LyrArc Article Gist
The asset bubble may be due to the huge infusion of liquidity in the economy. This inflates the value of financial wealth in stocks relative to real wealth in goods and services and businesses that produce them. Industrial production is down but stock prices are up. This leads to distortions that can show up elsewhere such as in the currency markets with depreciating dollar or in the stimulus being withdrawn too early.

LyrArc Article Gist
Hilsenrath goes over some of the troubling signs behind the postive job numbers for April 2014. Part time workers looking for full time work actually increased in April 2014 to 7.5 million. More individuals in prime working years of 25-54 dropped out of the work force discouraged and stopped looking for work, with the percentage for this group who are working dropping to 80.8% in April 2014. Wage growth and worker productivity was stagnant. Donald Kohn, a former vice chairman of the Fed, joins other economists who are puzzled by the lack of wage growth and the large number of long term unemployed behind the positive job numbers of 288,000 for April 2014.

LyrArc Article Gist
The Federal Reserve Open Market Committe voted 7 to 3 to carry out "Operation Twist." This does not involve printing new money as was done for the $600 billion QE II Fed program. This time the Fed will shift its holdings to hold fewer short-term Treasury bills and notes and increase holdings of Treasury securities with longer maturities. The overall impact would be to increase the average maturity of its Treasury securities portfolo to 8 years from the current 6 years. The idea is to put pressure to reduce long tem rates. The Fed says the impact on short term rates is expected to be small because of its conditional pledge made in August 2011 to hold short term rates near zero until mid-2013. The impact of the Fed's move is likely to be modest considering the fact that the average rate on 30 year fixed rate mortgages is already low. It is at 4.09%, according to the latest Freddie Mac survey.

LyrArc Article Gist
The U.S. Federal Reserve's decision to extend Operation Twist beyond June to the rest of the year after the June 2012 FOMC meeting. By extending Operation Twist the Fed will buy $267 billion in long-term Treasury bonds and notes and sell short term Treasurys.

LyrArc Article Gist
Bernanke's speech at the annual Fed Jackson Hole meeting put any future policy action off for the September meeting of the Fed's Open Market Committee, which will meet for 2 days to allow lengthy discussion of issues. He repeated his focus made in earlier statements that other actions are needed to reduce the headwinds facing the U.S., actions other than the Fed's monetary policy. He called for "good, proactive housing policy," which has been a major missing piece in the jigsaw puzzle of the American economy. Specifically, "families with mortgage debt bigger than the value of their homes facing unusual financial hardship which is also hurting the banks." Martin Feldstein and other experts have repeatedly called for action to help homeowners under water since the mortgage financial crisis hit in 2008. And the government's response has been tepid at best. Most evaluations of the Home Affordable Modification program and other programs to help prevent foreclosures consider them a serious failure of the Obama administration. Higher unemployment has only increased the urgency for government action in this area and good proposals were made by Feldstein and other experts. On the deficit and debt issues Bernanke would like to see debt to GDP ratios "at least stable, or preferably, declining over time." He also cautions that this be done bearing in mind "the fragility of the current economic recovery." He says his estimate for the U.S. economy's growth rate is 0.7% annual rate for the second half, and 'looks likely to improve." His prediction is for inflation to settle at around 2%. His main concern is that the there will be "an erosion of skills and loss of attachment to the labor force" for the long term unemployed....

LyrArc Article Gist
U.S. Federal Reserve chairman Ben Bernanke's speech at the annual Jackson Hole conference in August 2011.

LyrArc Article Gist
Sudeep Jain provides a discussion of the policy tools India's new central bank chief, Raghuram Rajan, could use to stabilize the rupee. This includes, intervention in financial markets, sovereign bond issue, and further control of liquidity measures. The rupee stands at 61.80 to the U.S. dollar on August 6, 2013, after depreciating in 2012-2013.

