According to a White House statement, Obama will announce at 3PM tomorrow that Janet Yellen will be the next Federal Reserve Chairman, when Bernanke’s term expires on January 31. Yellen has been a proponent of highly accommodative monetary policy, and has articulated the case for keeping interest rates low until “late 2015” (before this, current consensus among economists was that rates will increase in early 2015).
This news is good for asset prices - SPX futures are up about 7 points on this announcement.
No way the Fed starts tapering anyway until the government can get it’s head out of it’s ass. Just too risky to have even the potential of a default while also stopping QE. Could get out of control very easily.
Government shutdown or default potential also decreases spending and investment, decreasing GDP and increasing unemployment. Even if the Fed were to just look at the economic data and not follow Congressional debates, the difference might affect monetary policy.
Furthermore, the government shutdown has delayed key economic reports, like the jobs report. Other data collection by the government is also seen as unreliable during the shutdown. The Fed is compelled to wait for more reliable data before changing its policy. This will likely also delay the tapering.
I always felt that part of the problem was that Ben was using the banking system as the intermediary for increasing the money supply.
The guy was named Helicopter Ben because of the idea that one could restart things by shoveling cash out of helicopters. But he only flew the helicopters over Wall Street and Broad Street. He needed to get helicopters over main street.
I don’t say this should be general policy for all time, but with sluggish demand brought about by structural unemployment, this is far more defensible than the banker-bonus-handout policy.
And that’s the only thing that has staved off massive inflation. I’m unwilling to give Ben credit for actually intending to do that though. He gave billions to the banks and they held on to it. Had anything else happened we would be looking at a very troubling inflationary environment. I think we still are actually, but for other reasons.
Yes, when you make money more easily available, you RISK inflation, but there’s nothing that guarantees it, and there are leading indicators of the kind of inflation that money supply expansion risks (namely unit labor costs: http://research.stlouisfed.org/fred2/series/ULCNFB)
If money printing was equivalent to inflation (as the Austrians and Von Misses folk like to say), then we would surely have had it starting 5 years ago (or perhaps 4), and Japan would not have experienced two lost decades.
Some people say, “ah no, I meant ‘money inflation,’ not ‘price inflation’” to which one I’d say “money inflation only matters when it causes price inflation, so keep an eye on price inflation indicators and only care about money inflation if it looks like it is the proximate cause of price inflation and in this case it’s not.” I am not saying that M0 is not relevant to monitor and consider in terms of what risks it poses, but it is the general price level that matters most if you are concerned about the value of real assets.
Those money inflation / price inflation arguments sounds like when the Marxists say “ah no, I meant ‘peoples democracy’, not ‘bourgeois democracy’” to argue that ordinary liberties and protections aren’t important.