Ecomentary.com provides this archive of postings dating from 2011 dating back to 2001, as a resource. Due to the nature of dated material on the internet, we do not guarantee that hyperlinks are current.

October 03, 2011

Is The Double Dipper Upon Us? There are many negatives around the world, in spite of a few seemingly positives such as today’s ISM. Cyclical turning points often give rise to ambiguous data reads. This one is likely to be no different. The real puzzle is which Macro Area in the World has a political economy that can “do the right thing?” more…

September 30, 2011

Parsing FOMC Minutes: a somewhat unrewarding exercise Bernanke gave markets a fairly big clue as to where he thought the economy was by the third week in August (2011) and the statements of the earlier Fed meetings told us about the rather permanent extension of America’s version of ZIRP….But the Meeting Minutes really don’t enlighten us. more…

September 26, 2011

Truth in Lending What the Fed knows, what it wants and how to get there should have been the essential orientation of Bernanke’s opening conference speech at Jackson Hole. Gentle Ben left too many questions unanswered to feel as if we know where monetary policy is going and what the effects will be more…

September 21, 2011

The FOMC Speaks…whispers? Markets were looking for relief but got a confusing message. The message was Operation Twist but the subtext was that some serious difficulties for the economy may be coming our way. The relief package the Fed chose doesn’t have an inspiring history and the theory that justifies this policy choice is noticeable by its absence. more…

August 16, 2011

In the Kingdom of the Blind The former Vice Chairman of the Fed, and a former colleague of the current Fed Chairman offers a tantalizing insight into what the Fed may do next more…

November 07, 2010

Heat’s On: the Fed in Congressional Gun Sights This was written several days ago prior to the Bernanke speech at Jekyll Island and subsequent comments by other Fed officials and economic commentators. Those who justify the Fed’s actions have also spoken out forcefully (Dudley of the NY Fed and most recently, the Chief Economist of Goldman Sachs). What started as a domestic issue has now been pulled into the international arena as the implied currency depreciation stemming from quantitative easing is arousing the ire of major trading states. We can expect more forceful discussion in the future. more…

November 03, 2010

Hope over Experience We now know what the Fed has decided to do…at least for the moment. We don’t know if it will work, or for that matter, just how it will work to reduce unemployment. The FOMC statement is a triumph of hope over experience and a triumph of Authority over Rules. Markets better have “hope,” as well! more…

August 31, 2010

Market valuation is a ‘Sometime Thing’ Market Valuation Can Be a ‘Sometime Thing’ The dog days of August for a blogger must mean trying to make something out of nothing. Equities and Bonds rallied Friday by some 1.67% more or less. Random these days means high variance indices, but anyone who was long went home feeling better. The real data was not encouraging, and the Bernanke speech at Jackson Hole promised nothing that we did not know. Apparently the Bulls liked it more than the Bears and stocks went up. Go figure! more…

August 27, 2010

OPERATION TWIST Déjà vu The Magic Mystery Tour opens in Jackson Hole today and at 10:00AM, we will learn something of Chairman Bernanke’s present state of mind…or his current views on where the economy is going. The speech is supposedly entitled “The Economic Outlook and the Federal Reserve’s Policy Response.” Yesterday, his former colleague at Princeton, Alan Blinder, threw out another possible “remedy,” in an Op Ed piece in the WSJ. Blinder began by admitting that he thought the Fed was running out of ammunition. In as much as the Fed has to power to regulate the interest rate paid on excess reserves banked at the Fed, Blinder suggested that the Fed could choose to make that rate NEGATIVE, thereby taxing banks that choose to hold reserves rather than expanding their loan book. Last week, stimulated by another “bad” report (initial claims) we began to muse about what the Fed might do now and we wrote the attached piece. We are not suggesting that he will choose this route, but merely indicating that there is some theoretical basis for choosing to intervene at the long end of the curve. We had thought that if QE2 was about to begin, it would be at the long end until we were reminded of the famous Operation Twist of the early Kennedy years. Curiously, we had just come across a new interpretation of that “experiment.” While we doubt that Operation Twist 2 would be announced today, at least there is some theoretical basis for thinking it might be worth a try. Combining our thoughts last week with the Blinder piece, maybe a combination of negative interest rates on reserves and intervention at the long end would get banks to begin using their reserves to expand their loan books. That would be a surprise to the market, but it would have required an emergency meeting of the FOMC about which there have been no rumors. Let the games begin…in Jackson Hole, Professor Bernanke. We are all ears! more…

May 12, 2010

Who’s On First? To be able to quote both Churchill and Marx in the same Ecomentary must seem quixotic at best…but what could be more quixotic then the reversal by the leaders of the ECB who swore not so long ago that they would “never” use the ECB to buy out the failing sovereign debt of some States who refused to abide by the ‘fiscal rules’ of the EMU. That was, of course, when the house wasn’t burning down. By last Sunday, it was either put out the fire or let the House that the Treaty of Rome built burn down. They lowered their colors and made a quick turnabout. At the end of the day, the Europeans became Lincolnesque and decided to save their Union, for better or for worse. more…

April 20, 2010

The Central Issue: Wall Street versus Main Street There is an interminable wrangle going on in Washington as to the proper content of a financial reform bill. Sadly, but predictably, both the Executive and Legislative branches define their tasks in terms of “outcomes.” That is they think they can prescribe and proscribe the activities of financial institutions based on the “outcomes” they wish to have. With this orientation, it is virtually guaranteed that we will get a bill no one really likes; that the bill will not do what we hope; and that our financial environment will be suffused with unintended and unpleasant consequences. Legislation that ignores economic incentives and substitutes a carrot and stick list of do’s and don’ts is the wrong methodology. Into this darkness, a bright light appeared today when the President of the Philadelphia Fed, Charlie Plosser, published a letter to various Congressional leaders that outlines in a clear, well thought manner how to go about financial reform. It is proposal that is modest in its demands and easy to understand. Modest and understandable limits to legislative activities are probably disqualifications for a serious consideration of the Plosser proposal. Still, this is a thoughtful piece that should be the foundation for a sensible approach to financial reform. It starts with incentives and harnesses the power of markets along socially desirable lines. It is heartwarming to know that not every Fed Reserve official marches in lockstep with political correctness. It is well worth reading. more…

