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Posts Tagged ‘Federal Reserve’
July 31st, 2013 at 8:38 pm
Gallup: Fed Unemployment Formula Distorts Jobs Picture

Beware of financial bureaucrats posing as economists. That’s my main takeaway from some pre-analysis of Friday’s unemployment numbers by Gallup’s lead economist, Dennis Jacobe.

As is sometimes the case when using metrics to understand reality, it looks like the federal government isn’t counting the right economic event if it truly wants to understand the employment market.

According to Jacobe, “The current government job measures leave a lot to be desired in terms of face-validity. For example, [Federal Reserve Chairman Ben] Bernanke noted in his testimony to Congress that the Fed’s unemployment target may need to be adjusted, depending on the labor participation rate. A declining participation rate can artificially lower the unemployment rate as job seekers give up looking for work, while an increasing participation rate can do the reverse.”

The problem is particularly acute when one considers how the feds count part-time jobs.

“Similarly, the establishment survey can be distorted by a surge in part-time jobs – a factor that may need to be considered when one evaluates Friday’s report,” writes Jacobe. “Part-time jobs not only count as new jobs for this survey, but if an American having one part-time job adds an additional part-time job, it counts the same as the creation of a new full-time job.”

This kind of counting completely misrepresents the rise in multiple part-time jobs. By treating two-part time jobs as the equivalent of one full-time job, the metric leaves out the fact that unlike just about every full-time job, almost no part-time job provides health or retirement benefits. Thus, while the hours worked my be roughly the same, the overall compensation is not.

What makes this an especially pernicious way to describe today’s employment market is the well-documented impact ObamaCare is having on the decline of full-time employment. If the federal unemployment survey continues to equate workers with multiple part-time jobs and those with full-time employment, a huge net loss in millions of workers’ standard of living will be lost because the official formula simply doesn’t account for it.

That’s a point worth remembering if Friday’s unemployment numbers come back better than expected.

December 27th, 2012 at 8:00 am
The Fed Taxes Savers to Pay for Govt. Spending

Richard Rahn explains how the Federal Reserve’s low interest rate manipulation taxes savers to help government spend more of taxpayers’ money:

By artificially holding down interest rates to lower-than-expected real market rates, the Fed is, in effect, expropriating interest income (an implicit tax) that savers normally would be expected to enjoy. This interest manipulation enables the government to fund its debt at less than what would be real market rates at the expense of savers, making the deficit appear much smaller than it really is.

And don’t forget that the main reason given for not auditing the Federal Reserve and opening it up to other oversight measures is that it’s supposed to be an independent government agency staffed by experts who operate above the political fray.

Right…

June 5th, 2012 at 2:46 pm
CATO: Reform the Fed by Diversifying Board Members

Cato expert Mark A. Calabria suggests a simple reform that would make decisions by the Federal Reserve Board more responsive to America’s different regional economies – include at least one board member from each Federal Reserve region.

Congress imposed a “geographic diversity” requirement upon the Fed for good reason. Regions of the country do not move together. Nevada’s 11.7 percent unemployment rate, for example, is significantly above South Dakota’s 4.3 percent. If the Fed lacks a wide range of voices, then its policies are not likely to reflect the economic differences across our country. An interest rate policy that might be appropriate for New York City, and its financial sector, might not be appropriate for industrial Ohio. Just the fact that only one current Fed governor, Janet Yellen from San Francisco, is from west of the Mississippi raises questions as to the legitimacy of Fed decision-making.

Calabria points out that another benefit of diversifying board membership is that doing so follows the law.  The Federal Reserve Act requires that, regarding members of the board, “not more than one of whom shall be selected from any one Federal Reserve district,” so that those making monetary policy decisions “shall have due regard to a fair representation of… geographical divisions of the country.”

Unsurprisingly, this easy to apply standard was recently violated when President Barack Obama nominated and the liberal Senate confirmed new members from Massachusetts and Maryland, even though two current members also hail from those states.  Combine this with the New York Fed’s distinction as the only district with a permanent vote, and there is a regional – and arguably illegal – bias in favor of the Northeast.

