Is it possible for opposite policies to both be wrong? Over at the Washington Examiner, I argue that it is. The U.S. is ending its quantitative easing program just as Japan is ramping its up. Those seemingly opposite policy paths are rooted in the same mistaken philosophy. I argue instead for a humbler monetary policy:
Both Yellen and Kuroda should move their focus away from stimulus, exchange rates and constant tinkering, and toward stability, honesty and predictability in their price systems. Easing of $1.66 trillion has had almost no effect on the U.S. economy. How reality will stack up against the Bank of Japan’s predictions, no one knows.
Along the way there are discussions of Keynesian liquidity traps, the Taylor rule, NGDP targeting, and Bitcoin. The larger point is that central bankers are barking up the wrong tree. Instead of manipulating various economic indicators, they should concentrate on creating a stable, predictable, and honest price system that enables more investment, better investment decisions, and more innovation. Entrepreneurship, not interest rate tinkering, is what causes economic growth and mass prosperity.
Read the whole thing here; see also a facsimile of the print edition here, starting on p. 26.
The Federal Reserve made waves when it announced it was rolling back its quantitative easing program. Looking more closely, one finds it’s actually a very minor policy change, moving from $85 billion to $75 billion per month. Over at the Washington Times, I encourage the Fed to taper back the rest of the QE program, and point out that the Fed may be sending a subtle political message about how presumptive incoming Fed Chair Janet Yellen will approach inflation:
Johns Hopkins University economist Steve Hanke argues that Ms. Yellen is more hawkish on inflation than her dovish reputation suggests. The tapering announcement seems to confirm Mr. Hanke’s thesis. As the Fed’s current vice chairman, she already has significant say on Fed policy. She has publicly supported the new Basel III reserve banking standards, which would require banks to hold more of their capital in reserve. That would decrease the amount of money in circulation — the exact opposite effect of quantitative easing — and help keep inflation in check.
There are plenty of problems with the Basel III standards, but this would be one positive effect. Read the whole thing here.
Winston Churchill observed that “Americans can always be counted on to do the right thing…after they have exhausted all other possibilities.” We may finally be seeing a small step in that direction. The Bush and Obama administrations have tried fiscal stimulus to speed up economic recovery. It didn’t work. The Federal Reserve tried increasing the money supply, which they called “quantitative easing” because it sounds much more pleasant than “printing money.” That didn’t work. Then they tried it again. That didn’t work, either. What to do?
We at CEI have been pushing a deregulatory stimulus for years. Now that all other possibilities are exhausted, the administration appears to be taking small steps in that direction. Regular readers are aware that federal regulation costs about $1.75 trillion, and that the Code of Federal Regulations is over 157,000 pages long. Both of those numbers grow every year, as over 3,500 new rules hit the books annually. This morning, OIRA chief Cass Sunstein is announcing a 30-point plan that would “save American companies billions of dollars in unnecessary costs,” according to The Washington Post.
This new initiative stems from Obama’s Executive Order from earlier this year that ordered agencies to comb their books and recommend obsolete or harmful rules for elimination. Agencies hardly have an incentive to reduce their size or scope, which is why an independent commission would be a better vehicle for getting rid of old rules. The rules Sunstein is proposing to eliminate are very modest. But it’s better than nothing.
The real savings would actually go to consumers. Because companies pass on their costs, consumers are the ones who ultimately pay regulatory costs. They will also ultimately reap the savings in the form of lower prices and more choices.
The bad news is that the regulatory savings will comprise only a tiny fraction of the $1.75 trillion cost of federal regulation. Many will hail these reforms as landmark, revolutionary, or some other hyperbole. They are nothing of the sort. It is only a first step on the road to a saner regulatory approach. But if people believe that we’ve already reached the destination, they will lose the desire to press for further reform.
The worse news is that almost all of the new rules in the pipeline – 4,225 at last count – will still hit the books. Costly new regulations from the health care bill and the Dodd-Frank financial regulation bill may well outweigh the savings that Sunstein is proposing today.
Not all the details are out yet, but there is reason for deregulators to be cautiously optimistic. For more regulatory reform ideas, see this article that Wayne Crews and I wrote for AOL News.
There is a lot of talk lately about the Fed’s quantitative easing policy. It is an indirect way of printing money, and also a huge mistake. It turns out the Fed can’t even print money the direct way without making mistakes. A new $100 bill that is harder to counterfeit has been rolling off the presses recently. 1.1 billion of them have been printed so far, at a cost of $120 million.
An official familiar with the situation told CNBC that 1.1 billion of the new bills have been printed, but they are unusable because of a creasing problem in which paper folds over during production, revealing a blank unlinked portion of the bill face.
A second person familiar with the situation said that at the height of the problem, as many as 30 percent of the bills rolling off the printing press included the flaw, leading to the production shut down.
The total face value of the unusable bills, $110 billion, represents more than ten percent of the entire supply of US currency on the planet, which a government source said is $930 billion in banknotes.
Coincidentally, these would be the first bills to feature Timothy Geithner’s signature.
Posted in Economics, Monetary Theory
Tagged benjamins, federal reserve, government bloopers, hundred dollar bills, inflation, monetary policy, msnbc, printing money, qe2, quantitative easing, tim geithner, timothy geithner