January 27, 2010

FOMC Opens the door—a crack Kansas City Fed President Hoenig dissented from the FOMC policy statement today—suggesting the “extended period” doctrine was strongly attacked during the Committee’s deliberations. That sets the stage for a more careful parsing of the Minutes of this meeting when they are released. In the meanwhile, the several changes in wording from the previous FOMC statement open considerable ambiguity as to the FOMC’s true intentions. Ambiguity rather than transparency dominates this policy statement just at the time that Markets need much more clarity of Fed intentions more…

June 25, 2009

Managerial Capitalism in Default Notes on the Presentation The Panic of 2008 with hyperlink more…

June 23, 2009

The Panic of 2008: Managerial Capitalsim in Default This is a presentation used as the basis of our “outlook” remarks at the Westeran Economic Association meetings in Vancouver, B.C. June 30, 2009 more…

April 29, 2009

Getting There It seems as if it has been 100 days since we last had something to comment upon, but the occasion prompts some observation. As we thought about the precipice on which Obama’s economic plans seem to rest, it struck us as ironic that despite his sallies against Greed, that’s what he desperately needs. He needs savers to tire of riskless investing in Government secured assets and return with their “animal spirits.” He doesn’t need Keynesian multipliers—they probably will defeat his stimulus plan. He needs plain, old fashioned avarice on the part of investors all over the world. He needs them to pile into risky assets once more. That will unbridle our constricted credit system. Somebody better whisper in the President’s ear: greed is good. more…

April 11, 2009

PPIP-the ‘crony capitalist’ solution to toxic asset pricing The nature of the Ppip proposed by the Government to induce private investors to co-invest in toxic assets from our belabored banks has raised some serious welfare economics issues for analysts. By allowing significant leverage with the Government supplying both a co-equal equity slice and financing for the borrowed amounts, the Government hopes investors will “overpay” for the toxic assets now on bank balance sheets. A careful consideration of this program suggests that the Government’s multiple objectives can work only if the “auction” is a mutual consulation between buyers and sellers. That is hardly a market. It is a kind of crony capitalism among Government chosen “eligible” investors and the banks who part with the toxic assets. more…

March 24, 2009

Play Ball: The Real Season Is About to Begin The Administration’s plan to “bail in” private sector investors by offering them incentives and guarantees to remove toxic assets from the banks is about to unveiled. It will differ from the Paulsen strategy only in that it will have to hide the true costs. It must involve at least two ‘hidden ball tricks.’ The Real Season is about to begin more…

March 22, 2009

Which recovery counts? The “just wage” has now made its reappearance on the national stage. Perhaps it is relevant to recall what Babe Ruth said comparing his salary to President Hoover’s. more…

February 17, 2009

Down the Hayek Road Watching the hearings last week of the House Financial Services Committee was deeply depressing. While we recognize that this is a “show,” and not a serious deliberation into needed remedies for our banking crisis, it is hard to reconcile the need of legislators to parade in front of their constituents and our need for them to legislate wisely. Bank executives make good prey. In the best of times, one is always uneasy at the power a banker has over one’s business. In the worst of times, banks are even more suspicious of potential borrowers. They are in the intermediation business, caught between borrowing short and lending long and asymmetric risk is the environment in which they grant credit. Nothing new here, but in a recession, credit-worthy borrowers are also fewer in number. We want our banks to take more risk. Is the best way to do that putting them on display and forcing them into public confession? It would appear we are on the way to some form of “nationalization” in which the role of the Congress could become even more dangerous. We are marching very quickly down the Hayek Road! more…

February 13, 2009

Red Queen, Failure to Launch, Numbers in Hiding The market did not like the lack of specificity, but perhaps what really troubles the market is the (unspecified) size of the bailout itself. Size was not something clearly addressed, but at the end of the day, if the size of financial intervention that is required to unblock the financial system is far in excess what is currently estimated, then much of the market fear is understandable. Worse, the longer the market is kept in the dark, the longer will our clogged financial system prevent a real recovery. This is an issue of numbers in hiding and it goes to the heart of the issues that were raised but inadequately treated. Since they were not specifically treated, it is quite natural to ask why. What is unbecoming is what that omission may signify about the lack of unanimity within the Administration on necessary steps to financial recovery more…

February 13, 2009

Specific Plans: a Red Queen in Washington We apologize to readers. This missive was to have been sent last night, but the more we reviewed the day’s events, more questions than answered appeared. Treat this as a late night re-write to be followed with a (more disturbing) set of questions that additional thoughts this morning have provoked. more…

February 04, 2009

Political or Economic Correctness: where is my Grant? Lincoln came to Washington on a train from Springfield and passed through Baltimore. It was reportedly a clandestine trip for fear of an assassination. He inherited a dispirited country, gave his inaugural on March 4, 1861, and five weeks later, the firing on Fort Sumter began. Obama’s trip to Washington took a similar route, and his cabinet selections which reached across party lines echoed Lincoln. Obama is faced not with secession and an attempt to hold the Union together but with a recession threatening to descend into a serious economic calamity. Lincoln had to overcome divisive forces in his cabinet and on the Hill and was said to have been the best lawyer in a cabinet of lawyers. Lincoln’s challenge was the war and finding a General to carry out his war plan. Obama’s challenge is the economy and he badly needs a Grant to wage a viable campaign. It is a time of facing fundamentals and not falling victim to issues of political correctness such as how much compensation is allowed bank executives. It’s time to get started with the war against the recession. The first step is to promulgate a plan for the economy including our banks that makes sense and moves us forward. It is not apparent that Obama has found his Grant to lead the charge, but the time is ripe. more…

January 04, 2009

Economic Policy for the Incoming Administration The new administration takes over in less than three weeks, but the details of any policy mix for dealing with the current downturn remain unknown. The US economy is under severe strain and that strain is now spreading throughout the the global economic system. Is the Obama team confronted with a severe recession, or does the abrupt decline in spending and the withdrawal of confidence in our financial system indicate that we are now entering a second great depression? Policy formulation begins with a clear definition of the problem to be solved. The political campaign’s rhetoric points to a massive fiscal program, but significant ambiguity is present on many fronts. Markets are rallying on the hope that relief is on the way. Markets are also impatient. more…

December 08, 2008

Politically Correct Energy Strategy: another policy mistake in the making? In November, when the price of crude oil on the January futures market dipped below $50/bbl, it occurred to me to advocate a change in our national energy policy once again. This time, more particularly, a tax policy as it applies to crude oil and petroleum products. My bottom line was to get the government to be after January 20, 2009 to use its rhetoric creatively and begin a national security tax on petroleum products. As Rogers and Hammerstein put it, I must be a “cockeyed optimist.” more…