Every region of the country should be represented equally when the Fed Governors decide how much money to print and where to peg the interest rate.  To be sure, it would be better if the free market was deciding these issues, but that’s not the reality of the 21st century’s administrative state.  With that in mind, perhaps the cry could be, “No manipulation without representation!”

September 21st, 2011 at 8:45 pm
Bernanke’s Fed: ‘Twist’ing in the Wind
Posted by Print

It was less than a month ago that the Federal Reserve wrapped up its annual economic symposium in Jackson Hole, Wyoming with all signs pointing to the prospect that the nation’s central bank was going to cool it on the “quantitative easing” (dumping new currency into the markets) for a while. Though the insanity has (at least temporarily) abated, the central bank is still making mischief.

As Politico reports:

The nation’s central bankers dusted off a 1960s-era plan in hopes of rousing the sluggish economy Wednesday, taking the unusual step of shifting $400 billion into longer-term bonds in hopes of slashing interest rates further.

The Federal Reserve’s Open Market Committee voted 7-3 to embark on what’s informally called “Operation Twist,” a move first used during the heyday of Chubby Checker and named for his song of the same name.

The policy is mostly inert, as it won’t actually result in a monetary injection ala quantitative easing. The early consensus is that it won’t have much effect one way or the other. But the possible rationale, if true, is revolting:

Exerting political pressure on Bernanke may have rallied the Fed to act, since the committee likely found “this political meddling repugnant,” wrote JPMorgan Chase economist Michael Feroli in a client note.

Let’s be clear about this: the Fed already operates independent of “political meddling.” Various members of Congress and candidates for president may have been carping about Bernanke’s leadership (a point on which they’re certainly justified), but their influence was limited to the range of their voices. Nothing they said could actually effect policy.

If something so immaterial to the Fed’s work could drive monetary decisions, then this may be the most petulant institution in the federal government. At a time when the economy teeters on the brink of another devastating downturn, making market decisions in response to slights real and imagined shows a staggering lack of seriousness. If this is Mr. Bernanke’s swipe at Governor Perry, he should note that he’s only strengthening the governor’s argument.

August 18th, 2011 at 10:54 am
Perry: VERY Wrong Words, Very Right Substance

I wish to associate myself with just about every word of today’s Wall Street Journal editorial on Rick Perry’s comments on the Fed.  It tracks what I have been writing here for some time. As the WSJ wrote, “[N]ow, even as the recovery is supposedly underway, their meager salary increases are being washed away with another burst of commodity inflation caused by near-zero interest rates and quantitative easing. This is what happens when politicians and central bankers try to use monetary policy to compensate for the slow growth caused by bad fiscal and regulatory policies.”

About the only thing I would take issue with is that I think the WSJ went too far to excuse Perry’s outrageous language about Bernanke being “treacherous, or treasonous.” Not only was it way out of line in substance, but it actually detracted from his message by making his central point, which was so worthwhile, seem part and parcel of extremist political rhetoric and thus much more easily dismissable rather than taken seriously. Shame on Perry for such language. The WSJ should have done far more to condemn it.

That said, again, the WSJ is right to have gone beyond Perry’s unfortunate language to the real import of his remarks. By all accounts, Bernanke is a good man. But I think his policy judgments have been disastrous. Perry is right to say so, and I applaud his stance even as I denounce the way he chose to say it.

July 13th, 2011 at 2:09 pm
Fed Chairman Admits Not Thinking About ‘Cumulative Impact’ of Govt. Regulations

Eric Singer, portfolio manager of Congressional Effect Fund, identifies the single biggest problem with government regulators in his op-ed for Investor’s Business Daily:

JPMorgan’s Jamie Dimon recently asked Fed Chairman Ben Bernanke if he considered the cumulative impact of each regulation. Bernanke admitted he had not. The ongoing surprisingly bad unemployment numbers confirm that no one in charge is thinking about the cumulative impact of each tiny strangulation of capital and operating capability.

