Really good links - Case against the Fed - Fiscal democracy - IOR - Bernanke and Palin - EMU - Boom-bust-bailout

Tyler Cowen - The case against the Fed is weak - "To whatever extent we can do without a Fed, it's because there are so many Treasury securities, which should be a sobering thought to a market-oriented perspective. If the Fed were shut down, over time the new base money would not be gold, "Hayeks," or a commodity bundle. It would be T-Bills. We would have achieved the full integration of the monetary and fiscal authority but to what useful end? (Better not balance the budget!) The real question is whether the Treasury should be the Fed or whether the Fed should be the Fed, but you won't often see it framed that way."

John McDermott - Democracy as a solution for fiscal crisis - "Imagine that in country X, measure A receives 90 per cent support in parliament but measure B squeezes through with only 51 per cent. The bond issued to pay for measure A is given seniority. Its holders get paid before those with the bond behind measure B. (If measure C then receives 98 per cent support it would trump A, and so on.)
        [Hans Gerbach of the ETH says:] Vote-share government bonds align the strength of the political support for particular government activities with the pledge to repay debt. This is desirable in its own right, as voting for debt-financed government expenditures is connected to the willingness to repay. Accordingly, it may have a favourable effect on deliberation in democracy by linking debt-financing with repayment promises when political debates about new government expenditures take place."

Bill Woolsey - Interest on reserves and inflation - "Murphy does make an odd error when discussing the possible strategy of the Fed paying higher interest on reserves. He says that investors will figure out that an exponential increase in reserves will hardly allow the Fed to control inflation. Now, suppose the expected inflation rate does rise to 10 percent and that a 12 percent interest rate is needed so that the demand for reserves will be high enough so that the demand for base money remains $2.6 trillion. Murphy seems to imagine that since each reserve balance would increase by 12 percent each year, base money would rise at a 12 percent annual rate. No. The Fed would simply have to sell between $200 billion and $300 billion in assets each year to leave base money the same. Rather than having to sell off $1.8 trillion in assets post haste, they could sell much fewer assets and prevent any excess inflation."

Scott Sumner - Ben Bernanke and Sarah Palin - "The reason QE worked was not the operation itself (which I agree does little or nothing) but rather because it tells the market that the Fed is now more serious about boosting long term prices and NGDP. In other words they are now willing to leave that base money out there long enough to get closer to their implicit inflation target. The Fed was afraid to directly call for higher inflation (something Krugman thinks could work) so they spoke in code, hoping the markets would understand them but Sarah Palin would not. Unfortunately for Bernanke, Sarah Palin has advisers who know exactly what the Fed was up to. "

Ambrose Evans-Pritchard - Way out for EMU - "A reader asked me this week whether there is any graceful way to avoid this coming chain of disasters.
Yes, there are two options, neither entirely graceful. The European Central Bank can print money like a drunken sailor, flood the bond markets with €2 trillion, and tank the euro against China’s yuan for good measure.
        If the Germans refuse to accept this, they should abandon EMU at once, leaving France and southern Europe with the residual euro and the institutions of monetary union. Existing euro debt contracts would be upheld. Germany would revalue – alone or with Finns, Dutch, etc - so holders of Bunds would enjoy a windfall gain.
        France could revive the Latin Union of the late 19th Century, a more benign venture than the Máquina Infernal now asphyxiating Portugal, and deflating Spain.
        Any better ideas out there?"

Simon Johnson - Boom-Bust-Bailout - "In “The Quiet Coup,” published in Atlantic magazine in May 2009, I compared the U.S. economic boom-bust-bailout cycle to what has become typical in emerging middle-income countries such as Russia, Argentina or Indonesia. Just don’t think these problems are limited to emerging markets.
        There is a much more general or global phenomenon in which powerful people cooperate to build an economic model that provides growth based on a great deal of debt. When the crisis comes, those who control the state try to save their favorite oligarchs, but there aren’t enough resources to go around."