November 30, 2008

Time to Change Our Oil Policy After what seemed a never ending period of rising oil prices, the oil bubble has burst and gasoline is again below $2.00 per gallon. During the rise, many forgot that oil prices can also fall. Recent reports of OPEC disarray and fears of inadequate revenues from oil exports show that oil price variability is a two edged sword. Price changes affect the behavior of both parties to the oil trade, and intelligent policy making makes this variability the cornerstone of good policy changes. The first item on the policy agenda should be to keep the price of oil (products) high to the users of oil products! This can be done through the use of a time-varying oil use tax that rises when the crude oil price falls and reverses when the crude oil price rises. more…

November 03, 2008

So he wins big. Then what? I had not intended to comment on the election tomorrow, but an incident last night, when I was dining with my family, was a kind of epiphany for me as I contemplated what could come out of the election tomorrow. Temporarily, it might give financial markets the “certainty” that they seem to need, and a (however) brief end to their discomfort with policy making in Washington. If it is a “sweep,” it will mean unified political leadership…or so it might seem at first glance. But will it mean undivided leadership on the central core of our economic issues? This is much less clear and markets willhave to surmount all sorts of hazy policy prescriptions likely to come on the heals of a sweep. Financial advisors to the Obama campaign have undoubtedly warned him that getting through the next six months or a year is essential and for that, sweeping (egalitarian based) tax reforms are probably not the right course. But, he will be confronted by a zealous and ideological left wing of the Democratic party that will push to get its agenda established. I have heard it said that he is campaigning with zeal to show that it is he, not the traditional left wing of the party, that carried the day in order thathe has the clout to get his real agenda across. It should only happen! Where Obama could truly achieve greatness–because of his unique ethnic heritage together with his ability to rally all sorts of people to his vision of change—is to speak a healing language, much as Lincoln spoke at a time of great trouble. He has much less to gain from imposing an egalitarian ideology and it would, I fear, land him in a position where his leadership qualities are undermined. He made one telling point in this campaign, at least for me. He said that experience was not the issue. It was judgment. That reminded me of the fact that Lincoln had limited legislative experience and in 1858 was defeated by Douglas…but when it was time in 1861 to show leadership, he was there with the ability to judge the issue and judge the people that it would take to implement his vision. His conduct of the war, as we now know, was troubled by all the usual factionalism that troubles our political organization. Yet, he had the vision, and the persistence to triumph. He out-lawyered a cabinet of lawyers and he out-generaled his generals until he found the sword he needed to cut the Gordian knot of the military campaign. He chose a general that would do his bidding and despite terrible losses, he persisted. Our Union was saved, even if he was not.

This country needs unity, not division. It needs persistence, not will-o-the-wisp bending to ever constant political pressure. It badly needs leadership. It is not the agenda of “change” that is important. It is the ability to lead…and that is the bottom line on the ultimate success or failure of his vision. more…

October 29, 2008

No Fed Surprise: FOMC cuts 50 bps The FOMC confirmed the market’s expectation with a cut of 50 basis points to bring the Fed Funds rate to 1.00% The Fed’s priorities were clarified as the risks to growth heightened while those of inflation were lowered more…

October 03, 2008

Monetary Politics The Credit Crisis has created “new turf” for the Fed. In exercising authority on new turf, the Fed has become a much more political institution. The politics of money could become very dangerous to the Fed’s independence. Money is power and Congress and the White House are unlikely to allow the Fed’s appointed officials to act without new fetters of some sort. When this crisis is over, it is highly unlikely that the Fed will be the same independent instituiton that we used to know. It happened to the BOE. It will happen here.Money is just too important to be left to unelected officials…at least in the eyes of those that got to Washington by the rough and tumble of winning elections. hustings! more…

October 03, 2008

Will the real Paulson stand up? Henry Paulson had a glorious career at Goldman, rising to the top of the heap. That takes brains and brawn. His performance at the Treasury seems such an odd contrast to his previous career, marred as it has been by a poor perception of the impending problems in credit markets and by an unimpressive presentation on why a bailout centered on toxic waste was the way to go in this economic malaise. Maybe we just hired the wrong Paulson? more…

September 16, 2008

One, Two, Buckle My Shoe The Fed stood pat today…or did they. They did as far as changing the Federal Funds Rate Target. Later in the day, they jumped back into the deleveraging fray. More about that later. more…

September 18, 2007

Restaurant Review: the Fed Scrambles Eggs We readily admit our error. We thought better of the chef. Surely, it depends on what you like: a precisely made omelet or just a mess of scrambled eggs with ingredients thrown in from every direction. A hungry man doesn’t argue about finesse. Uncle Ben must have been ravenous more…

September 18, 2007

Making an Omelet: the Bernanke Recipe Book The FOMC’s decision today will undoubtedly reflect many different opinions, all subsumed into a single statement. Our best estimate is that there will be a 25 basis point cut in the FF target, a cut in the discount rate that could well exceed 25 basis points (perhaps as much as a 50 basis point cut and a clearer indication that the Fed’s focus has turned to offsetting the impact of tighter credit and lower housing prices. It will be an omelet, mixed and scrambled ingredients, beaten into a single dish. The market’s problem will be to disentangle the ingredients that led to the decision and that will not be an easy task, even if the desire for transparency by this Chairman is quite high. Whatever the decision, it will mix forecasts, reactions of economic agents to perceived risks, and not least, a congealed assessment of risks by the FOMC members. We can characterize the outcome with a scenario analysis that highlights the complexity. It may not lead to a clear market perception of what the Fed has in mind going forward. more…

March 21, 2007

Fine Tuning Fed The Fed appears to be hedging its bet, perhaps plunging into the miasma of fine tuning. Its statement today, which retaine the current Fed Funds rate of 5 1/4 is filled with ambiguity as to which risk it will heed: inflation or slow growth. The statement says that its predominant policy concern is inflation, but its language focuses on what has changed since its last meeting more…

February 14, 2007

Gentle Ben Ben Bernanke has clearly matured. He handled the invitations to stray from his role as Fed Chairman to a political guru whose advocacy could embellish a Congressmen’s desire to please his constituents. He gently led the Senate Banking Committee through the major portions of the Fed’s monetary policy report today. The report features a slightly slower growth forecast (band) and an inflation band that is no worse than last year. The Fed’s bias continues to be pointed toward the possibilities of inflation, but in the present context seems highly unlikely to lead to changes in the Federal Funds rate in the near future more…

