The Federal Reserve has raised short-term interest rates, doing so for only the second time since the 2008 financial crisis. The move reflects the Fed’s growing confidence that the economy is on a sustainable growth footing — and its judgment that inflation is becoming a bigger danger to the US economy than sluggish growth or another recession.
A central bank like the Fed faces a basic trade-off between economic growth and inflation. When the Fed cuts interest rates — or keeps them low — more cash flows into the economy and business tends to boom. That’s good up to a point, but if the Fed provides too much stimulus, it can lead to high inflation. The Fed made that mistake in the 1970s, when inflation reached double-digit levels.
Conversely, when the Fed raises interest rates — as it did today — less cash flows into the economy. That can lead to slower economic growth, with fewer jobs created and slower wage growth.
The Fed decided to raise interest rates today despite the fact that its preferred measure of inflation came in at 1.7 percent over the past year — below its 2 percent target.
Normally, if inflation is too low, the remedy would be to cut rates, not raise them. So why did the Fed decide higher rates were in order? The Fed is concerned that inflationary pressures can build up over time, and that there can be a lag between Fed decisions and the resulting impact on inflation. In other words, it’s worried that if it were to keep interest rates low for the next few months, it might find itself with surging inflation in 2018 — and be forced to raise rates more drastically to deal with the problem. That, in turn, could trigger a recession.
So the Fed is hoping that slowly and gradually raising rates — it did its first post-recession interest rate hike a year ago — will strike a careful balance between the twin dangers of inflation and recession.
The potential downside here is that a premature rate hike could prevent the economy from enjoying a robust economic boom. By some measures, the current economic recovery has been the weakest in decades, and some economists wonder if easier monetary policy could deliver a more robust economic expansion. But so far, that argument doesn’t seem to have changed the minds of Fed decision-makers.
A Republican witness at today’s banking hearing attempted to claim there were no warning signs before the collapse
Sometimes, Republicans in Congress decide to do their jobs.
On Tuesday, Senate Republicans on the Banking Committee decided to finally hold a hearing to “assess the effects of consumer finance regulations”– little more than another attempt to rail against Wall Street regulation like the Dodd-Frank law. Ostensibly, the hearing would have granted Republicans the opportunity to shed their “do nothing” image while simultaneously continuing to espouse their mantra of deregulation. Too bad Elizabeth Warren also showed up for her day job on Tuesday, completely eviscerating the Republicans’ main witness and destroying their tired talking points.
“Of all the people who might be called on,” Warren said of Republicans’ lead witness Leonard Chanin, former Deputy Director of the Division of Consumer and Community Affairs at the Federal Reserve Board, “I am surprised that my Republican colleagues would chose a witness who might have one of the worst track records in history on this issue.”
Chanin, Warren pointed out, “helped lead the Federal Reserve division that refused to regulate deceptive mortgages — including the subprime lending that helped spark the crisis.” Warren noted that the bipartisan Financial Crisis Inquiry Commission called Chanin’s lack of oversight while at the Federal Reserve a “pivotal failure” and the “prime example” of the kind of hands-off regulatory approach that allowed the crisis to happen.
“You did essentially nothing,” Warren told Chanin, who has since left the Federal Reserve to work for a private law firm advising big banks. “Now, your failure had devastating consequences.” Chanin was brought forth by Republicans to argue against regulations like those imposed by Dodd-Frank.
“There was simply no data presented to the Fed on a statistical basis that suggested that there was a meltdown in the mortgage market in 2005 or 2006,” Chanin offered in his defense.
“I’m sorry, are you saying there were no data in the lead up the financial crash that showed the increasing default rates on subprime mortgages and what they were doing to communities across America? Did you have your eyes stitched close,” a clearly incredulous Warren interrupted.
“There was anecdotal evidence to be sure,” Chanin replied.
“Oh my god,” Warren let out in exasperation. “If you are still defending your time at the Fed,” Warren said to Channin, “that raises even more questions about your judgement.”
“So when you talk now about how certain regulations are too costly or too difficult to comply with, you sound a lot like you did before the 2008 crisis when you failed to act. So my question is, given your track record at the Fed, why should anyone take you seriously now?”
