Trump wanted to appoint his friend Herman Cain to the Fed. He's still pursuing the appointment of Stephen Moore.
As it comes out, Trump likes two things. He wants someone supportive of loose money policy even with unemployment under 4%. And he likes the gold standard. Those are not just two very bad ideas. They are also mutually exclusive. It's not enough that he's stupid. He's also incoherent.
R World (Ron Davison muses aloud)
Showing posts with label federal reserve. Show all posts
Showing posts with label federal reserve. Show all posts
06 February 2018
Shout it - Yellen was Flawless at the Fed (Hopefully It Won't Be Another Century Before Another Woman is Fed Chair)
This Monday was our first day with Janet Yellen as Fed Chair in four years. The market marked her departure with the biggest ever one day drop in the Dow. Now that's a send off.
The job of Federal Reserve Chair has become more important since Congress has become more dysfunctional. In an ideal world, the government has a mix of fiscal and monetary tools to use to help to smooth out the inevitable bubble and busts of an economy. Now we really have just monetary policy, the tool of the Fed. In the recovery from the Great Recession, when unemployment was still above 8%, the media and Republicans made a great deal of noise about deficits. Now that unemployment is only 4.1%, the Republicans have decided to add another trillion to the debt this year with no noise from Republicans (they're the ones creating this) and very little noise from the media. This is backwards and the Fed has had to work against Congress in their efforts to keep the economy from extremes during the recovery. Yellen has done that flawlessly.
For 100 years we had Fed Chairmen. Then, four years ago, Obama appointed Janet Yellen to succeed Ben Bernanke as Fed Chair. Here is how the economy has performed during her four-year term.
The uninterrupted streak - a new record
When Yellen took over as Fed Chair, the American economy had been creating jobs every month for 40 months. That's great but on two different occasions, the streak had lasted longer: 46 months in the mid-2000s and 48 months in the late 1980s.
Not once did the jobs report come in negative during her time as Fed Chair. The streak is now 88 months and counting; she set a new record each month for the last 40 months of her tenure, shattering the old record and bringing the unemployment rate down from 6.7% to 4.1%. No other Fed Chair presided over a time in which every single monthly jobs reports was positive.
Second best annual job growth
Uninterrupted job creation makes it easier to create a lot of jobs. During her four years the economy did. Only one Fed Chair - Miller who served for only 17 months during the 1970s - presided over a higher annual average job growth. (And wasn't it curious how the media continued to whine about so-so job creation rates, as if they had any instances of it being better during a four year or longer Fed term?)
Second best annual rate of stock market return
The market returns during her tenure were also second to only one other Fed Chair - Volcker. It seems fitting that the market began falling spectacularly after her last meeting Wednesday and before Powell's first day of work Monday. (Speaking of which, Powell did have a miserable start in his first two days. After Monday's huge sell off, the market return for his first day worked out to a 99.9% annual return which would have made him the first Fed Chair to have lost the entire stock market in his first year on the job. "Where are the returns Jerome?" "I don't know. Yellen seems to have taken them when she cleared out her desk.")
Lowest Inflation
The Federal Reserve has two goals: keep unemployment and inflation low. No one presided over lower inflation rates than Yellen. The goal is 2%. Her highest year was 2.1%. Only Bernanke - who was dealing with horrendous unemployment rates - was close to her and most Chairs were more than double that.
Trump, unsurprisingly, decided that Yellen's performance wasn't good enough to warrant a second term and thus hers will be the shortest term of any Fed Chair since 1979 when Carter decided that inflation was too high and he needed to truncate G. William Miller's term and replace him with Volcker.*
Of course it was unsurprising that Trump would replace Yellen. In Trump's final campaign ad, he lumped Yellen with Clinton, Soros and other world leaders as "globalist" financiers "who don't have your good in mind."
As it turns out, for a woman who didn't have our good in mind, she did pretty good. I'd go so far as to say that her performance was flawless. Let's hope it's not another century before a president has the good sense to appoint the second woman to head the Fed.
----------------------
*(It's worth noting that when Carter interviewed Volcker for the job as Fed Chair, Volcker warned him that his approach to squeezing out inflation would hurt the economy short-term and about the time Carter was running for reelection the economy would be in bad shape. Carter said, But this is what we need to do. And sure enough, in November of 1980 when Americans elected Ronald Reagan to take Carter's place, unemployment was at 7.5% and continuing to rise.)
