Cartoon of the day

Special mention

 

Cartoon of the day

Special mention

Wall Street hold ‘em

The series continues with the Queen of Hearts: Kathryn Wylde.

Kathryn Wylde is the president of The Partnership For New York City, a business-sponsored group which receives much of its funding from New York banks. Concurrently she is Deputy Chairman of the board of directors of the Federal Reserve Bank of New York. The particular slot she holds on the board of directors is the one reserved for the person who “represents the public” in decisions made by the board. However, she challenged Attorney General Eric Schneiderman’s proposed $8.5 billion settlement between the Bank of America and a group of investors, protecting the interests of the bank which contributes funds to her organization. She claims it is not part of the job of the board to be involved in regulation.

Work of the devil—really?

Just the other day, I was explaining to students how, over time, the “common sense” in mainstream economics changes. Sometimes quite radically.

Anatole Kaletsky explains how “the upheavals now happening in central banking represent a tectonic shift that could transform the economic landscape as dramatically as the financial earthquake four years ago.”

To see why, we must go back in history 40 years, to the early 1970s. Maintaining full employment was at that time regarded as the main objective of all economic policy, and this had been the case for roughly 40 years, since the Great Depression. But by the early 1970s, voters had enjoyed decades of more or less full employment and were starting to focus on inflation rather than depression as the main threat to their prosperity. Economists and politicians were responding to this shift. Milton Friedman led a monetarist “counterrevolution” against the Keynesian obsession with unemployment, designing new economic models to challenge the Keynesian view that market economies were naturally prone to long-term stagnation. By restoring the pre-Keynesian assumption that market economies were automatically self-stabilizing, the monetarist models produced two powerful policy prescriptions directly opposed to the Keynesian views.

First, the monetarists insisted that price stability, rather than full employment, was the only legitimate target for monetary policy and government macroeconomic management more generally. Second, they argued that central bankers should not accept any direct responsibility for unemployment, since sustainable job creation depended solely on private enterprise – full employment would be achieved automatically if inflation were conquered and market forces were allowed to operate freely, with the minimum of government interference or union constraints.

In all honesty, that’s a pretty straightforward account. But then there’s the kicker:

The Fed has promised to keep printing money until full employment is restored – and it has committed itself to even bolder measures if those announced last week prove inadequate. The ECB has undertaken to “do whatever it takes” to preserve the euro and specifically to buy Spanish and Italian government bonds with newly created euros in unlimited amounts.

In making these announcements, the Fed and the ECB were not just demoting their previously inviolable inflation targets to near-irrelevance. They were breaking intellectual and political taboos that had dominated central banking for four decades. This iconoclasm has prompted an extreme reaction from the one remaining bastion of traditional monetarism in central banking, Germany’s Bundesbank. On Tuesday the Bundesbank’s president, Jens Weidmann, described the new central banking quite literally as the work of the devil; Mephistopheles, he recalled, had used just such policies to create chaos and hyperinflation in Goethe’s Faust.

Really? The work of the devil?

Laughing all the way to the crisis

Apparently, Federal Open Market Committee meetings are pretty funny—or at least they were in the run-up to the Second Great Depression.

We already knew that the the top Federal Reserve officials in 2006 were completely oblivious to the possibility of an economic meltdown. Now we’ve learned (from Ryan Avent and the Daily Stag Hunt Staff) that the members of the committee were laughing all to the way to the crisis.

From the meeting of October 24-25:

CHAIRMAN BERNANKE. That reminds me of the Navy saying: “If it stands still, paint it. If it moves, salute it.” [Laughter] President Fisher.

The current Monetary Policy Report is really terrible. It’s dull; it’s sex made boring. I don’t want to criticize too much, but it is. [Laughter]

Who knew that watching the crises of capitalism develop could be so funny?

Quote of the day

The American people want a new direction on Wall Street and at the Fed. They do not want as chairman someone who has been part of the problem and who has been responsible for many of the enormous difficulties that we are now experiencing. It’s time for him to go.

Bernie Sanders, who’s placed a hold on Bernanke’s renomination