After Chanin refused to answer Warren’s question about his vision of proper financial regulation not once, but three times, the Massachusetts Senator really let him have it.
Watch Warren’s glorious takedown of Chanin and Republican’s zombie calls for deregulation below:
Obama picks Janet Yellen to lead the Fed, the shutdown cuts off military death benefits, and more
1. Obama to nominate Janet Yellen for Fed chair
President Obama plans to nominate Janet Yellen to succeed Ben Bernanke as head of the Federal Reserve, the White House said Tuesday. If Yellen is confirmed, the former University of California economist — currently the Fed’s vice-chair — will be the first woman to lead the central bank. Yellen would be a more popular pick than Obama’s reported first choice, former Treasury secretary Larry Summers, who withdrew in September due to stiff opposition to his candidacy. [Los Angeles Times]
2. Shutdown cuts off military death benefits
The Pentagon said Tuesday that the government shutdown had left it unable to pay death benefits to the families of soldiers killed in action. After funding ran out for many federal agencies, Congress quickly passed the Pay Our Military Act, ensuring that active duty soldiers will continue to receive their paychecks, but the law didn’t cover the $100,000 typically sent to families of those killed, burial expenses, and other benefits. [New York Times]
3. Off-duty cop accused of participating in road-rage attack
An off-duty New York City police officer was arrested Tuesday in connection with the beating of an SUV driver, Alexian Lien, who was chased down by a gang of motorcyclists after a fender bender. Detective Wojciech Braszczok was the fifth biker charged. The chase began after Lien — with his wife and 2-year-old daughter in the car — was threatened and took off, seriously injuring a biker. The whole thing was caught on a video uploaded to YouTube. [Reuters]
4. Obama tells GOP to stop making “threats”
President Obama on Tuesday stepped up his pressure on Republicans to pass a stopgap spending bill to end the government shutdown without forcing a delay of ObamaCare. In a White House news conference, Obama called on GOP lawmakers to “lift these threats from our families and our businesses” and avoid forcing the U.S. to default on its debts. Republicans say Obama is the onerefusing to negotiate. [New York Times]
5. DNA match provides a break in 1991 murder
New York police announced Tuesday that they had identified the mother of “Baby Hope,” a 4- to 5-year-old girl whose battered body was found stuffed in a cooler in 1991, through a DNA match. Investigators are now searching for the child’s father for questioning in the high-profile murder case. The mother never saw the girl and her younger sister again after their father left with them following the couple’s acrimonious break-up. [New York Daily News]
6. The U.S. prepares to cut aid to Egypt
U.S. officials say the Obama administration plans to announce within days that it is reducing aid to Egypt’s military, which has been cracking down on supporters of ousted president Mohamed Morsi. Army chief Gen. Abdel-Fattah el-Sisi, in his first interview since the July coup, said Morsi could have prevented the crisis by resigning in the face of protests. Sisi left open the question of whether he would run to replace Morsi. [CNN, Washington Post]
7. Trouble in the house of the Kardashians
Kris Jenner, mother of the Kardashian sisters of tabloid fame, and her husband, former Olympic decathlon champion Bruce Jenner, announced in a joint statement that they have separated after 22 years of marriage. The couple, who put their personal lives on display in the reality TV showKeeping Up with the Kardashians, said in a joint statement: “We are living separately and we are much happier this way.” [BBC News]
8. Passengers absorbed in smartphones didn’t notice gunman
The San Francisco Police Department said Tuesday that security footage showed that a man who killed college student Justin Valdez on a light-rail train had his gun in plain sight, but other passengers didn’t notice because they were staring at their smartphones. “They’re just so engrossed, texting and reading and whatnot,” said District Attorney George Gascon. Investigators believe suspect Nikhom Thephakaysone was hunting for a stranger to kill. [San Francisco Chronicle]
9. Three share Nobel in chemistry
Three researchers have won this year’s Nobel Prize in Chemistry for their work in the 1970s developing computer models used to study complex reactions like photosynthesis and combustion, and how drugs interact. The Royal Swedish Academy of Sciences, which awards the Nobels, said the trio opened up new possibilities for chemists by making “Newton’s classical physics work side-by-side with the fundamentally different quantum physics.” [New York Times]
10. Argentine president is recovering after surgery
Argentine President Cristina Fernandez de Kirchner underwent successful surgery to remove a blood clot outside her brain on Tuesday. The injury was the result of a fall in August. Doctors did not immediately say how long the 60-year-old president’s recovery would take, raising concerns three weeks ahead of legislative elections in which Fernandez’s governing party appears likely to lose strength over the country’s weakening economy. [Associated Press]
Pure genius from presumed presidential contender and devotee of Austrian school economics, Sen. Rand Paul:
Who would your ideal Fed chairman be?