The job of Federal Reserve Chair has become more important since Congress has become more dysfunctional. In an ideal world, the government has a mix of fiscal and monetary tools to use to help to smooth out the inevitable bubble and busts of an economy. Now we really have just monetary policy, the tool of the Fed. In the recovery from the Great Recession, when unemployment was still above 8%, the media and Republicans made a great deal of noise about deficits. Now that unemployment is only 4.1%, the Republicans have decided to add another trillion to the debt this year with no noise from Republicans (they're the ones creating this) and very little noise from the media. This is backwards and the Fed has had to work against Congress in their efforts to keep the economy from extremes during the recovery. Yellen has done that flawlessly.
For 100 years we had Fed Chairmen. Then, four years ago, Obama appointed Janet Yellen to succeed Ben Bernanke as Fed Chair. Here is how the economy has performed during her four-year term.
The uninterrupted streak - a new record
When Yellen took over as Fed Chair, the American economy had been creating jobs every month for 40 months. That's great but on two different occasions, the streak had lasted longer: 46 months in the mid-2000s and 48 months in the late 1980s. 
Not once did the jobs report come in negative during her time as Fed Chair. The streak is now 88 months and counting; she set a new record each month for the last 40 months of her tenure, shattering the old record and bringing the unemployment rate down from 6.7% to 4.1%. No other Fed Chair presided over a time in which every single monthly jobs reports was positive.Second best annual job growth
Uninterrupted job creation makes it easier to create a lot of jobs. During her four years the economy did. Only one Fed Chair - Miller who served for only 17 months during the 1970s - presided over a higher annual average job growth. (And wasn't it curious how the media continued to whine about so-so job creation rates, as if they had any instances of it being better during a four year or longer Fed term?)
Second best annual rate of stock market return
The market returns during her tenure were also second to only one other Fed Chair - Volcker. It seems fitting that the market began falling spectacularly after her last meeting Wednesday and before Powell's first day of work Monday. (Speaking of which, Powell did have a miserable start in his first two days. After Monday's huge sell off, the market return for his first day worked out to a 99.9% annual return which would have made him the first Fed Chair to have lost the entire stock market in his first year on the job. "Where are the returns Jerome?" "I don't know. Yellen seems to have taken them when she cleared out her desk.")
Lowest Inflation
The Federal Reserve has two goals: keep unemployment and inflation low. No one presided over lower inflation rates than Yellen. The goal is 2%. Her highest year was 2.1%. Only Bernanke - who was dealing with horrendous unemployment rates - was close to her and most Chairs were more than double that.
Trump, unsurprisingly, decided that Yellen's performance wasn't good enough to warrant a second term and thus hers will be the shortest term of any Fed Chair since 1979 when Carter decided that inflation was too high and he needed to truncate G. William Miller's term and replace him with Volcker.*
Of course it was unsurprising that Trump would replace Yellen. In Trump's final campaign ad, he lumped Yellen with Clinton, Soros and other world leaders as "globalist" financiers "who don't have your good in mind."
As it turns out, for a woman who didn't have our good in mind, she did pretty good. I'd go so far as to say that her performance was flawless. Let's hope it's not another century before a president has the good sense to appoint the second woman to head the Fed.
----------------------
*(It's worth noting that when Carter interviewed Volcker for the job as Fed Chair, Volcker warned him that his approach to squeezing out inflation would hurt the economy short-term and about the time Carter was running for reelection the economy would be in bad shape. Carter said, But this is what we need to do. And sure enough, in November of 1980 when Americans elected Ronald Reagan to take Carter's place, unemployment was at 7.5% and continuing to rise.)
02 November 2017
Evaluating the Fed's First Woman Chair: How Labor and Stock Markets Performed During Janet Yellen's Tenure
The U.S. got its first Federal Reserve Chair in 1914. 100 years later the first woman was appointed to Chair the Fed. Now, after she has served the shortest tenure in 40 years, the country is once again getting a man as head of the Fed. 100 years of men. 4 years of a woman. Now, at least 4 more years of a man. That seems fair and balanced.
Trump announced the appointment of Jerome Powell to be the Fed Chair, replacing Janet Yellen after the end of her first term in February. It's worth examining how the economy did on her watch.