As Singer correctly concludes, “We need to go back to basics, cut these Lilliputian ropes and unleash the potential giant economy that is still on its back.”

July 11th, 2011 at 9:18 pm
Tea Party Presidential Candidates “On the Issues”

The Houston Chronicle (scroll to the bottom) has a helpful side-by-side chart comparing the positions of declared and presumptive GOP presidential candidates, all of whom lean in one way or another toward the Tea Party.  The line-up includes Texas Governor Rick Perry, Minnesota Rep. Michele Bachmann, Texas Rep. Ron Paul, and businessman Herman Cain.

Some highlights:

  • AZ Immigration Law: Bachmann and Cain support it; Paul has “some reservations,” and Perry thinks it “would not be the right direction for Texas”
  • Middle East Foreign Policy: Bachmann and Perry support Israel; Paul wants troop withdrawals from the Middle East; Cain is unequivocal: “You mess with Israel, you’re messing with the U.S.A.”
  • Economy: Bachmann, Perry and Cain all support tax cuts; Paul wants to go even farther: abolish the Federal Reserve and reestablish the gold standard

Here’s hoping for a substantive debate featuring all these candidates and their ideas.  America needs it.

June 23rd, 2011 at 11:06 am
Initial Unemployment Claims Rise, Fed Says “We’ve Done All We Can”
Posted by Print

So much for attempt number two on the “Recovery Summer” that the Obama Administration promised one year ago.

Today, the Labor Department announced that weekly initial unemployment claims jumped to 429,000, an increase of 9,000 from last week’s 420,000.  Even more ominously, Federal Reserve Chairman Ben Bernanke explained yesterday that the Fed has already done all it is prepared to do to increase growth, and expressed the same sort of cluelessness as Obama on why their “stimulus” has failed:

We don’t have a precise read on why this slower pace of growth is persisting.”

The Fed also issued “fairly significant” reductions in its 2011 growth forecast to 2.9% next year (down from a 3.3% growth expectation in April, and from 3.9% in January).  Another “Recovery Summer” like this, and Obama will be borrowing Jimmy Carter’s sweater for his own “Malaise Speech.”

April 26th, 2011 at 9:57 pm
Non-Existent Inflation? It’s Everywhere.
Posted by Print

As we prepare for the beginning of the era of the Federal Reserve as PR machine, we can anticipate a glut of federal statistics hand-picked to convince the public that the growing evidence of inflation is psychosomatic. Of course, it helps that the Fed’s core measure of inflation excludes such basic staples as food and energy. But as Jeffery Lord points out at the American Spectator, the main street indices tell a sharply different story than the Wall Street rationalizations:

Milk. A gallon of skim. At the local Giant in Central Pennsylvania:

January 11, 2011: $3.20
February 28, 2011: $3.24
March 6, 2011: $3.34
April 23. 2011: $3.48

That would be a 28 cent rise in a mere 102 days, from January to April of this year. The third year of the Obama misadventure.

Then there’s the celery. Same sized bag. Same store.

January 11, 2011: $1.99 a bag.
March 6, 2011: $2.49 a bag.

A rise of 50 cents in 54 days.

If this trend continues, the Fed will have to find an even more counterintuitive metric for gaging inflation. Perhaps one that doesn’t include prices.

April 12th, 2011 at 11:10 am
Fed: $4 Gas in March? Nothing to See Here, Folks.
Posted by Print

Gasoline prices have increased from the $3 range to the $4 range in just one year, we’re approaching all new record prices set in 2008 even though it’s not even summer driving season yet.  But ignore higher gas and food prices, America.  They only matter if you actually drive or eat. Federal Reserve Vice Chair Janet Yellen says it’s all “transitory,” and we need to keep the “stimulative” inflationary monetary spigots open because it “continues to be appropriate.”