Hayek would be good, but he’s deceased.Nondead Fed chairman.
Friedman would probably be pretty good, too, and he’s not an Austrian, but he would be better than what we have.
Yeah. Let’s just go with dead, because then you probably really wouldn’t have much of a functioning Federal Reserve.
Milton Friedman, of course, was one of the pioneers and foremost proponents of the laissez-faire economic theory collectively known as the Chicago School. According to Friedman’s biography at the website of the CATO institute, Friedman passed away in November of 2006.
For such a devotee of the neoclassical Austrian/Chicago economic theory as Senator Rand Paul purports to be, the passing of Milton Friedman would have been as the passing of Ronald Reagan to a prominent Republican politician. It would be the passing of an icon, something not easily forgotten. Yet somehow, Senator Paul let that minor detail slip from his brain. And we haven’t even gotten into the part where if Friedman were alive, he would have recently celebrated his 101st birthday. Or the fact that Friedman thought that Chile under Pinochet was a “miracle.”
Elizabeth Warren, the Democratic Senator from Massachusetts, grilled two financial regulators this Thursday as to why the men were favoring big banks over families that are struggling.
The questioning took place during a Senate Banking Committee hearing where Warren took aim at Daniel P. Stipano of the Office of the Comptroller of the Currency and Richard Ashton of the Federal Reserve. The line of questioning centered around the Independent Foreclosure Review, which investigated foreclosure abuses that ended in January with a $8.5 billion settlement.
Warren claimed the two were withholding data obtained from the investigation. She asked whether they planned to disclose evidence of illegal activity to families who were in the middle if litigation with the banks for the wrongful disclosures, with Ashton responding that they had not made a decision.
“So I just want to make sure I get this straight,” Warren continued. “Families get pennies on the dollar in the settlement for having been the victims of illegal activities or mistakes in the banks’ activities. You now know individual cases where the banks violated the law and you’re not going to tell the homeowners, or at least it’s not clear if you’re going to do that?” She added,
People want to know that their regulators are watching out for the American public, not for the banks, and the only way that we can evaluate whether or not you’re doing your job is if you make some of this information publicly available.
It would appear so. Or at least they’re hoping their audience is:
Just to be clear, the Trillion Dollar Platinum coin does not actually have to be one trillion dollars worth of platinum in the same way the paper and ink used to make a dollar bill is not actually worth one dollar .
Also to be clear, the TDP coin is an example of how ridiculous the GOP threat over the debt ceiling is.
Here’s the skinny on the coin: The Treasury can’t just print money all willy-nilly, BUT it can mint a commemorative coin of pretty much any kind. Soooooo…some intrepid blogger suggested that they do exactly that: mint a coin “worth” one trillion dollars, hand it over to the Federal Reserve and taaaadaaaaa! A trillion dollar account to draw from.
It’s a thought-exercise in the same exact way the debt ceiling is a thought-exercise. The difference between, minting the TDP coin and not raising the debt ceiling, according to Paul Krugman, is:
“A choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous. The decision should be obvious.” [Source]
Fox, of course, would be quite happy with the GOP crashing the economy because it would scare the bejeezus out of their viewers and that means ratings! To that end, they’ve decided that the TDP coin is a bad idea and either can’t be bothered asking an economist what it really means or delivering ridiculously bad information to their viewers.
Probably a bit of both.
Here’s the full explanation of the TDP coin and why the GOP/Fox/right wing media machine really wants it to go away. It’s very thorough and straight forward. Enjoy!
