Given yesterday’s detailed monetary policy analysis, I am using today to present an array of news items and some brief analytical thoughts on central bank monetary policy. The latter is based on a very interesting speech that the governor of the Bank of Japan gave in Nagoya earlier this week. The juxtaposition with the way the Western central banks are behaving at present is stunning. There is also some self promotion and some announcements. Then we get to listen to Ron Carter. A good day really.William Mitchell — Modern Monetary Theory
The Bank of Japan is light years ahead in sophistication relative to the West
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, AustraliaThe Bank of Japan is light years ahead in sophistication relative to the West
This is all bullshit. No central bank has it right. Monetary policy cannot regulate the economy. It is bullshit. I commend the BoJ for not raising rates, but they still believe that monetary policy can regulate the economy, so they are no different than the Western CBs. It's all about fiscal.
ReplyDeleteI put the in the comment to the blog post.
ReplyDeleteJapan is just looking at this from the other side of the monetary policy fence.
We still have a long way to go before those who run central banks are as anonymous as those who run the welfare office. Which is as it should be. They are just the government department that clears the payments and keeps the commercial banks on a short leash.
Federal Reserve Act:
ReplyDelete“ The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy's long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”
They have a legal mandate to employ monetarism…
“Western central banks are behaving at present”
ReplyDeleteIf Trump can get back in he’s going to direct the Fed to lower the interest rate..,
Then they’ll be back to saying “orange man bad!”….
Who has the mandate to employ Humphrey-Hawkins?
ReplyDelete“If Trump can get back in he’s going to direct the Fed to lower the interest rate.”
ReplyDeleteUnfortunately the US President has no power over the Fed, except to nominate Fed governors.
In theory the Fed must operate within the framework and overall objectives of economic and financial policy established by Congress. In practice the Fed is independent.
The rationale for this autonomy is to insulate the Fed from short-term political pressures, so that the Fed is not influenced by election-focused politicians into enacting an excessively expansionary monetary policy to lower unemployment in the short term. Moreover, without autonomy, the U.S. government might actually force the Fed to serve all of America, rather than only serving Wall Street and creditor oligarchs at the expense of America, as the Fed does now.
The Fed’s autonomy has always been controversial, especially after the Fed helped to create the financial crisis of 2007–2008.
People who support Fed autonomy say that the influence of short-term politics can cause lasting economic damage down the road.
People who oppose Fed autonomy say that the central bank and government must be tightly coordinated in their economic policy. They say the central bank should be under regulatory oversight. They note that Fed autonomy is unconstitutional. According to the Constitution, Congress alone has the power to coin (i.e. create) money and regulate its value. In 1913, Congress delegated this power to the Fed through the 1913 Federal Reserve Act. (Congress has fiscal power, but the Fed dictates monetary policy regarding interest rates and bank rules.)
Again, it is fundamentally unconstitutional and undemocratic to have an unelected and unaccountable agency dictating monetary policy.
Calls in Washington to "audit" the Federal Reserve are essentially calls to bring the Fed under control.
In my opinion the Fed has too much power. Indeed, central bankers regard themselves as superior to everyone else in society, including all politicians. During World War II, Nazi Germany’s central banker, Hjalmar Schacht, was very close friends with the head of the Bank of England, Montagu Norman. Indeed Norman was so close to the Schacht family that Norman was godfather to one of Schacht's grandchildren. Schacht and Norman coordinated their activities through the Bank for International Settlements in Basel Switzerland.
Schacht worked with various resistance groups against the German government until Hitler had enough of Schacht’s treachery, and ordered Schact removed. Schacht said he couldn’t be touched since he was a central banker; a superior life form. So Hitler sent him to a detention camp.
After the war, Montagu Norman (head of the Bank of England) ordered the Allies to release Schacht. The US and UK obeyed Norman’s orders, and acquitted Schacht despite Soviet objections. Later at a West German denazification trial, Schacht was sentenced to eight years of hard labor, but he was freed on appeal, and he went on to form and lead his own bank.
Again, central bankers (at least in the West) regard themselves as superior to everyone else in society, and they help each other.
@ Mike Norman
ReplyDeleteI used to say to our audiences: "It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"
Upton Sinclair, in I, Candidate for Governor: And How I Got Licked (1935), ISBN 0-520-08198-6; repr. University of California Press, 1994, p. 109
“ Who has the mandate to employ Humphrey-Hawkins?”
ReplyDeleteCan’t ..”out of money!”…
Cheaper to let the CB change the risk free policy rate…,
Or have the CB do QE or QT… to “inject money!”… or “drain money!”…
ReplyDeleteDoesn’t require an appropriation…