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Economist Lawrence Lindsey says the Fed has boxed itself and has little choice but to keep interest rates low. Borrowing at the more normal interest rates of 5.7%- which is what it was over the last three decades- and not at the current 2.5%, would mean an increase in borrowing costs for the U.S. government of $800 billion in 2021, says Lindsay. Lindsay bases this on the U.S. debt growing from $14 trillion in 2011 to $25 trillion by 2021, and interest rates going back to normal levels by 2021. Just to put this in perspective Lindsay says it would require all the cuts Republicans and Rep. Ryan are asking for just to pay for the added interest, not even about reducing the size of the U.S. debt. This would be a disaster for the U.S. Treasury, so we're stuck with really low rates. The term used by economists is "financial repression." Savers and retirees will have to put up with low returns. Lowering unemployment is only one aspect of U.S. Fed policy, the other aspect is in the constraints Bernake faces.
Lawrence Lindsey on how Bernanke's Fed has boxed itself in with no choice but to keep interest rates low and no clear exit strategy
01/04/2010
Economist Lindsey says Fed chairman Bernanke has to keep interest rates low for the U.S. government to be able to cope with the increase in borrowing costs that normal interest rates would bring. The normalized interest rate - the rate at which the U.S. government was able to borrow for the last three decades- is about 5.7%. At that rate the U.S. government would add $800 billion to borrowing costs for 2021, says Lindsey. The U.S. now borrows at about 2.5%
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Chuck Schwab Is Worried About Small Investors. Should We Worry Too?
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Why high unemployment and the high percentage of the long term unemployed is determining U.S. Federal Reserve interest rate policy in 2012-2014
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With 40% of the unemployed in the U.S. shown as long term unemployed, mismatch in skills and other structural problems with unemployment, the U.S. Federal Reserve policies of Fed chairman Bernanke are geared to addressing this problem.
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Economy May Be Getting Its Wings Clipped
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The probabilities of another round of quantitative easing or QE III in the U.S.
06/02/2011
Probabilities for a QE 3 in June 2011 are low, with inflation expected over the next 5 years at 2.8%, as suggested by TIPS. The Fed's thinking as reflected in comments by presidents of Fed regional banks is that there will be growth, even if it is "frustratingly slow at times." The Fed could act if a deflationary trend sets in. The extraordinary amount of liquidity- with about $2 trillion of bond purchases by the Fed since the 2008 crisis -acts as a counter weight to the housing slump, and to weak data for jobs and manufacturing.
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Fed Holds Steady as Economy Slows
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QE2-Inspired Stock Rally May Soon Disappear
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The Folly of Economic Short-Termism
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Divisions at Federal Reserve Led to Rate Compromise
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The U.S. Federal Reserve and QE II.
08/12/2010
Problems with another round of quantitative easing, with Fed bond buying efforts to generate a jobs recovery.
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How QE 2 Could Drift Off Course
Wall Street Journal 08/12/2010
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America's economy: Not by monetary policy alone
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Opinions Are Split on Fed Policy Move
Wall Street Journal 11/01/2010
U.S. Federal Reserve chairman Bernanke's defense of QE III
06/15/2011
Bernanke's defense of the Federal Reserve's QE I, QE II, and QE III. focusses on keeping interest rates down because higher interest rates would increase borrowing costs of the government. In the eurozone capital markets are setting interest rates for Germany, France, Italy and Spain. The Fed is using its monetary policies to set rates low to keep borrowing costs on U.S. debt down. It also keeps economic growth from dropping to a point where it reduces government revenues and worsens the deficit. This buys time for Congress and a newly elected administration to come together on a plan for the deficit and generating growth.
Grouped Articles
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India's Central Banker Lobbies Fed
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Janet Yellen and Fed Predecessors Find Common Ground Onstage
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Bernanke Takes On Critics of Fed Policy
Wall Street Journal 10/01/2012
Forget the fiscal cliff: U.S. has other possible economic threats looming - The Washington Post
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A Federal Reserve sponsored bull market in the U.S.