A new report by Bloomberg Markets Magazine details trillions of dollars in secret federal loans made to the big banks during the 2008 financial crisis, a process that helped them rake in billions of dollars in undisclosed profits. Here, some key numbers that illuminate the Federal Reserve’s “breathtaking”$7.7 trillion bank bailout:
Estimated amount in previously undisclosed profits the six largest banks — JP Morgan, Bank of America, Citigroup, Wells Fargo, Goldman Sachs Group, and Morgan Stanley — took in, thanks to those loans and the Fed’s below-market rates. Unlike the TARP funds, “the loans came with virtually no strings attached for the banks,” says Travis Waldron at Think Progress
$160 billion Amount in TARP funds the big six received
As much as $460 billion Amount the big six borrowed from the Fed, as calculated by Bloomberg and measured by peak daily debt
Amount that banks referenced in the new report required on December 5, 2008, “their single neediest day.” The Federal Reserve didn’t reveal to anyone which banks were in such dire need, say Ivry, Keoun, and Kuntz, and “bankers didn’t mention that they took tens of billions of dollars in emergency loans at the same time they were assuring investors their firms were healthy.”
$107 billion Amount in secret loans that Morgan Stanley took in a single month, in September 2008
1 out of 10
Share of the country’s delinquent mortgages that amount could have paid off
Total assets held by the big six on September 30, 2006
$9.5 trillion Total held on September 20, 2011. Rather than help curb the practice that caused the financial crisis, “the Fed and its secret financing helped America’s biggest financial firms get bigger and go on to pay employees as much as they did at the height of the housing bubble,” say Ivry, Keoun, and Kuntz
Part of the reason the richest 1 percent of Americans have captured our politics is because they are able to finance political races, issue campaigns, and lobbyists. But the other reason some of the richest Americans have been able to control our politics is because they themselves have gotten elected to positions of power at a much higher rate than the rest of us.
As Roll Call points out today, the estimated median net worth for a member of Congress in 2010 was $513,000 (this is strictly an estimate as assets are reported in ranges). Meanwhile, the Center for Economic and Policy Research’s David Rosnick points out that the net worth of the median household in the United States that same year was closer to $100,000:
For Congress, the median net worth in 2010 was about $513,000. For regular households, the Federal Reserve Board pegged that number at about $120,000 in 2008, and that number this year is probably around $100,000, [said economist David Rosnick]. While it is hard to make an exact comparison between Congress and the rest of the nation, what is clear is lawmakers “are all a lot richer than anything you would call a typical American,” Rosnick said.
The Center for Responsive Politics looked at the average wealth of members of Congress in between 2004 and 2009 (relying on estimates derived from ranges). In 2009, the average net worth of a senator $13.4 million. On the House side, it was $4.9 million:
Meanwhile, the average wealth of an American household is around a half a million dollars(dragged upwards from the median by high-wealth families). This isn’t to say that just because members of Congress tend to be much wealthier than most Americans that they necessarily will not legislate on behalf of the 99 Percent. But it is important to note that the wealth gap between Americans and their federal legislators is as wide as it is, even in a democratic system that is supposed to represent all Americans, not just the most wealthy.
There may be some merit in Governor Rick Perry’s premise that printing more money now, may cause some problems. However, the larger issue from his statement begs for answers.
I wonder what Perry was talking about when he said: “If this guy prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas.
Texas Governor Rick Perry, who entered the presidential campaign on Saturday, appeared to suggest a violent response would be warranted should Federal Reserve Chairman Ben Bernanke “print more money” between now and the election.
Speaking just now in Iowa, Perry said, “If this guy prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas.
Printing more money to play politics at this particular time in American history is almost treasonous in my opinion.” Treason is a capital offense.
The proposal by Texas Gov. Rick Perry, now officially a GOP presidential candidate, for President Obama to “put a moratorium on all regulations” seems like pure, unadulterated insanity.
That would mean no food inspections; no clean air; Wall Street repeating the same horrible things that nearly brought us to the brink of an economic disaster which was averted by a bail out. Perry wants to try no regulations at all…for a while!
Perry’s “moratorium on regulations” would mean a literal end to the rules of law in the United States. At least it would also mean that all of President George W. Bush’s midnight regulationsfavoring polluters and industry abuses would also be lifted.