While the folks appointing Federal Reserve Chairman seem to have a gender bias, the economy apparently does not. Or if it does, it is a positive bias. Even though hers was the shortest tenure in 40 years and the second shortest tenure in 66 years, more wealth was created on her watch than during that of any other Fed Chair: $17.7 trillion and counting. In the nation's first 237 years, it created $78.5 trillion in wealth; in the last 3.5 years it has created an additional $17.7 trillion, an uptick of 22.5% in less than four years. (Yellen's 4 year term does not end until February of 2018.) This is, of course, at least partly due to the simple dynamics of compound interest. As Benjamin Franklin said, "Money makes money and then the money your money makes makes money too." As the nation creates more wealth it creates more wealth. Also, just this month consumer sentiment hit its highest point for the century. (Well, okay. Highest point in 17 years. But century sounds more impressive.) And the economy has created an average of about 2.6 million jobs a year, helping to drive unemployment down from 6.7% to 4.1%. Things have been good during Yellen's tenure.
The big question facing Janet Yellen throughout her four years was when and at what rate to begin increasing interest rates. The trick is to keep inflation low while creating jobs. How did she do? Well, inflation is still low (it's bounced around 2% - mostly on the low side - during her time) and the economy has created about 9.6 million jobs thus far into her tenure. Those numbers strike me as flawless. And already she's begun to unwind the stimulus from the Great Recession; during her watch excess reserves at banks have dropped from $2.7 trillion to $2.1 trillion, a drop of $570 billion. (To put that in perspective, just before the Great Recession excess reserves were at $1.7 billion. Yep. Now it is over $2 trillion and only a decade ago it was under $2 billion. She has unwound that by vast multiples of what it once was without scaring off investors or consumers. That deserves respect.)
Here is a graph that contrasts the average annual job creation and stock market performance under each of the last seven Fed Chairs. The numbers are not final for Yellen, of course, because it will be about a half a year before the data is in on her full four year tenure.
In comparison to Yellen, the economy created more jobs per year under William Miller and the stock market did better under Miller and Paul Volker.
Miller wasn't normal, though. He was in office for only 18 months and he refused to raise interest rates to battle inflation during the late 70s oil shock. (Curiously, he was the last Fed Chair who did not have an economics degree; the most recent is Jerome Powell, Trump's new appointment.) Given he deferred addressing a bad situation, the economy did do well during his time but he left a mess to clean up; Volker was his successor and Volker's policies to bring down inflation triggered one of the ugliest recessions in the last half of the 20th century. So putting aside Miller's weird tenure, the punchline is that she did better than the boys in this century's old boys' club; no one else who served four years or more enjoyed the strong combination of labor and stock market performance that she did.
I could throw in all the usual caveats about how the economy is more than the result of fiscal policies defined by the Congress and President and more than monetary policy defined by the Federal Chair. And all of that is true. No president or Fed Chair invented personal computers or pioneered genetic engineering or venture capital. Still, monetary policy does help to determine things like inflation, interest rates and thus stock market performance and unemployment rates. The Fed's mandate is to keep unemployment and inflation low (but not too low) and it takes actions to do that. It is true that the economy is incredibly complex and luck plays a large role in what kind of numbers a Fed Chair presides over. That said, monetary policy matters and no one does more to define it than the Chair. If you are a woman or know one, you might be proud to see that the economy under Janet Yellen did as well as it did under any other Chair. While she did not get offered a second term, she should be proud of how markets - specifically labor and stock markets - performed under her watch.
We should consider appointing another woman someday. And maybe next time we won't wait a century.
Trump announced the appointment of Jerome Powell to be the Fed Chair, replacing Janet Yellen after the end of her first term in February. It's worth examining how the economy did on her watch.
While the folks appointing Federal Reserve Chairman seem to have a gender bias, the economy apparently does not. Or if it does, it is a positive bias. Even though hers was the shortest tenure in 40 years and the second shortest tenure in 66 years, more wealth was created on her watch than during that of any other Fed Chair: $17.7 trillion and counting. In the nation's first 237 years, it created $78.5 trillion in wealth; in the last 3.5 years it has created an additional $17.7 trillion, an uptick of 22.5% in less than four years. (Yellen's 4 year term does not end until February of 2018.) This is, of course, at least partly due to the simple dynamics of compound interest. As Benjamin Franklin said, "Money makes money and then the money your money makes makes money too." As the nation creates more wealth it creates more wealth. Also, just this month consumer sentiment hit its highest point for the century. (Well, okay. Highest point in 17 years. But century sounds more impressive.) And the economy has created an average of about 2.6 million jobs a year, helping to drive unemployment down from 6.7% to 4.1%. Things have been good during Yellen's tenure.