09/24/2009
With quantitative easing (QE), the Fed creating money to buy Treasury bonds at a fast pace, and with inflation "exceptionally low" in the Fed's words, there is considerable liquidity to support the surge in stocks. But this could change quickly. Investors would benefit from caution.
Grouped Articles
Wall Street Journal 05/08/2013
Wall Street Journal 05/11/2013
Stockmarkets: Don’t worry, be happy
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Wall Street Journal 05/29/2013
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An About-Face for the Stock Market’s 5-Year Return
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The U.S. Federal Reserve's policy and actions in 2012-2016
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Grouped Articles
A Hawkish Signal Bernanke Didn't Send
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FX HORIZONS: The Fed’s Risky Codependency with Markets
Wall Street Journal 07/11/2013
Once Again, the Fed Shies Away From the Exit Door
Wall Street Journal 07/11/2013
Bernanke Plays Down Link Between Jobless Rate, Fed Moves
Wall Street Journal 07/18/2013
In Surprise, Fed Decides to Maintain Pace of Stimulus
New York Times 09/18/2013
U.S. Federal Reserve's policy and actions in 2010-2013
08/27/2010
Grouped Articles
Fed Officials Try to Set the Market at Ease
Wall Street Journal 06/24/2013
Bernanke Plays Down Link Between Jobless Rate, Fed Moves
Wall Street Journal 07/18/2013
In Surprise, Fed Decides to Maintain Pace of Stimulus
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Economists See Nominee as Slightly More Dovish Bernanke
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Yellenâs Path From Liberal Theorist to Fed Voice for Jobs
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The Yellen Fed? Precise and Predictable
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"Financial repression" as part of U.S. Federal Reserve policies to improve U.S. debt servicing and investors in bonds
05/21/2011
Grouped Articles
Wall Street Journal 05/11/2013
When Model Borrowers Bite Back
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Bond Yields Jump to a Different Beat
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Fed Officials Try to Set the Market at Ease
Wall Street Journal 06/24/2013
Bernanke Plays Down Link Between Jobless Rate, Fed Moves
Wall Street Journal 07/18/2013
The U.S. debt, short term financing, interest rates and future tax increases- implications of current policy
01/16/2009
The implications of a loose monetary policy by the U.S. Federal Reserve and about 52% of debt being of short term maturities of less than 3 years at low interest rates- an average of 2.24% on U.S. Treasury debt of over $11 trillion in Jan. 2012. If interest rates were to rise in 2014-2017 as predicted by the CBO, interest rates of 5-6% could mean significantly higher interest payments on the debt- doubling or tripling current interest payments on debt of $225 billion- and calls for tax increases such as the value addded taxes in Europe.
Grouped Articles
Sovereign-debt managers: Rollover roulette
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CBO | The Budget and Economic Outlook: 2014 to 2024
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The Case for Raising Top Tax Rates
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Most Americans Face Lower Tax Burden Than in the 80s
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The impact on the U.S. of the Federal Reserve's $600 billion QE II decision
08/12/2010
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How QE 2 Could Drift Off Course
Wall Street Journal 08/12/2010
Markets Defy Fed's Bond-Buying Push
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Stimulus by Fed Is Disappointing, Economists Say
New York Times 04/24/2011
QE2-Inspired Stock Rally May Soon Disappear
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How U.S. Federal Reserve chairman Ben Bernanke negotiated a consensus on QE III in Sept. 2012
06/15/2011
Negotiations for consensus and communication with markets under Fed chairman Bernanke.
