*DJ Fed’s Bullard: Best To Leave Economic Stimulus To Fed
*DJ Bullard: Fed Can Stimulate Even When Rates Are At Zero Percent
*DJ Bullard: Fed Potency Negates Need For Government Stimulus
*DJ Bullard: Monetary Policy Has Been Appropriate

That means he’s pleased with the outcome of the last three year’s policies???

He’s satisfied with current conditions???

25 Responses

  1. It’s even worse than that. Bullard is basically arguing that we’ve had our fiscal kicks, now we must get serious and “return” to monetary policies via the Fed. Can someone please explain to me when we stopped using monetary policy? It’s like he isn’t even aware of three years of QE, QE2, interest on reserves, asset swaps, endless facilities, Operation Twist, ad infinitum. This one really leaves me scratching my head.

  2. Another shocker from a Central Banker. I am speechless, once again. Who woulda thunk it? Never tell me we need to respect these guys intelligence. No, never tell me that.

    1. @Trixie,

      It’s sublimely ironic that some influential monetarists seem to have no concept of net financial assets.

      But to be fair, he’s only critiquing two theories of fiscal intervention, and they are rather lousy ones:

      “I describe and critique two theories of how fiscal policy might be viewed as effective in [a ZIRP environment]. One, heavily studied, is that a tax-…nanced increase in government expenditures would temporarily increase total output in the economy. The other, lightly studied but rhetorically forceful, is that increased government expen-
      ditures may inspire confidence.”

  3. We need to fire all these guys. Maybe it really is time to end the Fed, and put monetary policy under direct control of the political branches. Then we can at least expand our deficits as needed without creating clouds of illusory pseudo-debt that confuse the public, and without being forced to give private bond dealers a cut of the action they don’t need.

    Congress is full of boneheads, but at least they have constituents they have to answer to.

    1. @Dan Kervick,

      I think you have this backwards. Bullard may be a bonehead, but monetary policy is ineffectual and therefore mostly harmless. In fact, the Fed has been doing its job just fine, and it even has interest rates near zero which Warren considers the “natural” rate.

      It’s the Treasury/Congress combo which has hurt the country with its incompetence and negligence (the Treasury being particularly negligent I think).

      1. @ESM, I agree with what you say, ESM, but still, Fed is the economic political thought leader in US Govt.

        If Fed says “monetary policy has done all it can, time for fiscal stimulus” then, Congress would have more political support to go ahead and increase the defict spends

      2. @zanon, Imagine a system in which the government never borrows money, but instead simply sets a spending target and a tax revenue target, and adjusts the expected gap as macroeconomic conditions dictate. Deficits go up and down, but they never add a penny to the “public debt”.

        Under such a system, politicians would never be able to get away with saying they can’t expand the deficit to spend because “We can’t afford it” or because “we’re leaving a debt burden to our children and grandchildren.” They would instead have to say something like, “It will be inflationary.” Then they could debate that issue – which is the only real issue – rather than all of these bogus pseudo-issues about debt burdens and solvency and affordability.

        Instead of the Treasury borrowing from the public in conjunction with its spending operations, the central bank can do that, based entirely on considerations related to the savings desires of the public, and the need to either limit current spending to push it into the future by increasing savings options, or boost current spending by decreasing savings options. The function of government bonds should consist entirely in their role of providing savings vehicles and interest income to the holders of dollars, and not in any operational entanglement with fiscal operations.

      3. @ESM, I actually agree with you completely that the Congress is the main problem. And I also agree that monetary policy, as practiced by a central bank, does not have nearly the kind of power that many – under the influence of the money multiplier view and the loadable funds fallacy – attribute to it.

        However, monetary policy could play a more effective role if it was better integrated with fiscal policy, and applied in the way MMTers recommend to expand the deficit and boost aggregate demand directly, rather than operating solely through the bank reserves channel.

        To do this now, the spending authorities are required by law to issue debt to the private sector, and then coordinate with the Fed for the Fed to purchase that debt. Even when Treasury and the Fed see eye to eye on the need for, this creates a pile of scary-looking but illusory liabilities on the Treasury books that politicians can then exploit to argue against further expansions of the deficit – which they might oppose for political reasons of their own.

      4. first, there is no known functioning reserve channel

        second, with today’s arrangements, all they need to do spend/cut taxes as they want, and instruct the tsy to issue nothing longer than 3 mo bills.
        the fed doesn’t need to buy anything

      5. @ESM,

        “the Fed has been doing its job just fine, and it even has interest rates near zero which Warren considers the “natural” rate.”

        This is a common misconception of Warren and Mat’s paper. Their argument (as I understood it) was that under an interest-rate targeting framework, the CB doesn’t add NFAs, and such an arrangement is therefore deflationary. “Inevitable” probably would have been a better term.

        There are other arguments for a zero rate, as anything greater is a ‘tax’ on cash holdings, relatively speaking (a negative interest rate, if pursued, would be a subsidy to cash holders). Milton Friedman famously made this case.

        But those are both very different ideas than asserting, in a conventional (IS-LM) macro framework, that the “natural” rate of interest is zero.

  4. Bullard defines a successful monetary policy as inflation between 0% and 2%. Not one word about unemployment.

    In other words, anything better than the Great Depression is success.

  5. he’s probably prepping everybody for q e 3… nobody in gov ever seems to be thinking about whether extra money automatically means extra productivity. I’m sure a lot of people are enjoying the current times just because they have time to live now

  6. Bullard works for the Federal Reserve Bank of St. Louis, that he’s exercising federal executive power (as a member of the FOMC) and yet was not hired by the President nor by a presidential appointee is as clear-cut a violation of the Appointments Clause as you can find. It doesn’t matter since the courts basically refuse to give anyone standing to sue the Fed.

  7. Warren-

    This is a little off-topic, but I need your help for a paper!

    Has the Federal Reserve always used bond markets to set the interest rate, during fiat currency periods? Particularly during the 1920s.

    More specifically, during the times the U.S. was on using a fiat system in the 1920s and 1930s, did bond markets function the same or a similar way to how they do now, and for the same purpose?

    Any other insights into monetary policy leading up to the great depression? (I don’t want you to write my paper for me, of course, but you know things…)

    Thanks if you see this and are able to answer!

    (paper is due on the 20th!)

    Sincerely,
    a big fan and avid reader

      1. @WARREN MOSLER, that’s okay, I’ve got plenty of other angles for this paper!

        I appreciate your response, and I’m pleased to have made your acquaintance, Mr. Mosler!

        As I said, I’m a big fan, and I’m pulling for you in your Senate race (I will be promoting your campaign online). It’s long-past time we had some folks in Congress who had a clue about what taxes actually do, and how the macro economy functions.

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