The big question facing Janet Yellen throughout her four years was when and at what rate to begin increasing interest rates. The trick is to keep inflation low while creating jobs. How did she do? Well, inflation is still low (it's bounced around 2% - mostly on the low side - during her time) and the economy has created about 9.6 million jobs thus far into her tenure. Those numbers strike me as flawless. And already she's begun to unwind the stimulus from the Great Recession; during her watch excess reserves at banks have dropped from $2.7 trillion to $2.1 trillion, a drop of $570 billion. (To put that in perspective, just before the Great Recession excess reserves were at $1.7 billion. Yep. Now it is over $2 trillion and only a decade ago it was under $2 billion. She has unwound that by vast multiples of what it once was without scaring off investors or consumers. That deserves respect.)
Here is a graph that contrasts the average annual job creation and stock market performance under each of the last seven Fed Chairs. The numbers are not final for Yellen, of course, because it will be about a half a year before the data is in on her full four year tenure.
In comparison to Yellen, the economy created more jobs per year under William Miller and the stock market did better under Miller and Paul Volker.
Miller wasn't normal, though. He was in office for only 18 months and he refused to raise interest rates to battle inflation during the late 70s oil shock. (Curiously, he was the last Fed Chair who did not have an economics degree; the most recent is Jerome Powell, Trump's new appointment.) Given he deferred addressing a bad situation, the economy did do well during his time but he left a mess to clean up; Volker was his successor and Volker's policies to bring down inflation triggered one of the ugliest recessions in the last half of the 20th century. So putting aside Miller's weird tenure, the punchline is that she did better than the boys in this century's old boys' club; no one else who served four years or more enjoyed the strong combination of labor and stock market performance that she did.
I could throw in all the usual caveats about how the economy is more than the result of fiscal policies defined by the Congress and President and more than monetary policy defined by the Federal Chair. And all of that is true. No president or Fed Chair invented personal computers or pioneered genetic engineering or venture capital. Still, monetary policy does help to determine things like inflation, interest rates and thus stock market performance and unemployment rates. The Fed's mandate is to keep unemployment and inflation low (but not too low) and it takes actions to do that. It is true that the economy is incredibly complex and luck plays a large role in what kind of numbers a Fed Chair presides over. That said, monetary policy matters and no one does more to define it than the Chair. If you are a woman or know one, you might be proud to see that the economy under Janet Yellen did as well as it did under any other Chair. While she did not get offered a second term, she should be proud of how markets - specifically labor and stock markets - performed under her watch.
We should consider appointing another woman someday. And maybe next time we won't wait a century.
02 December 2008
Soros on Free Market Fundamentalism
I think I realized one of the biggest reasons why DC has seemed to choose free markets over regulation: it is easier to opt for free markets than to do the difficult work of figuring out how to regulate them.
George Soros has written an article, The Crisis and What to Do About It.
Soros has made a fortune in financial markets. Last year alone his income (income - not wealth) was nearly $2 billion. Soros fled eastern Europe for free markets but is a critic of what he calls free market fundamentalism.
I mostly agree with and admire Soros. (Okay, maybe even envy him. I'd work at his salary for just a week and be happy with the 30-some million.) I think it is wonderful to have markets and I think that it as silly to think that financial markets will self regulate as to think that football games or or any sports contest will self regulate.
But his words here get to the crux of why regulation is so hard and why it is so much easier to take the extremist positions of free market fundamentalism or socialism.
First of all, who wants a Federal Reserve chairman who keeps asset prices down? It sounds good in abstract, but we're actually talking about home prices and portfolios that we're keeping from appreciating too much.
Secondly, what is the tolerable bounds for a bubble? Don't we all want just one or two more percentage gains - no matter what gains we've already made? Who is to say what is too big? Someone whose annual income is $1.7 billion? Someone who is on a fixed government salary and envies anyone making more than $100,000 a year?
As anyone who has bought furniture at Ikea can attest, just because something is hard is no reason not to do it. Getting the right level of regulation is hard because what makes for best short-term conditions (stability and predictability) can make for poor long-term conditions (innovation and change at the heart of progress).
Soros is saying what a lot of us are thinking. He also seems to raise more questions than he answers. And I think that this is perhaps the biggest reason that free market fundamentalism won converts. It suggests that regulators don't have to make any hard decisions or difficult judgments. They can simply leave it to the market.
George Soros has written an article, The Crisis and What to Do About It.