Even the European Central Bank is raising interest rates in an attempt to avert inflation.  Of course, there isn’t an Obama reelection campaign to sustain over there.

March 31st, 2011 at 6:05 pm
So Much for the Federal Reserve Creating Stability

CNBC’s Fast Money quotes an investment strategist who says that when Federal Reserve Chairman Ben Bernanke gives his first press conference on April 27, his remarks “could induce a 10 to 15 percent correction” in the market.  Here, “correction” means “drop.”

The reason the market might drop one-tenth of its value in a matter of hours is due to some analysts’ fear that Bernanke will not continue printing money (i.e. quantitative easing) to inflate the value of assets.  When values return to more realistic levels, investors are likely to stop banking on government-distorted policies to bail them out.

The purpose of the Fed is to tinker with the money supply and interest rates to stabilize the economy.  So far, the only stability it’s guaranteeing is as fake as a free lunch.

March 24th, 2011 at 6:03 pm
Bernanke Thinks Lack of Communication Explains Opposition

According to the Wall Street Journal:

In a break with tradition, Federal Reserve Chairman Ben Bernanke will hold public news conference four times a year, in the U.S. central bank’s latest move to boost transparency and improve communications after its policies came under attack.

Earth to Ben: policies like quantitative easing (i.e. printing more money) come under attack because they devalue the dollar through inflation.  Explaining that reality – or denying it – in more detail won’t make the policy more attractive.  If anything, it will doom any chance of getting re-nominated for your position.

March 15th, 2011 at 1:24 pm
Fed Board Member Gets Lesson in Real World Economics

In just a few hundred words a Wall Street Journal editorial writer summarizes how out-of-touch supposed ‘experts’ can be when it comes to how policies affect everyday Americans.  The object lesson comes courtesy of New York Fed President William Dudley’s failed attempt to convince citizens in Queens that the economy is doing much better than they think.

The former Goldman Sachs chief economist gave a speech explaining the economy’s progress and the Fed’s successes, but come question time the main thing the crowd wanted to know was why they’re paying so much more for food and gas. Keep in mind the Fed doesn’t think food and gas prices matter to its policy calculations because they aren’t part of “core” inflation.

So Mr. Dudley tried to explain that other prices are falling. “Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful,” he said. “You have to look at the prices of all things.”

Reuters reports that this “prompted guffaws and widespread murmuring from the audience,” with someone quipping, “I can’t eat an iPad.” Another attendee asked, “When was the last time, sir, that you went grocery shopping?”

Mr. Dudley has been one of the leading proponents of negative real interest rates and quantitative easing, so this common-man razzing is a case of rough justice. If Mr. Dudley were wise, he’d take it to heart and understand that Americans aren’t buying the Fed’s line that rising commodity prices are no big deal. Unlike banks and hedge funds, they can’t borrow at near-zero interest rates, and most of them don’t have big stock portfolios. Wall Street and Congress may love the Fed’s free-money policy, but Mr. Dudley and Chairman Ben Bernanke ought to worry about losing the confidence of the middle class.

Ronald Reagan destroyed confidence in Jimmy Carter with one simple question: “Are you better off now than you were four years ago?”  Any Republican presidential hopeful that can channel the frustration in Queens into a similarly concise indictment of President Barack Obama will be well positioned to oust yet another bumbling Democratic incumbent.

February 9th, 2011 at 10:49 pm
The Authoritative Paul Ryan
Posted by Print

In a November commentary, I warned that Ben Bernanke’s expansionary monetary policy threatened to erode the value of the dollar and weaken the American economy. Now the leading mind of the House GOP caucus is saying the same thing to the Fed Chairman’s face. With Bernanke appearing before the House Budget Committee earlier today, newly minted Chairman Paul Ryan of Wisconsin laid the consequences of “quantitative easing” on the line:

“There is nothing more insidious that a country can do to its citizens than debase its currency,” Ryan told Bernanke. “Chairman Bernanke: We know you know this. We know that you’re focused and concerned about this. The Fed’s exit strategy and future policy – it will determine how this ends.”

