Yellen and the Fed face as many constraints as Harry Houdini did in trying to escape a potential collapse of confidence in the U.S. dollar and a possible sovereign debt crisis for the United States. Let’s look at some of the constraints on Yellen – and the possible “tricks” she might use to escape.
The first and most important constraint on Fed policy is that the U.S. economy is dead in the water. Quarterly GDP figures have been volatile over the past three years, with annualized real growth as high as 5% in the third quarter of 2014 and as low as minus 1.2% in the first quarter of 2014. We have not seen persistent growth or a definite trend – until now. Finally, there is a trend, and it’s not a good one.
Damage was worst in the final session, when Boston Federal Reserve President Eric Rosengren warned against waiting too long to raise interest rates. Selling built after European Central Bank President Mario Draghi downplayed the need for more measures to boost growth a day earlier. When it was over, the S&P 500 Index was down 2.3 percent to 2,127.81 on the week, with Friday’s plunge wiping out a slight gain over the first three days.
The Only Sure Conclusion About the G20 Summit (Thomas C.)
“The communiqué reiterates the essential role of structural reforms in boosting productivity and output, as well as in promoting growth in G20 countries. The choice and design of structural reforms are consistent with countries’ specific economic conditions,” the People’s Daily sums up one of the points on the agenda.
The other points where the G20 reached some kind of consensus were trade, anti-corruption, financial reform, investment, industrialization, entrepreneurship, climate change, innovative growth, and development.
On Thursday, federal regulators said Wells Fargo employees secretly created millions of unauthorized bank and credit card accounts — without their customers knowing it — since 2011.
The phony accounts earned the bank unwarranted fees and allowed Wells Fargo employees to boost their sales figures and make more money.
According to the NYT, regulators said the bank’s employees had been motivated to open the unauthorized accounts by compensation policies that rewarded them for drumming up new business. Many current and former Wells employees told regulators they had felt extreme pressure to expand the number of new accounts at the bank.
Now the faux-intellectual case for complete government control and surveillance of transactions is being promoted so rapidly and universally it seems a coordinated effort. The economic noise just ramped up again upon publication of superstar economist Kenneth S. Rogoff’s The Curse of Cash, in which (I have not personally read it but have repeatedly heard) he agitates for elimination of all cash over $10 bills, forcing all but latte-level transactions under government scrutiny — or into Outlawry.*
J.D. Tuccille has has an excellent overview of the positions on both sides. (His article is a real linkfest, so set aside some time for it.)
This time, people left candles outside to help people see. Neighbors gave food to people with kids and helped the elderly into their houses. The New York Police Department reported less crime on that day than the same day the previous year with power. It was a shining moment of my time in New York.
Failure of Inflation Targeting?! (Axel M.)
Most central banks have a mandate to promote price stability; the Fed is said to have a dual mandate to also maximize employment. Over the decades, we believe most economists have come to believe pursuing an inflation target is the holy grail of modern central banking. As such, it’s not a surprise that by arguing inflation is too low, central bankers have justified the pursuit of their various policies since the onset of the financial crisis. Some prominent central bankers, including European Central Bank (ECB) head Draghi, have argued the law requires them to pursue an inflation target, thus pursue potentially ever greater monetary easing; and that if there are unintended consequences, ‘macro-prudential’ measures ought to be employed by policy makers to address those (as an example, the argument is central to this speech by Draghi last February). Our interpretation: Draghi sees his role as doing whatever it takes, and don’t blame him if there are unintended consequences. While Draghi may be more radical in some of the tools he employs, we consider his “leadership” as a symptom of the environment we are in.
Brazil makes big push in Asia (Michael B.)
Brazilian Ag Minister Blairo Maggi planned to make the most of a trip with Brazilian President Michel Temer to the G-20 Summit in China. With a group of about 100 Brazilian businesspeople in tow, Maggi will meet with Asian importers until later this month in South Korea, China, Thailand, Vietnam, India and other regional countries in an attempt to reach the administration’s stated goal of increasing Brazil’s share of the world agriculture market to 10% (from its current estimate of 7%) within five years.
Is Another Attica on the Horizon? (jdargis)
Historian Heather Ann Thompson argues that there’s a direct line between the deadly 1971 Attica protests and the current call for action. For her latest book, Blood in the Water: The Attica Prison Uprising of 1971 and Its Legacy, she spent over a decade unlocking the secrets and sifting through the misinformation about the infamous prison revolt that still shapes our society’s perception of and relationship to incarceration. An edited and abridged version of our conversation follows.
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