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Criticism of the US Federal Reserve's $600 billion quantitative easing decision and Bernanke's defense of the Fed's decision. Bernanke says this is no different than other moves in monetary policy made by the Fed, and the aim is to address deflationary trends and unemployment.

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U.S. Fed Governor Stein says he is is concerned about the costs of the accomodative stance taken by the Fed under Bernanke, even though he understands the reasons for the accomodative policies.

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The new faces in the Biden administration on economic policy are Janet Yellen, as head of the central bank, the Federal Reserve, and Cecilia Rouse, a Princeton labor economist, as head of the Council of Economic Advisors. In this report WSJ looks at the economic policies of the new administration after Mr. Trump rejected globalization and international trade agreements that were not in America's interest or that hurt American workers.  Informal conversations with experts suggest WSJ says, that globalization is now suspect as a way that benefitted China and other countries including Germany, and hurt the U.S. France, Britain and other countries in Europe that were not strong exporters. This hurt their industries which were eroded by imports resulting in the three decades long destruction of communities across these countries that depended on manufacturing. It has also hurt countries like India that let their markets be dominated by Chinese imports, with a reversal of policy in 2020 with self reliant economy under "Atman Nirbhar" policy as the new goal. Mr. Trump's tactic in this trade war was to fight back to regain America's position in manufacturing with tariffs on imports. The trade deficit had to come down with China just as it had done with Japan decades earlier. This was starting to happen. One problem in bringing down the imports was the increase in the value of the dollar, as Janet Yellen has noted. The new policies will look at what the effective policy will be while keeping this goal in mind.  Both Yellen and Ms. Rouse have spent years studying labor markets and Ms. Rouse is quoted here as saying: " With open trade there are winners and losers. The losers are really losing, and we need to take care of them and take on more nuanced models of international trade as a result." Other experts from the earlier Democratic administrations such as Prof. Frankel at Harvard say that there needs to be increased focus on American workers left behind by trade, technology and unequal education, with more spending on preschool, infrastructure and health. All this suggests that there will be a continuation of U.S. policy in challenging Chinese use of globalization to advance its interests, chastening Americans on the use of the very word globalization which can mean different things to different people based on how they can gain advantage. The word may even be entirely dropped in favor of what the policies are and what they do for the American worker, American communities including small towns, and the American people, spelling each of these out every time supply chains and the global economy is mentioned. The new administration will get an opportunity to show that it too can come up with new ideas and action plan to strengthen American manufacturing and jobs. It will also have to show substantial results as people have lost patience with Democrats and Republicans on the lack of progress in rebuilding America's leadership role in the world economy, and in defending American workers and factories. Clinton, Obama and Bush all offered false promises on trade with China ignoring the damage this had done to American leadership in the world economy. Clinton with support for China's entry into the World Trade Organization, Bush with foreign wars and costly diversions and regulatory failures with banks that led to the 2009 deep recession hurting Americans, and Obama with the lack of will and interest in America's leadership role in the world as the dominant nation in manufacturing,   ...