January 25, 2007

Will Colonel Jessup Please Stand Up? A year after resolving to reduce American dependence on oil, what has really changed. The SOTU message delivered this week provides further evidence that American politicians —of all stripes—are unwilling to tell the truth to the American voter. “No pain, no gain” is where it must begin. Without attacking the demand side of the equation, our dependence on foreign crude oil will continue to grow, in spite of the evidence that rising prices over the last two years have begun to make a dent in the growth of consumption. What is the problem? Simply put, “you can’t handle the truth,” as Colonel Jessup once said. more…

November 27, 2006

The Milton Friedman Century Over the course of a very long, public life, it is sometimes hard to see the influence that one man’s thinking and writing can have. Much of what we take for granted in economics and economic policy was achieved, “one inch at a time” by a persistent dedication to a vision of the connection between free markets and free choice. Persistence in the face of obstacles is the mark of tenacity. Persistence coupled with perspicacity is the mark of a true agent of change. Milton Friedman was that kind of man and the world is far better off for his vision and his endurance. more…

October 25, 2006

Moderating to Slow: Fed Sits Tight and Still Worries About Inflation The FOMC declined to move the Federal Funds rate today even though it continues to have concerns about inflation. (the bias is toward inflation). It acknowledged, however, that economic growth has slowed, as compared to its characterization at the previous meeting when it spoke of the moderation of economic growth. The committee did not ?translate? this lower growth into comfort about core inflation as it once again indicated that ?core levels of inflation have been elevated. more…

September 20, 2006

A Patient and Passive Fed The FOMC stood pat today with language that allows further tightening, if the circumstances dictated such a posture, or possibly easing at some distant time in the future. One could read some ambiguity into today’s statement because while inflationary risks continue to exist, housing is clearly exercising a drag on the economy. We see no reason to think that ease is imminent and that given the run of the data so far, the Fed is likely to stay the patient course it has chosen. more…

August 08, 2006

Fed Clenches Its Teeth and Sits Tight The FOMC today sat tight, no doubt with some grimaces around the table and at least open dissent. Fearing to do more than necessary and thereby risk an “overshoot” and wishing to extract itself from the predictable policy perch of 25 bps at a time, they paused, at least for now more…

August 06, 2006

Current Data and Past Minutes Suggest the FOMC Will Pause on August 8th This FOMC meeting appears ready to mark a turning point in its policy course. After 17 straight increases in the Federal Funds target rate, we believe the FOMC will pause this time. more…

July 19, 2006

Mid Year Monetary Policy Report: markets welcomed Bernanke’s views, but were they really understood? Chairman Bernanke gave his first Monetary Policy Report to the Senate Committee on Housing, Banking and Urban Affairs. His view was the economy was moderating in its growth although the core measures of inflation (personal expenditure basis) are showing higher and more persistent inflation than the central forecasts in January. He expects the inflation numbers to run above 2% in 2006 and 2007, even though he expects economic growth to moderate and come closer to the true potential growth rate of the economy.

Bernanke?s presentation differs in a significant way from what markets came to expect in the Greenspan era. More room is left open for uncertainty as to the actual numbers that will be produced during the course of the year. The Market read this as ?dovish,? but in fact Bernanke is not perfectly certain as to what the data will show or quite how the FOMC will react to those numbers.

Finally, implicit in all of this is a recognition that the current FOMC is a more collegial body. Bernanke may be taking control, but the best inference one can take from his presentation is that he ?represented? the balance of opinion at the FOMC, not necessarily just his own view. That may be the most significant change since the last MPR in January (under Greenspan). In any event, though traders may have welcomed his relative aplomb about inflation, the Fat Lady has yet to Sing. Old Opera: New Cast! more…

June 29, 2006

A Matter of Emphasis The FOMC raised its Fed Funds target rate by 25 basis points to 5.25% today, but it changed its emphasis by stating more clearly that economic growth was moderating. It appears that while future policy is quite data dependent, the Fed has given itself some breathing space along its past path of 25 bp increases at each meeting. All is well except:

1) the core inflation numbers cannot continue to increase without arousing market concerns that inflation is not ?well contained?

2) by emphasizing the policy dependency on the data, the market will be forced to consider whether any data point is ?noise? or substantive and it is unlikely that clear distinctions can be drawn. Hence, more volatility, rather than less is to be expected

3) the breakout today on equity prices suggests that the market has interpreted the breathing space as a Fed forecast that growth will slow sufficiently in the coming months to take the heat out of the inflation boil. The market may hope that Bernanke is right and that the continuing escalation of interest rates may be coming to an end. Hope springs eternal, particularly on the long side of equities

4) Fedspeak has tended to emphasize the divergence between members of the FOMC. Today?s statement seems to squelch that?at least for now. But ?bad data? will make that divergence reappear.

The market still does not know the implicit tradeoffs the Fed is making behind its policy curtain. Nuance is the order of the day, not transparency of Fed targets. more…

March 29, 2006

Bernanke’s First Meeting Illuminates But Does Not Surprise The FOMC statement issued yesterday contained more possibilities than is usual in a post meeting statement. Some will see this as increased transparency, but the statement also allows for quite distinctly different outcomes. The FOMC raised the bar (25 basis points was expected)and indicated that it will be watchful for signs that it must raise it further. At the same time, it has not really committed to further increases, unless the data compels it to do just that. Watch and measure the Navigator said earlier this month! more…

March 22, 2006

Bernanke’s Conundrum The recent speech at the New York Economics Club (3/20/06) by Fed Chairman Ben Bernanke provided a sharp contrast to speeches to that group by his predecessor. Bernanke gave a lucid, but technical expose of varying interpretations of the yield curve and the subtle implications for monetary policy that different interpretations of the yield curve provide. This introduces even more ambiguity into future behavior of the Fed, in spite of this Chairman’s professed desire for more transparency and a more rule-bound direction for Fed policy. We think this was not an accidental twist, but a first public step in creating a new consensus at the FOMC. more…

