tag:blogger.com,1999:blog-2499715909956774229.post2858997004368447661..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: The Fed and the New YearStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2499715909956774229.post-83004742300827412192019-01-11T17:43:21.968-08:002019-01-11T17:43:21.968-08:00Williamson for Board of Governors? :) Happy New Ye...Williamson for Board of Governors? :) Happy New Year!Constantine Alexandrakishttps://www.blogger.com/profile/03148709241309623293noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-1376978159199915592019-01-02T09:23:06.888-08:002019-01-02T09:23:06.888-08:00It seems that a phasing out of reinvestment progra...It seems that a phasing out of reinvestment program mitigates the collateral shortage since a treasury security is a better collateral (accessible to a broader array of financial institutions) than a reserve account. As well, the Fed does not need to worry about ``leaky'' floor system as the fed funds rate is sufficiently close to the interest rate on reserves due to the increases in the fed funds rate and the cessation of reinvestment program. My prediction is that full-fledged balance-sheet normalization will induce the overnight reverse facility to be useless. In spite of the potential benefits of balance-sheet normalization, the size of the Fed's balance sheet is still quite large (over 4$ trillion). Why is that? Why is Fed shy about accelerating the balance-sheet normalization program? Is it the taper-tantrum trauma?Anonymoushttps://www.blogger.com/profile/17974910528536453844noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-57735751346501666092019-01-02T06:50:54.783-08:002019-01-02T06:50:54.783-08:00Yes, if we have a recession, the policy rate will ...Yes, if we have a recession, the policy rate will fairly quickly go to zero. But I don't think the FOMC is reluctant to use QE. I think the committee believes it works, and there is a temptation to be seen to be doing something in a crisis. But, don't get the idea that everyday monetary policy is a big deal - the ability of interest rate policy to smooth business cycles is probably overblown. Crisis management certainly matters, though.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-3190833374155127252019-01-01T18:03:45.127-08:002019-01-01T18:03:45.127-08:00Well, obviously a highly intelligent synopsis of t...Well, obviously a highly intelligent synopsis of the Fed.<br /><br /> But you did miss one point. What will the Fed do if the economy begins to go into recession?<br /><br /> I would say the Fed is out of ammo in the first inning. Indeed, the Fed will be reluctant to return to quantitative easing, if it even works.<br /><br /> There is a huge bias against money-financed fiscal programs in America's modern-day macro economic and monetary communities.<br /><br /> Yet money-financed fiscal programs allowed Japan to mostly sidestep the Great Depression.<br /><br /> Modern-day China remains opaque, but I think a case can be made that money-financed fiscal programs by the People's Bank of China have helped that nation obtain 40 straight years of economic growth.<br /><br /> The worst case scenario is that the United States sinks into a recession, the Fed is flat-footed and impotent, and powerless to execute bailouts. The US financial system will quickly self-destruct, as we saw in 2008 (the US financial system has been mostly rebuilt to original specs, and borrows short to lend long). Yet the Fed is explicitly barred from conducting bailouts anymore. <br /><br /> In the Museum of Macroeconomics there are many fables, hagiographies, and totems. Yet the bust of Korekiyo Takahashi is curiously absent. <br /><br /> What to do in the next recession? As an investor, go short, as a citizen, pray. Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com