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Sperling shows how Biden's economic plan rescued America and set the stage for America becoming the leader in the G7 economies. Gene Sperling is adviser to president Biden, coordinator of the America Rescue Plan, and had 8 years as adviser in 2000 and 2011 after the financial crisis to previous presidents. Here he says the arguments made that the trillion dollars investment spending Biden and a bipartisan group of senators have supported with legislation in Congress were causing inflation have proved not to be true. Inflation caused by bottlenecks in the supply chain, the pandemic shifts, and the Ukraine war, has come down to 3.4% in Dec 2023. By investing in the US economy, in US manufacturing and US jobs, the US under Biden now has the best economy of the 7 advanced economies with higher growth and unemployment below 4% for 24 straight months, lower inflation apples to apples. Sperling says there were 4 lessons learned during his work with the White House. The first to avoid harm to workers whose lives get scarred by loss of jobs. This happened in 1982 and again in 2008 after the financial crisis. Unemployment took 6 years to recover after 2008. And he says the unemployment rate was 15% for younger workers. For the first time economists like Sperling and Treasury Secretary Yellen have grasped what workers feel and have gone through. Sperling cites the devastation to people's lives - the mental health, the divorce, the loss of earnings and depression. The new policy after 2020 resulted in the fastest drop in longterm unemployment ever with black and hispanic unemployment reaching record lows by 2023. A first ever national eviction prevention policy led to 20% less evictions than prepandemic. Second Sperling says 650,000 jobs were lost by state and local governments in the three years after 2008 financial crisis. State and local budget cuts and mass layoffs seriously hit the economy. This time in after 2020 1.2 million jobs were added with the money in the Rescue Plan and lost jobs recovered in one third the time it took in 2008. Third state and local governments need to deal with the harm coming from the downturn and after 2008 the cupboard was empty. Whereas after 2008 only 154 cities and counties got help to tackle commericial blight, effects on communities, foreclosure and long term joblessness in 2020 Biden was able to send direct funding to all 20,000 local governments and 15,000 school districts. This helped tackle learning loss, crime, and address mental health needs. What a difference it made. Lastly one needed to anticipate something unexpected to happen that flattened projections of recovery. In 2011 3.7% growth projected was flattened when Sperling was senior adviser, and this was flattened by Fukushima nuclear disaster, Arab Spring spike in oil prices, and debt default negotiations. This time there was cushion in the plan so that when covid variants and unexpected Ukraine war happened the rescue could withstand and deliver with resilience. Growth was 3.4% average for the first 3 years of Biden's term and unemployment went down from 8% to 4% for 24 months. Coming from someone who had seen mistakes happen and corrected them, who had served three presidents and the last Biden ,this is a story of how Sperling, Yellen, with the help of Powell at the Federal Reserve, and the bipartisan support put together by a US president in Congress , one who has served the country in the Senate more than any other recent Senator and led the nation with courage, patience and determination. ...

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This New York Times editorial after the Senate passed a bill in October 2011 calling for action on the misaligned Chinese currency, points to ways a misaligned currrency is damaging for China. It cites the Peterson Institute for International Economics estimate that this is costing China $240 billion a year. This is a result of accumulating huge dollar reserves that have a declining value against the renminbi. Higher import prices lead to higher inflation. And low interest rates on savings, to the point that they are lower than the inflation rate, hurt the vast majority of Chinese and reduce domestic consumption. And perversely this leads to money pouring into speculative uses such as real estate, creating unsustainable bubbles in housing. The Times editorial says China is not generating jobs from this strategy, as the export strategy is relying on use of advanced technology in manufacturing and not creating many jobs. It cites a statistic showing employment has increased by only 1 percent a year from 2004 even with GDP growth above 10%. China is beginning to realize the cost of this strategy, and is planning a shift in its five year economic plan. But this rebalancing has many obstacles. The current system dominated by state run companies, banks, local and federal government, is biassed in favor of the old export led strategy, and experts are pessimistic about the possibilities for change. The Times suggests China may be falling back on the export led strategy as the global economy is slowing. The whole system would have to change after three decades of this kind of development, and would require new leadership and major changes....

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Laura Tyson says jobs and the economy should be the top priority. On the deficit front cost containment reform in health care and agradual multi year plan for debt reduction are priorities.

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India is running a large current account deficit with imports exceeding exports. The curent account deficit for the year ending March 31 was $88.2 billion, about 4.8% of GDP. With foreign investment declining remittances from Indians abroad are a major source of incoming capital. Indians overseas sent about $69 billion in remittances home in 2012, increasing from $63 billion in 2011, according to the World Bank. In August 2013 India's central bank relaxed restrictions on interest rates for overseas Indian rupee accounts and on foreign currency denonimated deposits. This has led to a sharp increase in remittances by Indians overseas, with HDFC bank reporting a 30% increase in remittance volumes in June 2013 compared to January 2013.

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The implications of the U.S. Federal Reserve's loose monetary policy. Total U.S. debt in 2012 is expected to be $11.58 trillion, with 52% of this in maturities of less than 3 years. The average interest on this is about 2.24% in January 2012, with interest on the debt at about 225 billion in Jan. 2012. If interest rates were to go up in 2014-2017 as forecast by the CBO, an interest rate of 5-6% would result in doubling or tripling the amount of interest on U.S. debt. The U.S. Treasury is financing the huge increase in debt- $5 trillion added in the last four years- through low interest rates and shorter maturities. This stores up large financial risks for the future including calls for tax increases to pay for a sudden rise in the interest on U.S. debt.

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Dallas Fed president, Richard Fisher, says the Fed cannot create jobs, and why he is opposed to the Bernanke quantitative easing policy.