Since [financial markets] are prone to create asset bubbles, regulators such as the Fed, the Treasury, and the SEC must accept responsibility for preventing bubbles from growing too big. Until now financial authorities have explicitly rejected that responsibility. It is impossible to prevent bubbles from forming, but it should be possible to keep them within tolerable bounds.
Soros has made a fortune in financial markets. Last year alone his income (income - not wealth) was nearly $2 billion. Soros fled eastern Europe for free markets but is a critic of what he calls free market fundamentalism.
I mostly agree with and admire Soros. (Okay, maybe even envy him. I'd work at his salary for just a week and be happy with the 30-some million.) I think it is wonderful to have markets and I think that it as silly to think that financial markets will self regulate as to think that football games or or any sports contest will self regulate.
But his words here get to the crux of why regulation is so hard and why it is so much easier to take the extremist positions of free market fundamentalism or socialism.
First of all, who wants a Federal Reserve chairman who keeps asset prices down? It sounds good in abstract, but we're actually talking about home prices and portfolios that we're keeping from appreciating too much.
Secondly, what is the tolerable bounds for a bubble? Don't we all want just one or two more percentage gains - no matter what gains we've already made? Who is to say what is too big? Someone whose annual income is $1.7 billion? Someone who is on a fixed government salary and envies anyone making more than $100,000 a year?
As anyone who has bought furniture at Ikea can attest, just because something is hard is no reason not to do it. Getting the right level of regulation is hard because what makes for best short-term conditions (stability and predictability) can make for poor long-term conditions (innovation and change at the heart of progress).
Soros is saying what a lot of us are thinking. He also seems to raise more questions than he answers. And I think that this is perhaps the biggest reason that free market fundamentalism won converts. It suggests that regulators don't have to make any hard decisions or difficult judgments. They can simply leave it to the market.
20 March 2008
Consumption Junkies
Ron Araujo and I car pooled to work at one time and were in the same graduate program in economics. I think that Ron and I laughed together as much as I have with any co-workers (and if you ask my series of exasperated supervisors, that would be a remarkable amount of laughter).
NPR broadcast an inteview with Ron yesterday. As CFO of Mission Federal Credit Union, he was explaining how the Fed's rate move would translate into personal loans. He is still quick and I can swear that I heard an edge of laughter in his voice, even as he talked about something serious. Ron does a fabulous job of making it all sound simple and obvious - something I wish our profs had done. It's easy for me to imagine that in a few years, Ron could be one of those talking head guys on CNBC. Once again, I was made inordinately proud of my friendship with someone who has done well. (Pretending, once again, that this somehow has something to do with me.)
His interview made me think, though. The price of money has dropped. Loans are cheaper. But the flip side of this is that the reward for saving is lower. And I had a blinding flash of the obvious.
It is true that lowering interest rates can help to stimulate the economy by stimulating spending. But we're in a fairly precarious spot because our savings rate runs close to zero. Stimulating borrowing and discouraging savings is unlikely to help that. Might it be that we're taking short term measures that just make our underlying problems bigger?
[A British ATM is in the news for dispensing twice as much money as it should. Next time I talk to Ron, I need to ask him: why couldn't we "stimulate" the economy that way? Random ATM withdrawals enhancement program (RAWEP) sounds like it would be a hit with a polity that has made gambling a multi-billion dollar industry.]
NPR broadcast an inteview with Ron yesterday. As CFO of Mission Federal Credit Union, he was explaining how the Fed's rate move would translate into personal loans. He is still quick and I can swear that I heard an edge of laughter in his voice, even as he talked about something serious. Ron does a fabulous job of making it all sound simple and obvious - something I wish our profs had done. It's easy for me to imagine that in a few years, Ron could be one of those talking head guys on CNBC. Once again, I was made inordinately proud of my friendship with someone who has done well. (Pretending, once again, that this somehow has something to do with me.)
His interview made me think, though. The price of money has dropped. Loans are cheaper. But the flip side of this is that the reward for saving is lower. And I had a blinding flash of the obvious.
It is true that lowering interest rates can help to stimulate the economy by stimulating spending. But we're in a fairly precarious spot because our savings rate runs close to zero. Stimulating borrowing and discouraging savings is unlikely to help that. Might it be that we're taking short term measures that just make our underlying problems bigger?
[A British ATM is in the news for dispensing twice as much money as it should. Next time I talk to Ron, I need to ask him: why couldn't we "stimulate" the economy that way? Random ATM withdrawals enhancement program (RAWEP) sounds like it would be a hit with a polity that has made gambling a multi-billion dollar industry.]
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