LyrArc Article Gist
It is too much to expect central bankers to solve the US economy's problems, especially with rates nearly zero, and no agreement between the political parties before mid-term elections. The Federal Reserve by itself cannot fix the economy's problems, with the US economy facing prospects of deflation in 2011; and local governments cutting back as they face revenue shortfalls. Deficit concerns have led to inaction on further stimulus or help to local governments, and the Bush tax cuts are expiring shortly. In 2011 austerity cuts will be the singular theme in the western world, and these cuts are of a magnitude not seen in 40 years. In this situation there is only so much the US Fed can do.

LyrArc Article Gist
The Labor Department report for September 2013 shows 148,000 jobs added, lower than expected. The lower jobs figures and the political uncertainty provide additional support for new Fed chairman Janet Yellen to continue pursuing the policies of Ben Bernanke aimed at reducing high unemployment.

LyrArc Article Gist
Speaking in Santiago, Chile, Philadelphia Fed president Charles Plosser, pointed to the limits and hazards of excessive use of monetary policy by the US Fed. The Fed, Plosser said, cannot reverse the sharp decline in house prices when the economy has significantly overinvested in housing. The Journal editorial states that though its never been stated as such, the Fed's current easy money policy is intended to reflate the housing and job markets. Plosser said the excessive faith and reliance on monetary policy can undermine the recovery by "distorting price signals and thus resource allocations, adding to instablity."

LyrArc Article Gist
Bernanke's defense of the action of the Fed's monetary policy making committee, on November 3, 2010, (with a vote of 10-1) to buy an additional $600 billion of Treasury securities over the next 8 months. His defense focusses on the prospects of deflation- how low inflation can morph into deflation (falling prices and wages), that can create a long period of economic stagnation. In addition, with low and falling inflation, Bernanke sees spare capacity in the US that can be utilized to reduce the number of jobless people. He points to the rise in stock prices and fall in long term interest rates in anticipation of the Fed's action, as evidence that this Fed move would improve financial conditions. Lower mortgage rates would make housing more affordable, higher stock prices would increase consumer wealth, confidence and spending. Spending would lead to higher incomes and profits for economic expansion, from this viewpoint. The situation in November 2010, was a deepening housing slump anticipated for 2011, gridlock after the 2010 midterm elections and no agreement on additional stimulus for 2011, the need to rebalance the global economy lacking cooperation from China (with China increasing imports and reducing exports and the US increasing exports and reducing imports). Fed's Bernanke does not mention these factors, and only hints at the gridlock towards the end of the statement. This Fed action will push the dollar lower, just as efforts to improve exports and the trade balance are underway. The Fed's committee sees the risks of commodities inflation as an acceptable risk in the current situation, and the use of a cautious approach assessing the purchase program regularly as sufficient measure of safety. As to difficulties of the unwinding of these policies, the Fed sees present danger outweighing the risks of no action. For emerging markets such as Turkey, India, Australia and other countries seeing even more inflows of capital, the risks are left to these countries to manage. The central banks of India and Australia moved to increase interest rates at the same time that the Fed made its move....

LyrArc Article Gist
Janet Yellen, Fed chairwoman, says the financial system is safer now after the financial regulation, stress testing, living wills and other changes that the Federal Reserve has implemented. She says there is no need for a reduction in these key regulatory rules. One of the changes is that banks now use a safer mix of financing- equity financing has doubled for capital, and wholesale borrowing is cut in half, since the 2008 financial crisis that took the U.S. and with it the global financial system to the brink of disaster. The appointment of Randall Quarles to the Fed by the Trump administration was intended to  reduce regulation, and this is Yellen's response to such proposed ideas. 

LyrArc Article Gist
The problems with a second phase of quantitative easing, go back to asking why the first phase hasn't worked to prevent the economy from sliding back. So far the Fed has engaged in buying $1.7 trillion in bonds in that first phase. This shows the limitations of this approach. A lot of money was injected into banks. And the banks have $1 trillion on their books that is not being used for lending. The reason being its hard to find borrowers, as borrowers are cautious and concerned about the economic future. The Quantitative Easing in this second phase is supported by the reasoning that deflation risks remain. But this raises another question, what level of quantitiative easing would work, and would such enormous levels itself cause bigger problems.