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Gretchen Morgenson of the Times distills key insights from 633 page report by the Financial Crisis Inquiry Commission. Morgenson points to the role of the Federal Reserve in Washington and New York in being as she describes it, defiantly inert and uninterested in controlling the mortgage bubble even when it had grown to enormous proportions.The problem now is that the same Fed has received more regulatory powers under the Dodd-Frank law. The same Fed repeatedly did not exert its authority on predatory lending. Page 94 of the report cites a total of only three institutions referred to prosecutors by the Fed from 2000 to 2006. Page 164 shows why there have been so few prosecutions for mortgage fraud from the bursting of the mortgage bubble. William Black, a former fraud investigator and professor at the University of Missouri-Kansas City School of Law, says the FBI has received virtually no assistance from the regulators, the banking regulators and the thrift regulators. The report contains some outrageous comments by one of the key players in fueling the mortgage bubble, Angelo Mozilo of Countrywide Financial. Morgenson describes him as a lender that roped unsuspecting borrowers into poisonous loans. Mozilo says in an interview on page 105 that his company prevented "social unrest" by providing loans to 25 million borrowers, many from minority groups. Never mind that this wave of poisonous loans has clogged the arteries of the nation's financial system, and resulted in foreclosures for millions of homeowners, creating a troubled housing market that hobbles the economy. Neil Barofsky, special inspector general of the Troubled Asset Relief Program, sees further bailouts ahead. He said in a report to Congress in late January 2011: "Unless and until an institution like Citigroup is either broken up, so that it is no longer a threat to the financial system, or a structure put in place that it will be left to suffer the full consequences of its own folly, the prospect of more bailouts willl potentially fuel more bad behaviour with potentially disastrous results." ...

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Extreme positions on business related issues taken by politicians in the Republican party. An effort to influence the Republican party's platform through the ouster of moderate Republicans like Jim Bennett of Utah. The impact on the US Congressional elections in 2010. Positions such as the abolition of the Federal Reserve, prohibiting stimulus funding, sealing the borders and doctrinaire positions on the role of government. Education reform, immigration reform, investment in infrastructure building all will be out in this type of platform adopted by some candidates. A Senate candidate from Alaska suggests Social Security is unconstitutional. By appealing to popular discontent with the Obama administration, and anger with the bank bailouts, what is called the Tea party movement has taken shape. It is built around politicians Sarah Palin of Alaska, Jim DeMint, Rand Paul of Kentucky, and other candidates such as Haley in South Carolina who are using it to tap into discontent. It has the support of Fox News, and Dick Armey former Congressman from Texas who heads FreedomWorks, and libertarian billionaire David Koch. Built around seductive principles of small government, the movement has no clear program considering the diverse positions of the different politicians and different extreme positions adopted, including a general hostility to large corporations without differentiating a BP or a Goldman Sachs from a GE. GE's operation of MSNBC puts it in the same category as a Goldman Sachs. The lack of a clear position by the US Chamber of Commerce, because of its opposition to the Obama administration. The movement carries with it risks, as the Republican party's control of the House of Representatives is not ensured. Ideology of a vague kind has become a substitute for good credentials and experience, in the fast-forward effort by activists such as Dick Armey to capture popular discontent. Says Dick Armey, "We live by the creed 'hard work beats Daddy's money,' " raising serious questions about how a statement like this would help the jobless or the economy. ...

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The ABX Index which tracks subprime bonds is showing signs of recovery. The prices for representative parts of the subprime bond market have doubled from a low of 30 cents on the dollar to about 60 cents. This is happening as investors and some companies are taking on more risk and finding lenders. This is helping push up prices of commodities, junk bonds and stocks. The larger yields on the subprime bonds are attracting investors. Non-agency bonds- bonds not backed by Fannie and Freddie- yield between 5% to 7%, above the 4% yield on high quality corporate bonds and the 3.5% yield on U.S. government bonds. Demand for these bonds is growing. Companies that invest in these sub-prime bonds such as MFA Financial were buying $100 million of these bonds in 2010, and have increased this to $300 million a month recently. MFA Financial is able to do so because it can find funding from lenders who are now not as worried about the risks of these subprime bonds. Another development in this market is the offer of AIG to buy back apool of bonds that the Federal Reserve had taken over from AIG during the financial crisis of 2008. AIG offered to pay $15.7 billion for the pool of bonds with a face value of $30 billion. The Fed cited a high level of interest from investors and rejected that offer. The Fed will now let investors bid for these bonds to maximize its gain on these bonds. In another development even conservative investors such as four large life insurers are looking at buying these subprime bonds. Scott Robinson, a senior vice president of Moody's Investors Service, says the high levels of capital available is leading to a re-risking of balance sheets, even though it is not back to the old days yet. Considerable risks still remain in the housing market according to Nouriel Roubini and other experts....