Ryan said he believed a “course correction here in Washington is sorely needed.”

“Endless borrowing is not a strategy,” he said. “My concern is that the costs of the Fed’s current monetary policy – the money creation and massive balance sheet expansion – will come to outweigh the perceived short-term benefits.”

“It is hard to overstate the consequences of getting this wrong. The dollar is the world’s reserve currency and this has given us tremendous benefits in the global economy,” Ryan said.

As usual, Paul Ryan is right. Unfortunately, there’s little that can be done from the outside. The Fed operates free of traditional rules of transparency (one of the reasons the push to audit its books has gained so much traction) and it works on the basis of a delusional proposition that it can be an engine of economic stimulus at the same time that it maintains the dollar as a stable store of value (a proposition that Ryan has rightly called into question). There’s still a lot of work to be done to rationalize American monetary policy. But it’s at least heartening to know that we’ve literally got our best man on it.

February 4th, 2011 at 2:11 pm
Fed’s Bernanke Tells GOP ‘Hands-Off- Debt Ceiling Vote

Since a majority of the smart people in Washington, D.C., agree that the nation’s astronomically high $14.3 trillion debt ceiling, chattering class consensus says all the “sane” members of Congress will stand together and once again extend America’s line of credit.  With that in mind, GOP budget cutters are proposing to get deep spending cuts in return for raising the debt ceiling.

Not so fast, says Federal Reserve Chairman Ben Bernanke.  Playing his faux apolitical persona to the hilt yesterday, Bernanke said House Republicans should “not play around” with the debt ceiling vote to extract any spending concessions.  That would make a fiscal issue too political.  Instead, they should treat spending and tax issues separately; exactly the unconditional debt raising approach espoused by the Obama Administration.

But the logic of the Republicans’ negotiating tactic is clear: get spending cuts now so that the debt limit becomes a true ceiling once more instead of a temporary marker.  Having a limit on one’s credit card does not require the user to treat it as a goal.  It’s an emergency option, not a default.  Because fiscally conservative House and Senate members are the only public officials actually trying to get control of the budget, demanding concessions from the debt ceiling vote may be the only way to make progress in a fractured government.

If Bernanke is too partisan to see that, he should at least recognize that politics isn’t just an exercise in means; it’s the attainment of principled ends as well.

January 10th, 2011 at 1:48 pm
Ralph Nader Cheering the Tea Party?

Believe it.  In an op-ed for BusinessWeek, the scourge of concentrated wealth and power sees a lot to love in the new, Tea Party-infused legislators walking around Capitol Hill.  Specifically, Nader isolates five issues that could bring the movement’s limited government mantra into conflict with establishment Republicans.

(1)   Ron Paul’s fight to curb the power of the Federal Reserve

(2)   Heightened criticism for corporate welfare programs (e.g. everything from ethanol subsidies for biofuel to “green” initiatives designed to get federal tax dollars)

(3)   Trimming the military budget (Apparently, Defense Secretary Robert Gates already got the memo; sort of)

(4)   Renewal and expansion of the World Trade Organization, NAFTA, etc.

(5)   Whistleblower protection for bureaucrats and corporate workers

The limited government foundations of the Tea Party movement will make predicting voting outcomes this session iffier than when Republicans could be assumed to oppose any Democrat plan.  If necessary, we’ll see how many of the new Constitutionalists in Congress are ready to buck convention and vote their principles instead of their party.

November 15th, 2010 at 12:09 pm
Princeton Coal Miner Misses Wal-Mart Canary; Continues Digging

Canaries and markets are sensitive creatures.  Take a canary down a coal mine and the poor bird starts dying as soon as the toxic levels of coal dust start rising.  Wait too long, and coal miners will be following their yellow feathered friend down the River Styx.  The key is to monitor the canary carefully for signals that it’s time to stop digging before it’s too late.

The market is a similar beast, even though the data miners of economic trends at places like Princeton and the Federal Reserve Board choose to think otherwise.