March 22, 2006

Energy Independence Is Not Energy Security Energy policy in the U.S. has been both partisan and a largely futile effort to pander to various political interests. Frequently, policies for energy security get commingled (wrongly in our view) with calls for energy independence,a goal that is beyond our reach. It is time for leadership on energy issues on a non-partisan basis, and a good beginning would be to drop the call for energy independence. The goal that is truly important is to improve our energy security. (This piece is also being published by the FPRI and will be available at www.fpri.org). more…

November 01, 2005

So far, So good! The FOMC feels comfortable with its moderate pace of removing monetary accommodation. It is most likely going to continue for the next two meetings which will conclude the Greenspan era. Will the Bernanke era change this stolidity? Only if the news on inflation would suddenly turn lousy. more…

October 25, 2005

The New Fed Chairman and the New Fed Wall Street economists and commentators have a new topic: to opine upon the likely policies of the Fed under its new chairman to be, Professor Ben S. Bernanke. Bernanke will have great power, but what he does with it is the issue. more…

October 12, 2005

The Fed IS Going Higher The Minutes of the FOMC September 20th meeting make unequivocally clear that the Fed?s focus on inflation continues to be paramount. Actual inflation may not be terribly high if we look only at the core readings, but the energy news is potentially a trouble spot. Expectations could change and the Fed would be forced to react even more firmly. The Fed still does not know the ?equilibrium real rate level? (even if it claims it can know it when they get there. But a new worry has emerged: ?worrisome loss of fiscal discipline,? and carping publicly on this front will likely cast the Fed into an adversarial roll. The nomination of Greenspan?s successor will become even more important if a monetary civil war breaks out. more…

September 20, 2005

Fed Focus is on Preventing Inflation Katrina was a horrible disaster and the FOMC statement took time to recognize the tragedy and the potential influences on the economy. The real story, however, was the FOMC’s focus on preventing inflation. This was not the time to take a “pause that refreshes.” This was the time to signal markets that the Fed is resolute in its self defined task more…

August 28, 2005

The End of Cheap Oil, Once Again Over the past two year the escalation of crude oil and petroleum product prices have soared, undermining conventional notions of a “normal” oil price. Does this change augur a new price paradigm? What underlies the change? What policies are now appropriate for “energy security?” more…

August 27, 2005

Greenspan Retrospective Part II: Menu for the New Chairman Greenspan is clearly winding down his long tenure as the Fed Chairman. Yesterday he tantalized with his remarks on asset price targeting. We expected more today, but the menu was sparse. Plenty to chew on, but little in the way of accoutrement. Big Shoes and plenty of Body Armor will be required of the next chairman more…

August 26, 2005

The Greenspan Retrospective: part I This year’s Kansas City Fed’s annual soiree is like the last tour for a retiring great athlete. Greenspan 18 year span makes his retirement a living retrospective on the current state of monetary policy making. This was his chance to introduce tricky questions regarding asset prices as possible targets for monetary policy makers…Part I with more to follow. more…

July 20, 2005

Greenspan on the Hill: the dog that didn’t bark Chairman Greenspan went to the House today (perhaps for the last time for the mid year report on Monetary Policy). Theformal report contained implicit hints that inflationary risks were still possible and that monetary policy might well have to be tightened further than market observers had thought in order to counteract such possible outcomes, the House Committee members virtually ignored these hints. In fact, the implicit threat of further inflation was a dog that didn’t bark more…

May 06, 2005

Couda Wouda Shouda Part II A cat has nine lives—how many does Greenspan have? Perhaps more? Nothing like waiting for a fat employment report on top of a rise in unit labor costs (declining productivity will take its toll) to do a number of things for bond junkies, including… more…

May 03, 2005

The Couda Wouda Shouda Bet This is a gambling age, if for no other reason than volatility is very low. Low Vol, as they say, makes it necessary to push the envelope in order to achieve the absolute return standards of our time…apparently, even for Central Bankers more…

May 03, 2005

Measuring the Fed Repetition is good for musicians, and in a former life, Greenspan was said to play a mean licorice stick. But repetition of “measured” is beginning to be less than transparent monetary policy. Time to change the music, Mr. Chairman. more…

April 13, 2005

The Conundra of Ignorance When Greenspan introduced the risk-heightener, ?Conundrum,? students of macro-economics were treated to a new concept in Central Bank Policy Tools: the deliberate use of ambiguity to heighten perceptions of risk. more…

March 19, 2005

Dumb and Dumber Once Again In January, we wrote ?Dumb and Dumber? to express our concern that the indicted former executives from the high fliers of the 90?s would be able to escape criminal punishment in their forthcoming trials by pleading they were totally fooled by their own accountants. Despite the ?dumb? defense, Bernie Ebbers was convicted in Federal Court on all counts. What?s going on here? more…

February 16, 2005

Into the Breach: Greenspan goes from Monetary Policy to Social Policy No one will ever say that Greenspan failed to storm into the breach. As he pushes toward retirement, he does not flinch to offer his normative economic advice on all sorts of policy issues. Whoever replaces him will have some large shoes to fill in such matters more…

February 04, 2005

Greenspan’s “Assignment” Since the late 1960?s, when economists posed the policy issue of how to assign policy instruments to reconcile potential conflicts between internal and external balance, both economic theory and economic reality have changed immeasurably. There is no longer the beguiling simple assignment of monetary and fiscal policy instruments that depended upon the foreign exchange regime and the state of capital mobility in which the economy operated. more…

February 02, 2005

FOMC still measured: practice your golf game This analyst cannot remember the FOMC leaving its ?Statement? unchanged on a back-to-back basis, but except for the expected 25 basis point rise, the statement today (February 2, 2005) matched the Statement of December 14, 2004 more…

January 29, 2005

Dumb and dumber Investors should watch with great interest the trials of Ebbers, Kozlowski and Swartz, Lay and Scruchy, to name the most vilified, as prosecutors attempt to punish corporate America for its crimes against shareholders. Unfortunately, justice for shareholders may not be forthcoming for a very simple reason. The alleged perpetrators of corporate malfeasance were too dumb to understand their own accounting systems. more…

December 02, 2004

The Dollar Problem: whose problem is it? When Alan Greenspan openly speculated on the fate of the dollar before banking and finance officials in Frankfurt nearly two weeks ago he was accused by many financial writers of stepping into ?No-No? land. Central Bank Governors are not supposed to pontificate (openly, anyway) on the value of their currency. The ?usual suspects? among public officials who are allowed such latitude are Treasury secretaries. In this regard, the most famous, was Governor John B. Connally, who served as Secretary under President Nixon. Then, as now, the dollar was a problem, not to us, but to others. more…

