With a Wall Street Journal Op-Ed (ungated here) from Senator Elizabeth Warren, and a long Manhattan Institute essay last year by Dan Katz and Stephen Miran, the latter CEA Chair and Fed Board nominee, both ends of the horseshoe are calling for fundamental reform at the Fed.
After thirty years in the bond market, I have come to think that central banking is pretty much the same thing as central planning, with similarly bad success rates. It’s always worth remembering that the Fed is the US’ third central bank, its predecessors having gone, er, bankrupt.
I think MV=PV has sufficiently proven its ineffectiveness. Ballooning the balance sheets of both FED and ECB lead to bubbles and asset inflation—not inflation of consumer prices. Or am I missing something here? In the data I read supply shortages and a very low supply elasticity exacerbating post Covid excess demand. The aggregate supply curve was nearly flat.
I don’t know. LT yields augment when inflation expectations rise. These rise with uncertainty when markets get rattled by unpredictable behavior of decision makers.
US debt is covered by private and foreign sector balances and there are high CB bank reserves. In Europe only a few countries have a potential problem—the usual suspects—but northern countries have extremely low government debt. The ECB holds more than €10 trillion in bank reserves, mostly coming from private savings. Banks get 4% and pay 1%—it’s a money tree. Now, that’s an unsustainable problem right there I think.
Here in the Netherlands we boosted the Covid economy with €100 billion, increasing the debt to GDP ratio from 43% to 52%. Five years later we’re back at 43%.
Germany installed a debt brake (debt ceiling) 15 years ago. Resulting in underspending and underinvestment—its economy is in shambles, infrastructure needs upgrading, digitization is rudimentary, etc.
France is as usual a mess. No fiscal discipline! Debt to GDP ratio like the US around 120%. But France has high speed trains, nuclear power stations all over the country, an operative and earnest military, naval industry building subs, aerospace industry building jets, etc. and it’s a happy country.
It’s not clear to me that the Fed needs more democratic control. The executive branch and the legislative branch cannot handle fiscal policy. Why would we think they should have more control over monetary policy?
Yes, John is spending a LOT of time dissecting dubious arguments of people like Elizabeth Warren who will have almost zero actual impact on anything anyway, and almost no time dissecting the effects Trump's behavior could have. On that note, John hasn't even written here on the most reckless fiscal bill (considering it is neither a recession nor wartime) in US history.
The treasury should not be independent because the governments decision on what to spend is fundamentally political. People elect their politicians so they can implement their policies. The budget is that tool. The central bank on the other hand has a completely different goal: to pursue an inflation target. Nothing eminently political on that.
After thirty years in the bond market, I have come to think that central banking is pretty much the same thing as central planning, with similarly bad success rates. It’s always worth remembering that the Fed is the US’ third central bank, its predecessors having gone, er, bankrupt.
I think MV=PV has sufficiently proven its ineffectiveness. Ballooning the balance sheets of both FED and ECB lead to bubbles and asset inflation—not inflation of consumer prices. Or am I missing something here? In the data I read supply shortages and a very low supply elasticity exacerbating post Covid excess demand. The aggregate supply curve was nearly flat.
I don’t know. LT yields augment when inflation expectations rise. These rise with uncertainty when markets get rattled by unpredictable behavior of decision makers.
US debt is covered by private and foreign sector balances and there are high CB bank reserves. In Europe only a few countries have a potential problem—the usual suspects—but northern countries have extremely low government debt. The ECB holds more than €10 trillion in bank reserves, mostly coming from private savings. Banks get 4% and pay 1%—it’s a money tree. Now, that’s an unsustainable problem right there I think.
Here in the Netherlands we boosted the Covid economy with €100 billion, increasing the debt to GDP ratio from 43% to 52%. Five years later we’re back at 43%.
Germany installed a debt brake (debt ceiling) 15 years ago. Resulting in underspending and underinvestment—its economy is in shambles, infrastructure needs upgrading, digitization is rudimentary, etc.
France is as usual a mess. No fiscal discipline! Debt to GDP ratio like the US around 120%. But France has high speed trains, nuclear power stations all over the country, an operative and earnest military, naval industry building subs, aerospace industry building jets, etc. and it’s a happy country.
Check out my essay and tell me your view:
https://open.substack.com/pub/ed12621126/p/stop-agonizing-about-the-national?r=5ch0o6&utm_medium=ios
It’s not clear to me that the Fed needs more democratic control. The executive branch and the legislative branch cannot handle fiscal policy. Why would we think they should have more control over monetary policy?
Yes, John is spending a LOT of time dissecting dubious arguments of people like Elizabeth Warren who will have almost zero actual impact on anything anyway, and almost no time dissecting the effects Trump's behavior could have. On that note, John hasn't even written here on the most reckless fiscal bill (considering it is neither a recession nor wartime) in US history.
The treasury should not be independent because the governments decision on what to spend is fundamentally political. People elect their politicians so they can implement their policies. The budget is that tool. The central bank on the other hand has a completely different goal: to pursue an inflation target. Nothing eminently political on that.