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Janet Yellen and Fed Predecessors Find Common Ground Onstage
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How Bernanke Pulled the Fed His Way
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Bernanke Takes On Critics of Fed Policy
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Forget the fiscal cliff: U.S. has other possible economic threats looming - The Washington Post
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The U.S. Federal Reserve and QE III
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Timing Raises Bank's Political Profile
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How Bernanke Pulled the Fed His Way
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Fed Move Could Aid Emerging Markets
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Fed Pledges Action Until Economy Shows Gains
New York Times 09/13/2012
Impact of the U.S. Federal Reserve's QE III policy on other countries
06/15/2011
Grouped Articles
India's Central Banker Lobbies Fed
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Citing Growth, Fed Again Cuts Monthly Bond Purchases
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Fed Move Could Aid Emerging Markets
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John Taylor on U.S. Federal Reserve policies and booms and busts in the U.S. economy and no clear exit strategy
01/27/2009
Taylor points out that the dual mandate for maintaining unemployment and inflation goals has led to discretionary policies that have hurt the economy by leading to booms and busts. He calls for a single mandate on inflation goals. Taylor provides advice on the Romney Plan.
Grouped Articles
Martin Feldstein: The Federal Reserve's Policy Dead End
Wall Street Journal 05/09/2013
Once Again, the Fed Shies Away From the Exit Door
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Bhidé and Phelps: Central Banking Needs Rethinking
Wall Street Journal 07/16/2013
Sluggish Economic Recovery Proves Resilient
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The Dangers of an Interventionist Fed
Wall Street Journal 03/29/2012
S.&P. 500 Dips After Fed Signals No New Stimulus
New York Times 04/04/2012
U.S. Federal Reserve's 6.5% unemployment target with 2% inflation announced by Bernanke in Dec. 2012
01/27/2009
The U.S. Fed's chairman Bernanke says the Fed will keep rates low till unemployment reaches 6.5% citing "the tremendous waste in human potential" of high unemplyment rates. As long as inflation remains subdued at 2% the Fed will continue its current policy of low rates. In 2013 the Fed will continue bond buying at the rate of $85 billion a month. If unemployment drops to 6.5%, but this is because more people are dropping out of the labor market the Fed will take this into account, says Bernanke. The Fed will also keep an eye out for asset bubbles in the economy.
Grouped Articles
Stimulus and the Depression: The Untold Story
Wall Street Journal 09/26/2011
Fed Officials Try to Set the Market at Ease
Wall Street Journal 06/24/2013
Wall Street Journal 07/05/2013
Wall Street Journal 07/11/2013
FX HORIZONS: The Fed’s Risky Codependency with Markets
Wall Street Journal 07/11/2013
Bernanke Plays Down Link Between Jobless Rate, Fed Moves
Wall Street Journal 07/18/2013
U.S. Federal Reserve policy after the March 2012 Labor Department Jobs report
06/15/2011
Grouped Articles
Fed Officials Try to Set the Market at Ease
Wall Street Journal 06/24/2013
Bernanke Plays Down Link Between Jobless Rate, Fed Moves
Wall Street Journal 07/18/2013
Candid Criticism for Fed That Wasnât on the Agenda
New York Times 11/08/2013
Jobs Data Justify Bernanke Concerns but Don’t Push Fed to Quick QE Move
Wall Street Journal 04/06/2012
Next Week’s Tape: Trifecta of Inflation Data On Tap
Wall Street Journal 04/06/2012
Fed Holds Rates Steady, but Outlooks Shift
Wall Street Journal 04/25/2012
Lawrence Lindsey says the Fed has got itself boxed in with little choice but to keep interest rates low
06/15/2011
Federal Flow of Funds Report for 2011 by the U.S. Federal Reserve shows 61% of net Treasury issuance was purchased by the Fed. Lindsey points out that the Fed has itself boxed in to keep rates low for years because for the U.S. government to borrow at more normal rates of 5.7% rather than the 2.5% at which it borrows today, would mean an addition $800 billion in interest costs by 2021.
Linked Articles
Demand for U.S. Debt Is Not Limitless
Wall Street Journal 03/28/2012
Wall Street Journal 06/15/2011
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