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The cost of fixing the nation's financial system could be around $2.5 trillion with an additional $350 of the second TARP funding and the rest of the money coming from the Federal Reserve through the Fed's ability to print money and from private investors. About $1 trillion of this is to compensate for the lack of issuance of securities backed by consumer loans of $1.2 trillion between 2006 and 2008, so that credit markets can function again like they used to. Another component of the plan is to give banks more government money which they will now be expected to lend to consumers and businesses. But a key feature of the plan much awaited by markets was the bad bank or aggregator bank solution which would enable banks to transfer bad assets to this bank. And on this one Geithner said very little so it was adisappointment for financial markets. Also the plan lacked details and was more broad brush and small on specifics. Another area on which Geithner said little is how the government will tackle rising forecolosures and keep people in their homes, which in turn would help stabilize housing prices. But by building up expectations and offering little of specifics on the bad bank solution Geithner earned withering criticism from Senators Kerry, Shelby, Frank, and others. A former managing director at Morgan Stanley Frank Pallotta, now aconsultant to buyers and sellers of distressed mortgages, says the fundamental problem still is the pricing and the gap between what abank like Chase thinks its mortgage is worth of 75 cents to the dollar and aprospective buyer who thinks its worth 45 cents or 25 cents. This is a huge gap and would be expensive to fill in. A bad bank one analyst says could be very expensive and this is why Geithner acknowledges the goal of setting up a fund of some $1 trillion. ...

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A strong U.S. jobs report in July with 255,000 new jobs, unemployment at 4.9%, provides positive sentiment going forward. The Federal Reserve is likely to be wary of raising rates because businesses are hiring but are not making the investments needed to spur economic growth, which remains at about 1%. The labor force participation rate is now at 62.8%. The measure of unemployment and underemployment shows a better picture of how different age groups are faring including the 25-54 years age group- this is at 9.7% in July 2016, it was 9.6% in June 2016. This measure shows those working part time because they cannot find a full time job. The market today is stronger for those with the right job skills, but not across the spectrum for all Americans, only setting the stage for further progress and increasing investment as confidence improves.

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The day by day account of events in Europe tht led the ECB to act and a similiar account of events in the USA that led the Federal Reserve to act. How the key players in the US, the individuals directly invoved at the Fed and on Wall Street discussed the developing crisis, monitored it and finally agreed on steps. A key event in the crisis in the USA is the sudden drying up in demand for commercial paper which could lead to a cycle of continuing credit contraction. See the related article by Brian Wesbury in todays WSJ, who sees the Bernanke Fed's actions in a macro perspective as being just the right steps for now. See

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At one point the ruble reaches 80 to the dollar on Dec. 17, 2014, before settling at 60. It has lost more than half its value. The architect of Russia's finances in Putin's first and second terms, Alexei Kudrin, is critical of the way the central bank and the Putin administration is handling the economy and Russia's finances.

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In his essay on the oped page of the WSJ Bernanke says: "history teaches us that government engagement in times of severe financial crisis often arrives very late, usually at a point at which most financial institutions are insolvent or nearly so, and in these conditions the consequences and costs of inertia and inaction can be staggering." Bernanke clearly is a student of the Great Depression and has learned the lessons from that catastrophic crisis. He pushed early for Paulson to take the case to the American Congress, and he had early on called for an injection of capital into the banks for ownership stakes, something the Bush administration ideologically resisted. Now that $250 billion is being injected into banks as part of the $700 billion rescue effort, and a global plan is being shaped after the Gordon Brown plan in the UK, it is possible for Bernanke to say that serious efforts are being taken that meet the severe challenges posed by a freezing up of credit markets wordwide. After some missteps and the help of Gordon Brown's initiative in the UK, there is reason for confidence even in the face of what Bernanke calls more " inevitable setbacks."...