November 21, 2004

Greenspan Polishing His Patina The Chairman gave a quite remarkable speech on Friday in Frankfurt. It was remarkable because he worried aloud about the growth in U.S. net indebtedness to foreigners (the counterpart of a seemingly intractable current account deficit) and the ultimate impact on the dollar in FX markets. Many economists have voiced that concern before. The difference is that this economist is the Chairman of the world?s most important Central Bank and typically Fed chairmen leave discussions of the dollar to their Treasury Secretaries. But, as we all know, this Chairman has remade the rules of monetary policy and monetary policy discussions. more…

October 16, 2004

STAGFLATION ON THE HORIZON? The rapid rise in oil prices and the continued degree of current monetary ease has suggested to some analysts a striking parallel to the Stagflation of the 1970’s. We think that focusing on the differences between now and then will lead to more productive insights. Our view was published by the Financial Times on October 15th. more…

September 27, 2004

Fed Minutes Reveal A View Toward Considerable ?Disaccomodation? Despite many signs of less than robust growth, (as of August 10th), the FOMC was definitely on the ?watch path? and foresaw considerable room for removing the current level of accommodation. It also saw its role as doing that in a ?measured? fashion. more…

September 21, 2004

The Fed Surprises No One Clearly conscious of the importance of ?staying the course,? the FOMC surprised no one with its 25 basis point rise today. Despite market concerns that the ?soft patch? may continue longer than the Fed officially believes, the Fed is staying with its strategy of removing modest amounts of ?accomodation? on a ?measured? basis. more…

August 13, 2004

The Wages of Monetary Sin One accusation thrown at the Fed in the Greenspan era is its apparent willingness to feed the Lions of Wall Street when they roar for more meat. When equity markets sink, the Lions roar, calling for easier money. more…

August 10, 2004

Not Yet at the Fork in the Road Alan Greenspan is said to be a serious baseball fan and Yogi Berra, who has more quotes in Bartlett?s Business Quotations than Warren Buffet said, ?When you come to a fork in the road, take it.? The market should draw the correct inference: the FOMC does not believe that the economy is at a fork in the road?yet. more…

July 21, 2004

Greenspan on the Hill: for whom has the bell tolled? The mid-year appearance of the Chairman signaled a new tack on the current sailboat of monetary policy. The winds of inflation may yet be off the port bow and the Chairman took up the pennant of all central bankers: inflation (at least in the long run) is a monetary phenomenon. But many questions remain more…

July 17, 2004

Ambiguous Macro Data and Tentative Markets Three pieces of data this week (all surveys to be sure) tend to support a thesis that the consumer is fine, albeit ‘shocked’ by oil prices and oil price anxieties. Yet, markets have exhibited striking tentativenes in the face of the likely actions of the Fed. more…

July 03, 2004

Life, Liberty and the Pursuit of Happiness As we celebrate our nation?s freedom, we are reminded that the Founding Fathers told us that the pursuit of happiness was one of our inalienable rights. The Fed wants to make us happy. Is that the best course to follow? more…

June 30, 2004

Can There Be A Surprise After the Telegraph? The decision was unanimous (no surprise) and all 12 Districts wanted a raise in the discount rate (to 2 ?%). What surprises did they have for the market? more…

June 12, 2004

Changing Paradigms: deflation to inflation With the Greenspan speech on June 8th that made it perfectly clear to markets that ?measured? doesn?t mean the Fed will shrink from its duty to be vigilant on the inflation watch, the rush to ?get on board? from other members of the FedSpeak community has become a deluge. more…

June 09, 2004

Back to School We owe readers an apology for our take yesterday on the Greenspan speech. We essentially ignored the subtle warning to markets that if inflation were really a problem, the Fed would do its duty. We thought that was already widely understood and therefore focused on some of the logic Greenspan is now using to play down inflationary risks. more…

June 09, 2004

Greenspan’s Enigma Variations: variable pricing power Troubled by rising prices, the Fed needs to explain how it is that with “restored” profit margins,further hiring will not lead to inflationary wage settlements. The answer seems to be that those “restored” margins are fluid enough to absorb some pressure. It would appear that “pricing power” is a deus ex machina. more…

June 04, 2004

How Much Has Changed, Dr. Kohn? Governor Kohn gave us a glimpse into his own (and perhaps Greenspan?s) thinking more…

May 20, 2004

Measure for Measure At this juncture, with inflation low and resource use slack, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. FOMC May 4, 2004. But what does “measured” really mean? more…

May 19, 2004

Monetary Commentary The real issue that is beginning to emerge is whether the Fed will be surprised by the data between now and June 30th. more…

May 13, 2004

Fed Dilemma: who’s crying now? The data are pointing to an old familiar refrain? Who’s crying now? Can the Fed resolve rising prices and bond trader expectations? We’ll know in a bit more than a month more…

May 04, 2004

An End to Patience The Fed sat still today on interest rates but promulgated a “measured pace” as the route it will take to changing its policy settings more…

April 22, 2004

The China Card While the news from Iraq seems as if it couldn’t be worse, a broadening political and economic understanding appears to be evolving between the U.S. and China. In the past week, some rather startling developments emerged illustrating the cooperative nature of relations between the two “Pacific States” following the recent visit by Vice President Cheney to the Middle Kingdom. Shades of Nixon 1972? Is history being repeated or just rhyming? more…

April 21, 2004

What’s Changed Since March 16th Today, Chairman Greenspan meets with the JEC. The Market is waiting for the next turn of the screw in U.S. Monetary Policy. What’s changed since March 16th? more…

April 16, 2004

Market Pivots: Geopolitics vs Monetary Politics While earnings reports continue to impact individual stocks, in our view, the overall market conditions (behavior toward risk, valuation parameters, etc.) are now highly sensitized to geopolitical (and domestic political) risks and the likely future course of monetary actions by the Fed. more…

March 11, 2004

Which Economic Tool Is Best: snowstorms or potholes Choosing the ?right take? is usually the art of economics and for that reason it has led to all sorts of jokes about ?using hands? in the practice of giving economic advice. more…

March 06, 2004

Reinventing Central Banking In some ways, economics, particularly economic policy making, has much in common with medicine. This is particularly true when it comes to the art of central banking. Since one of the oldest rules in medicine is for the physician to ?do no harm,? one ought not to be surprised that this is also a suitable maxim for the economic policy maker. more…

