QE3?

Many of the problems Americans face can be dealt with by creating some inflation in our country. Most of our debt is in nominal, not real terms (something we will get into more later). We have the cost of our mortgage exceeding what we can pay (evident by the large default numbers) and we have a national debt too large (in many people's opinion at least). If we had some inflation this would "ease" these problems that households and our nation faces. So how do we get inflation? By a process called "Quantitative Easing" and for the first time it looks like we may do round three of this, thus Quantitative Easing Three (QE3). We will talk more about this later, but it steps outside the typical Federal Reserve actions.

Fannie and Freddie

We spoke about TARP in class and mentioned the issue of Fannie and Freddie (the quasi private mortgage giants). This is an excellent piece (I think it is the first piece actually). It is worth listening to (click on the "Listen to the Podcast" link)

Update I: Here is an interesting article about how the executives for Fannie and Freddie were paid millions. Tough to justify the heads of these failed organizations millions in salaries from taxpayers.

Update II: Part 2 here and Part 3 here

Please be sure to at least listen to the first one.

Fed to Become More Open

The Federal Reserve has always been a secretive organization. They have often argued (with justification in some cases) that with greater transparency would come less power. In other words their policies require that no one actually knows what they are doing. This makes sense in many respects. But calls for more openness have occurred as the years have gone by.

They have a branch (called the FOMC) that meets regularly to determine Monetary Policy. Once upon a time it was months before they even disclosed what was talked about in that meeting. Then they changed the rules that ended up reducing the time of disclosure. Now there are greater calls for openness (and many are asking for auditing the Fed) and it appears as if they have changed the rules once again.

Federal Reserve and Politics

A very good talk about the independence of the Federal Reserve. In short, making the Fed accountable to short term political objectives at the expense of long term economic problems is a mistake (most economists probably would agree). So too does Tim Geithner.

The State of Monetary Policy

The Federal Reserve has exhausted their ability to conduct traditional expansionary monetary policy. This outlines it nicely. The money quote:

“There’s no silver bullet right now,” and central bankers have “very few options left in terms of lowering interest rates,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.

But that does not mean they are content to leave the economy alone as the article outlines.

A Penny's Worth

I really like this rant via Freakonomics. It is about the use of pennies in our economy. We should get rid of them, yet they remain. Why is this? The video rants about it.

Federal Reserve's Target

The Federal Reserve is as complicated and hidden as organizations get. They are assigned the task of conducting Monetary Policy, and this action works best in the dark. Just like any other economic agent the Fed is challenged with trade-offs. They often have to decide between unemployment and inflation. Fighting the latter is a trademark of the previous three Federal Reserve chairmen. This article talks about how the vice chair of the Federal Reserve nominee will fight the unemployment problem. Lets hope that trade-off does not become a crucial decision faced by the Fed anytime soon.

Keynes-Hayek Rap

F.A. Hayek is best known for his libertarian views (smaller government intervention) that are spelled out in his book “The Road to Serfdom”. John Maynard Keynes is best known for advocating government spending to temporarily stimulate the economy which is spelled out in his book “The General Theory of Employment, Interest, and Money” (“The General Theory” for short). Both well known economists but their views could not be further apart. So what is the natural thing that happens when two well known economists get together? A rap breaks out naturally. I like the lyrics and scenes. Think of the party as the recent stimulus. (I could not figure out how to get you tube embedded so I had to link to Marginal Revolution)

Bernake's Confirmation

There is a very good theoretical debate regarding the importance of the Federal Reserve's need for Independence. For the most part the past three presidents of the Federal Reserve have been independent from politics (which most economists would agree is a good thing). But this is one of the very rare times when the spot light is put on the political bureaucracy of appointing the president of the Fed (or in this case re-appointing him).

In the Beginning

Confused about the bank ‘bailout’ and terms like ‘TARP’. What exactly did happen in the financial industry last September just as the mess began? This piece pulls much of it together very nicely.

Be sure to go to 'Watch the full program online'

How to Turn Toxic Assets into Liquid Assets

For the first time I can remember there are some details disclosing how the government is going to handle the ‘toxic assets’ that are floating around out there.

As a refresher: Housing bubble leads to decreased housing prices. Decreased housing prices leads to increased foreclosures. Increased foreclosures lead to tightening up of the credit industry. Tightening up of the credit industry leads to decrease demand for houses (can’t get the loans). Decreased demand for houses leads to decreased housing prices.

This was the scenario six months ago that sparked this financial mess. Many people believe a ‘bail out’ of the financial industry is different than other industries if only for the fact that the above cycle needs to be stopped (plus there are negative externalities as some people are effected other then the home buyer and seller… think student loans). The original ‘bail out’ (TARP as it is now called) was originally 700 Billion dollars to combat this problem. One annoyance was that there was never any transparency to the program (no one knew what was going on).

Fed and the money supply

An article about the Fed pumping money into the American economy.

The Federal Open Market Committee interest rates put in perspective

What are the Federal Reserve's principal tool for implementing monetary policy? Click here to see the intended federal funds rate change from 1990 to present time.