mid 2000s boom - Fed Laugh Track - Easier money in October 2008 - Price-level targeting

Perry Mehrling - QE2 - "Normal expansionary monetary policy provides additional low-cost repo financing to dealers, which they are free to use to expand their security holdings—that is how monetary expansion gets into asset prices. QE2, by contrast, removes high-quality collateral from the system, and with it the low-cost financing that makes use of that collateral.
        In times of uncertainty, the Fed is in effect joining everyone one else in the flight to quality, demanding $600 billion of the best securities in the system and supplying in return its own reserve liabilities that can be held only by member banks that are already stuffed full."

Hugh Hendry - Europe risks getting it wrong again on rate rises - "[T]he shadow of policy error lurks once more. The European Central Bank’s president even proclaimed his satisfaction with his bank’s decision to raise rates back in the cauldron month of July 2008. I salute him for his willingness to subject the bank’s decisions to open scrutiny. But tightening monetary policy amid the deepest economic crisis of the past 50 years was perhaps not his institution’s finest hour. And with headline inflation rates being boosted by relative price rises in the commodity sector, as Chinese policymakers continue to plug 10 per cent into their GDP calculators, another poorly-timed rise in European rates cannot be so easily dismissed.
        The markets are already pricing in the near certainty of a quarter-point rise from the Bank of England by May with another increase expected before October. But perhaps not wanting to be left out, the zealous guardians of Europe’s monetary system, who measure inflation rates across the 17-country bloc to the second decimal point, have recently raised their rhetoric to such an extent that investors are openly speculating that in spite of the continent’s tight fiscal policy European rates are now likely to rise before the end of summer. As they say in the land of macro investing, the cycle isn’t over until the Europeans lift rates. Just don’t bet on money staying tight for long."

David Beckworth - Interest rates in the early-to-mid 2000s were too low

WSJ - Fed Laugh Track: ‘Can We Borrow from the Greeks?’ - Best jokes from the 2005 FOMC Transcripts

David Beckworth - Nominal spending in Great Depression

Scott Sumner - 90 macroeconomists out of 100 agree with Keynes, Friedman and Krugman - "Why weren’t those 90 macroeconomists out picketing the Fed in October 2008, demanding easier money? Well 89 of the 90, the other is in the Fed. Back in late 2008 and early 2009 a few of us quasi-monetarists were just about the only people insisting on the urgent need for much more monetary stimulus. A tiny handful of others (including Krugman) half-heartedly agreed it was worth a shot, and almost everyone else completely ignored monetary policy. One argument was they assumed we were at the zero bound. Actually, we weren’t at the zero bound in October 2008, but let’s say we were close. The main problem with the zero bound argument is that there was no general understanding that monetary policy was ineffective at the zero bound among the macro elite. Indeed many of them (Bernanke included) argued forcefully that the BOJ needed to do much more in the late 1990s and early 2000s."

Ed Dolan - Price-level targeting - "We can look forward to a renewed debate on price-level targeting in 2011. Support for the policy will be strengthened a bit by the fact that the Chicago Fed has a voting seat on the FOMC in odd-numbered years. If inflation remains stubbornly low, as it did throughout the fall, perhaps Chairman Bernanke will become less confident that "both inflation expectations and actual inflation remain within a range consistent with price stability," one of the reasons he gave for rejecting price-level targeting in his August speech. It is even possible that the FOMC has already committed to de-facto price level targeting without saying so explicitly."

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