March 02, 2004

Greenspan on the Current Account Ostensibly, Greenspan?s speech topic today at the Economic Club of New York was the current account, but the underlying message was an old theme: the importance of market competition in promoting flexibility in the global economy. While elements of both American political parties are rushing to sell Protectionism to the voters, Greenspan appears ?presidential? in reiterating the virtues of flexibility in dealing with economic ?imbalances.? more…

February 11, 2004

The Political Economy of Monetary Policy The semi-annual Humphrey-Hawkins circus came back to Washington today, with the Greenspan the Lion King competing for time against the two, partisan clown claques that parade as the People?s Choice. Asset markets around the world listened intently to the by-play for hints of future monetary policy changes. Our view is that hidden within the Greenspan show, is the high probability that the Fed will be sitting on the sidelines for the bulk of this year. more…

January 29, 2004

Stepping Stones to Patience The minutes of the December 9th FOMC meeting provides another data point offering insight into the evolution of recent FOMC statements. Markets have attached considerable significance to the ?for a considerable period? mantra since late fall last year. more…

January 28, 2004

FEDSHOCK: patience in, considerable period out There will be many questions asked as to “why now” and “on what basis?”
But, this is an unusual time and Greenspan is an unusual man to say the
least. He has been accused of being a “serial bubble-blower” by some.
Maybe Chairman G needed some room and it was time to tell the Market that
“nothing is forever!” Whatever led the Chairman to write a statement with
such a change, he now has the room he prefers. more…

January 11, 2004

Head’s Up on 2004 The issue agenda for 2004 seems focused on the peculiarities of this recovery and how markets have reacted to this somewhat unusual set of circumstances. Domestically, financial markets are flooded with liquidity that contributed to very lucrative returns in equities, bonds and for those who sold the dollar forward. However satisfying that was to those with the “Right Stuff,” until the Missing Jobs show up, abundant liquidity will remain. Domestically that has boosed equity prices in the first weeks of the new year and internationally the dollar’s weakness threatens to break out into a New International Monetary fix. more…

October 20, 2003

Cerberus and Snow When yesterday’s report of the Treasury Secretary Snow’s ‘exclusive interview’ with the London Times hit the markets, both bonds and fx were rocked. Then came the denials or ‘corrections’ from the Treasury itself and from spokesmen for the White House. But Snow has clearly become a leading spokesman (as was proved at the Dubai G-7 and in our view, still, there is more here than just a ‘loose cannon at the Treasury,’ as the FT’s editorial whined. We think he has given cover to the Fed to find an exit policy from the low interest rate trap. That is just one of the three heads of the U.S. policy dog. We shall see if the dog finally hunts! more…

September 18, 2003

Pyrrhic Victory Giving back some $48 Million in deferred compensation is not what it used to be. Despite his magnanimity, Dick Grasso finally had to step down as the CEO of the New York Stock Exchange. Giving back the bucks wasn?t enough. That would seem to be a victory for the forces of corporate governance. Before cheering, however, we should step back and ask some hard questions about whose victory it was and who could be the real losers? more…

August 12, 2003

FOMC Threads the Needle: promise of an overshoot? The FOMC tried to throw oil on the troubled waters of the bond market by seemingly offering not to move the target rate for a ‘considerable period.’The balm was clearly required to prevent further damage to the recovery by sharply rising interest rates. In performing this seeming pre-commitment, the Fed is seemingly headed for an “overshoot,” a promise that some will suspect will be hard to keep. Credit must be given to the elegance of the phrasing as Greenspan has once again tried to ‘thread the needle’ via some opportunistic ambiguity more…

August 12, 2003

The Maestro’s Malapropisms: consistency needed this time Fallibility is the curse of all who prognosticate, yet sometimes one is amazed by the hat tricks that some policy makers can perform. Last night, when this piece was written, we found it difficult to imagine the language that the FOMC would use to thread the needle between commitment and discretion. Somehow, however, Greenspan found the path through the thicket, despite our prior foreboding. For the record, we post our mea culpa for doubting he could perform such delicate guidance. more…

July 15, 2003

Speculating on the Greenspan Speculations In attempting to forecast the direction of the Chairman?s midyear testimony to the Congress, one should remember the old quip about Greenspan, to wit: ?If you are understanding what I am saying, I must be speaking too clearly!? The Chairman will have to wiggle a bit more than usual trying to reconcile the intense fascination with Deflation and the Bond Market’s recent disappointment with the FOMC’s last rate reduction. The real issue is time inconsistency which will could show just how nimble tongued the Chairman can be if the Congress alertly presses the issue. more…

July 14, 2003

Bastille Day on the Foreign Exchanges? There is a growing ‘chatter’ concerning the “imbalances” of the American economy (large current account deficit;large government deficit; and “insufficient savings”). Many problems or one problem? The other side of this coin is the ‘fear’ that one day foreign dollar holders will storm the foreign exchanges and take the dollar down. Bastille Day on the Foreign Exchanges? Hardly! more…

June 25, 2003

Dr. Greenspan and the ‘Classics’ What issues were hidden beneath the 25 basis point reduction and the markedly different language of the FOMC’s Statement? What has really been learned from the Japan experience? Has the Carry Trade been given a warning? more…

May 31, 2003

Deflation Threat Can Be Beaten The following ‘leader’ to MAS052603 (The Paradox of Profligacy) was printed by the FT as a Letter to the Editor on 5/29/03 more…

May 21, 2003

Deflation Risks and Policy Contradictions During his testimony to the Congress today, Greenspan pointed to the potentially serious consequences of deflation paired with the low probability of its occurrence. The emphasis was that the ?cost of insurance? against deflation was (currently) quite low and that had motivated the Fed to be aggressive in its monetary policy actions. He closed with the statement that the consequences of deflation could cause the Fed to take further action. more…

March 10, 2003

The Real Threat: power for the powerless What drives the Bush Administration to force the War on Iraq, while its erstwhile allies appear to frustrate the control of admitted rogue in world politics. Nuclear proliferation threatens to empower the powerless, a problem that can only worsen over time. more…

November 07, 2002

Greenspan plays Offense and Defense The market had discounted a 25 basis point cut and the Chairman reversed field with 50. To private clients, we had made the 50 point cut a 50-50 proposition, but the most interesting side of this move is the change in the bias to balanced. more…

