Laurence Meyer on the Fed
Laurence H. Meyer, Vice Chairman of Macroeconomic Advisers, spoke yesterday to the New York Association for Business Economics in a meeting co canada goose black friday sale sponsored by the Forecasters Club. He’s a treat to listen to, as he speaks frankly and lucidly about the high stakes cheap Canada Goose of current monetary policy. The room https://www.pick-canadagoose.com was packed, it being the day after the historic statement of the Federal Open Market Committee. Larry Meyer is an insider he called his memoirs about his six plus years (1996 2002) as a Fed Governor A Term at the Fed: An Insider’s View. Before joining the uk canada goose Fed Board he was professor of economics for 27 years at Washington University and in 1982 he founded a consulting firm where he works today.
canada goose Here are the highlights of his talk in Q format, put together from my notes at the lunch, with the caveat that I did Canada Goose sale not use a uk canada goose outlet tape recorder or a Stenograph machine, and none of the charts in his talk is included. If a topic came up more than once I Canada Goose Coats On Sale combined the comments and information. If you believe I missed something important, post a comment or email me and I will attempt to fix the problem ASAP. canada goose
canada goose clearance sale A. The current crisis is very serious. Great Depression. recessions. In fact it’s equivalent Canada Goose Outlet to canada goose store the sum of these recessions. Problems relating to the meltdown of the Savings Loans were more confined to the industry than the current credit crisis. Other downturns were more short lived than this one promises to be. The worst postwar recession was in 1981 82, when then Fed Chairman Paul Volcker wrung out inflationary expectations with tight money and correspondingly high short term interest rates. canada goose clearance sale
cheap Canada Goose Japan after 1990 faced a similar problem to canada goose coats the current crisis with its stock market and real estate boom and bust. The canadian goose jacket Bank of Japan did many of the Canada Goose Jackets right things zero interest rate policy with quantitative easing, funding troubled buy canada goose jacket cheap assets, addressing deflationary trends. The problem is that it was too slow and its actions failed because cheap canada goose uk they were too late. cheap Canada Goose
canadian goose jacket The Great Depression was a time of serious asset deflation. It provides lessons what not to do. If the Fed has learned the right lessons we should be able to avoid a “lost decade” this time. canadian goose jacket
Canada Goose online Q2. What is the Fed trying to do with its December 16 FOMC announcement? Canada Goose online
A. Fed Chairman Bernanke has argued that any stimulus package should be Timely, Temporary, Targeted. For the current round, the emphasis has shifted slightly to more like Canada Goose Parka Speedy, Significant, Sustained. The last three months suggest that a stimulus lasting just a couple of quarters is not going to be useful. In the environment following the Lehman canada goose outlet failure, the economy may require more than two years of expansionary fiscal help. Monetary policy has been effectively at zero for some time. It will be 0.25 percent until probably 2010. If banks can borrow at 0 percent and lend at 10 percent, they will start lending. This is different from the Bank canada goose factory sale of Japan’s quantitative easing, which was based on the level of reserves and didn’t target specific credit conditions such as unusually high risk premiums at the long end of the yield curve. The Fed is buying commercial paper. There is a question whether the Fed will buy corporate bonds and if so how it will decide to pick the firms whose bonds they buy. The Fed will purchase longer term Treasury securities, not just T bills. The canada goose coats on sale Fed expects a long and deep recession and therefore plans on long term policy commitment to low rates.
Canada Goose sale The Fed’s assets were at 2.3 trillion on December 10. Dallas canada goose clearance Fed Governor Richard W. Fisher has predicted asset growth to $3 trillion in weeks. The assets are likely to grow to $4 trillion in a year. (For Fed assets go here and scroll down to H.4.1, Table 7. It shows that Fed assets rose nearly $1 trillion during the year as of December 10.) Canada Goose sale
canada goose black friday sale Q3. So forget rebates and consider government spending to be the most effective approach. canada goose black friday sale
canada goose clearance The stimulus package for states and localities has been discussed as something in the $500 billion range. However, it doesn’t make sense to spend that money on bridges to nowhere. It will take more than one year to spend the money effectively and efficiently. State and local spending projects will take time to develop Canada Goose Online and be approved. The projects could be roads and bridges, upgrades to the electrical grid, green job projects, improved medical technology. canada goose clearance
buy canada goose jacket Q4. But first they will monitor the management of the operations. There won’t be much to discuss after a couple more meetings. buy canada goose jacket
We can expect a deflationary environment for perhaps as long as two years. Only then do we need to worry about inflation. We are not in danger of hyperinflation. Not until 2010 is it likely GDP growth will be back above 5 percent. Not until 2012 will unemployment drop to a level that might contribute to inflation on the Phillips Curve (or NAIRU) model.
Canada Goose Jackets President elect Obama’s promised income tax cuts (for the middle class) are likely to be permanent. But by ten years from now America will have to face up to the country’s growing liabilities and it will have to increase taxes. Canada Goose Jackets
canada goose store Q5. How will we know if the Fed program is working? canada goose store
canada goose coats A.”We know why the economy will recover we just don’t know when.” We will know: canada goose coats
canada goose deals When credit conditions improve. In the meantime, fortunes are being made taking on over priced risk. The yield on Baa bonds has turned down finally after shooting up following the mid September failure of Lehman Brothers and the forced sale of Merrill Lynch. Banks willingness to lend plummeted after that date also. Prior to mid September a series of reductions in the fed funds rate kept the Baa yield fairly stable. Bank traders aren’t arbitraging between corporates and Treasurys because they don’t have enough spare resources. canada goose deals
Canada Goose Parka take action. This will mean a shifting of some risk from the private sector to the public sector. Canada Goose Parka
When long term rates continue to fall. Spreads will be narrowing.
Canada Goose Outlet When housing prices bottom out. Housing activity stabilized “Not everyone can live with their parents.” Those who couldn’t hang onto their homes will be looking for rentals. Mortgage rates could go lower (banks asking 5 percent for a 30 year mortgage on December 16 were asking for 4.65 percent the next day). Canada Goose Outlet
buy canada goose jacket cheap When equity buy canada goose jacket prices rebound. Equities have fallen about 50 percent from their peaks. Recovery will register in a rise in equity indexes. buy canada goose jacket cheap
canada goose coats on sale When the fiscal stimulus Is getting spent. The projects at the federal, canada goose uk outlet state and local government must get under way in an orderly process canada goose coats on sale.