Practitioners of microeconomics presume they have “perfect information” by which they mean knowing all the relevant data before making a decision.  Thusly armed they sally forth to wage war on behalf of whatever economic model (or political interest) they claim provides the greatest good.

Such is the case with Federal Reserve Board Chairman Ben Bernanke, the Princeton economist responsible for authorizing the printing of hundreds of billions of dollars to “quantitatively ease” the lack of money flowing in the marketplace, and spur a “healthy” bit of inflation.  Bernanke is doing this because he assumes he has all the relevant data to support such a move.

A new price survey of a Wal-Mart grocery basket says otherwise.  The retail giant is raising prices, a market signal that inflation is already underway without government interference.  Like any market leader, Wal-Mart’s actions will be quickly emulated by others in their sector, with down market effects reverberating across the economy.

The market is already sensing the need for inflation and is acting accordingly.  A massive injection of “Fed Stimulus” to achieve the same goal will result in accelerating inflation beyond what’s considered healthy, devaluing the dollar and making it harder for middle class families to buy necessities.  That kills an economy.  If Bernanke continues to ignore the ability of the market to adjust itself, it will soon be his career lying lifeless in the shaft.

November 10th, 2010 at 10:19 am
Ramirez Cartoon: Quantitative Easing
Posted by Print

Below is one of the latest cartoons from two-time Pulitzer Prize-winner Michael Ramirez.

View more of Michael Ramirez’s cartoons on CFIF’s website here.

November 5th, 2010 at 6:54 pm
Ron Paul & Paul Ryan, Overseeing the Fed & Budget Respectively?

If getting a House chairmanship were as automatic as moving from ranking member of the minority to chairman of the majority, then Representatives Ron Paul (R-TX) and Paul Ryan (R-WI) would be resting easy today.  Rep. Paul is the ranking Republican on the subcommittee with oversight responsibility of the Federal Reserve, a role the Austrian economist would relish.  For his part, Rep. Ryan is the ranking Republican on the powerful Budget Committee, the body empowered to make significant changes in public policy through the budget writing process.

Both men have reason to doubt an unchallenged assent to power because both are on record with radical plans to shrink the size of government.  Paul is sure to refile legislation to audit the Fed, a proposition that may gain popularity with the Fed’s announcement to add nearly $1 trillion to the national debt.  For his part, Ryan’s Roadmap to America’s Future is a comprehensive vehicle for delivering sustainable government programs that leave room for entrepreneurship and growth.

Voters had their say on Tuesday.  Now, it’s time to see how many fiscal conservatives in the newly enlarged GOP caucus are willing to elevate two of the most ardent foes of big government to consequential leadership positions.

October 14th, 2010 at 10:49 pm
Parallel Universe: Europeans Warning U.S. About Economic Irresponsibility
Posted by Print

Further proof that the Beltway Keynesians have taken us down the economic rabbit hole: it’s now falling to Europeans to warn us that inflation and stimulus are tanking the dollar. Consider the following from the Financial Times:

Increasing expectations the Federal Reserve will pump more money into the US economy next month under a policy known as quantitative easing sent the dollar to new lows against the Chinese renminbi, Swiss franc and Australian dollar. It dropped to a 15-year low against the yen and an eight-month low against the euro …

A senior European policy-maker, who asked not to be named, said a further aggressive round of monetary easing by the US Federal Reserve would be “irresponsible” as it made US exports more competitive at the expense of its rivals…

Russia’s finance minister Alexei Kudrin, in a meeting with European Union officials, blamed the US – and others – for global currency instability.

He said one reason for exchange rate turmoil “is the stimulating monetary policy of some developed countries, above all the United States, which are trying to solve their structural problems in this way”.

The entire justification for the creation of the Federal Reserve was to ensure that monetary policy would be insulated from political pressure. If Ben Bernanke chooses to act as a handmaiden for the profligacy of the Obama Administration, then he deserves to be cleaning out his desk just as much as the president.