September 04, 2002

The U.S. and Japan: the real similarities The Bubbles and Busts in Japan and the U.S. have frequently been compared as if the Japanese experience offers
insights into appropriate policy for the U.S. Some similarities do exist because Booms often arise from conditions of cheap capital access and result in extreme bouts of overinvestment in capacity. Both economies suffered from cheap capital and some similarities can be seen by reviewing the resulting excesses that need to be corrected. Despite the huge differences in the policy apparatus of the two countries, it is interesting to see that capital exit in both countries is being impeded by the regulatory authorities. One can only hope the U.S. will recognize the problems that can cause by a more careful consideration of the Japanese experience more…

August 13, 2002

Stormy Weather but no leaks in the boat…so far The FOMC changed tack but not its basic course, despite explict recognition that stormy weather is buffeting the boat. Where does that leave monetary policy going forward? more…

July 23, 2002

Infectious Greed Greenspan theorized to the House and Senate last week on the sources of the Bubble. He has a new theory that pivots on the bulwarks that broke down. Is it correct? more…

June 12, 2002

What is Wrong on Wall Street Today’s Richmond Fed survey confirms what all of us now recognize: Q2 growth is slowing and Q2 is going to be a much different affair than Q1. One issue to focus on is whether Q2 will be a good barometer for 2H02. more…

February 06, 2002

Capital Exit: Japan and the Enron Debacle The Enron affair points out some interesting comparisons between the end of the Japanese Bubble and the U.S. bubble. In some ways, we have ‘been there, done that.’ Enron is causing pain, but not collapse. Japan suggests it is a question of ‘when,’ not ‘if.’ more…

January 20, 2002

Term Limits for Auditors?
As the Enron affair evolves, the incentives to promote more regulation grow. What is missing from the debate is a more careful consideration of how to make the “market” provide some of the solution to the growing problem of opaque or deliberately misleading accounting. We have edited our original proposal of January 20, 2002, not as a total solution, but with a fuller exposition of some of the pitfalls that even more elaborate regulation will create. more…

January 17, 2002

During the Cold War, “the Russians are coming” expressed our deep-seated fears of a Russian surprise. Russian surprises continue, but now they are pleasant. Assistance with the U.S. anti-terrorist campaign and additional supplies of crude oil. Not everyone welcomes this last development. It is making OPEC’s output restriction campaign much tougher. The extra crude is translating into pleasant CPI surprises of declining headline inflation. Nothing is forever, and when GDP begins to grow again, here and around the world, this relief will vanish. Monetary policy-makers will have to worry about the behavior of core inflation that is not declining. more…

January 14, 2002

It is extremely difficult not to conclude from the Chairman’s speech that the odds have shifted markedly toward an additional easing on January 30th. The phrasing and emphasis indicate true concern that this recovery path has not achieved sufficient traction to take its success for granted. The economy faces significant risks along the way, and the Fed should leave no doubt. Unless the data over the next two weeks are extremely optimistic, the speech indicated that the Fed Chairman has the determination to make monetary policy sufficiently easy to insure a clear recovery path. more…

November 27, 2001

Moving on: recovery’s implications for monetary policy Housing sales rebounded but the Conference Board measure of consumer confidence fell short of market expectations. This provided more uncertainty as to the timing of recovery and bonds rallied. With the equity market’s recovery ‘predicting’ recovery in the spring, the debate on monetary policy for 2002 commenced. more…

November 14, 2001

Six weeks after the U.S. began its mission in Afghanistan, the anti-Terrorist alliance has caused the Taliband to lose effective political control over much of the country. The success so far rests on an unprecedented cooperation of the United States and Russia. In turn, continued cooperation of the two former antagonists hints at transforming both geopolitics and the world’s oil economy. At a time of increasing gloom over prospects for the global economy, world equity markets were pleased. more…

November 08, 2001

The Fed has abandoned earlier concerns about pre-emption and has now focused on doing whatever is necessary to bring this slump to an end. The shift in the statements on productivity —yesterday’s near apologia for any deficiencies in productivity numbers—is telling. While recession is not mentioned explicitly, that is a clear concern, but surely not the only one. more…

August 14, 2001

There is the possibility that the signals we are now beginning to get are those of a recession… not just a massive slowdown. How does this disturbance compare with four prior recessions? Are there more policy alternatives to explore? more…

July 19, 2001

Front-loaded Fed policy coupled with tax cut should improve economic activity

as the year progresses, yet weakness could arrive from abroad or from further
domestic development Considerable uncertainty to the current economic situation
until inventory adjustment a is complete and capital spending resumes. Risk to
the downside still prevails and the Fed could do more Views of BoG and Reserve
Bank Presidents reflect this assessment. It is implied in the 3Central Tendency2
of their individual projections… more…

July 02, 2001

ECB Governing Council is betting that the inflation numbers get better
and that they will get a better handle on M3 held by residents. That would make a move downward in rates easier but we think they will hold still on July 5th. . . more…

June 14, 2001

The BIS appears to be taking on an enlarged role as a ‘coordinator’
of international economic policy around the world in its new Annual Report. The key to its views is found in Chapter VIII of the report entitled “Conclusion: the recent past as prologue?” more…

June 08, 2001

Almost uniformly, the macro data from around the world are disappointing to those who have believed we can escape recession. more…

May 31, 2001

The ECB is struggling to cope
with the slowdown in the European economy while staying on course in its unique experiment in institution-building. The ECB must steer between the adaptability required for successful institution-building, and a course that aligns it with its primary mandate of price stability. Can it accomplish a dual mission? more…

May 17, 2001

Fed is worried more about investment than about inflation more…

May 12, 2001

The ECB gave us a new perspective today on ‘credibility.’ Dr. Duisenberg took his cue from Humpty Dumpty more…

April 26, 2001

European Macro:? Bubba Rides Again…

• “Monetary policy is no instrument of cyclical economic policymaking,”
• “The ECB differs fundamentally from the U.S. central bank, the Fed, in terms of its task and strategy.”
• “In Europe we have a clear focus on a macroeconomic goal: the stability of the value of money. Price stability is the primary goal for the ECB.”
• “The ECB could never argue in the way the Fed did in justifying its most recent rate cuts, by citing markets and the economy.”
• “The upward risks are not as big as they were a few months ago but they have not disappeared.”
  Ernst Welteke, Bundesbank President – April 25,2001 quoted in Die Zeit more…