MEDIA COVERAGE

[Alex Pollock, Senior Fellow of the American Enterprise Institute and one of the sharpest thinkers I know, wrote a wonderful blog in the American Banker about on the Federal Reserve on May 17, 2013 that I commend to you. It’s short, sweet, and to the point. You can find it through the link below.]

Jim Bullard, the president of the Federal Reserve Bank of St. Louis has laid out an interesting argument, as reported by American Banker (“A Simple TBTF Plan from Fed’s Jim Bullard,” May 9), to determine when a bank is too big and needs to be broken up. In summary, the well-informed argument goes like this:

If a bank is…

Here is the link to the full article

[Robert Pringle, Chairman and Founder of Central Banking Publications, recently published a provocative piece on current massive interventions in the markets by the Federal Reserve and other central banks throughout the world. I recommend that you take a few minutes to read it.]

Money is too loose globally. Trouble is, there’s no obvious trigger that warns governments it is time to raise rates. Only a rise in consumer price inflation – or in inflation expectations – justifies central banks raising rates under their rickety inflation targeting regimes. Even then, governments can prevent them.

The risks and dangers for the global economy are like hidden reefs for a ship – invisible but deadly. It is quite possible, for example, that US monetary policy can cause an asset boom in China so large that its collapse would bring the Chinese economy down with it – and thus throw the world including the US into deep depression. This could happen while US retail prices held absolutely steady. There would be no pressure on the Fed to raise rates, and no justification for doing so from a short-term US perspective.

Fifth Third Bancorp Chairman William Isaac does a lot of traveling and gives a lot of speeches and presentations about the banking business during the year. It’s not typically about Fifth Third, but Isaac’s background as former chairman of the Federal Deposit Insurance Corp. puts him in high demand.

So it’s no surprise he had jetted off to Indonesia late last month to deliver the keynote address at the annual Asian Banker Summit.

Tom Hoenig, currently Vice Chairman of the FDIC who formerly served as President of the Federal Reserve Bank of Kansas City for 20 years, gave an excellent, wide-ranging policy speech at The Asian Banker Summit in Jakarta, Indonesia on April 24. I spoke at the same conference so I had the pleasure of hearing Tom’s speech in person. His speech covers fiscal, monetary and regulatory policies and I highly recommend that you take a few minutes to read it. As usual, his comments are exceptionally thoughtful and provocative. The speech can be found on the FDIC’s website through the link that follows:

Here is the link to the full article

By Lanny Davis

[Lanny Davis, a Washington attorney and founder of Lanny Davis & Associates, who is probably best known for serving as President Clinton’s special counsel from 1996-1998, wrote the the article below on President George W. Bush on the occasion of the dedication of the Bush Presidential Library at Southern Methodist University. Lanny is such a constructive force for reason and bi-partisan cooperation I reached out to get his permission to put his article on my website.]

Thursday, April 25, on the Southern Methodist University campus in Austin, Texas, four living presidents — Jimmy Carter, No. 39; George H.W. Bush, No. 41; Bill Clinton, No. 42, and Barack Obama, No. 44 — will honor one of their colleagues, George W. Bush, the 43rd president of the United States, at the dedication of his presidential library.

So I take this occasion to remind my fellow liberal Democrats, many of whom continue to attack Bush in harsh and personal terms, of three things about him that I don’t think they understand or appreciate.

The Dodd-Frank Act is “the worst financial legislation I have ever seen in my life,” and the law won’t prevent another financial crisis, asserts former FDIC Chairman William Isaac.

“If it had been around 15 years ago, it would not have prevented the last
crisis and it’s not going to prevent the next crisis,” Isaac told Newsmax TV in an exclusive interview.

Plus, the law doesn’t address concerns about financial institutions that are too big to fail, it is far too complex, and it is hurting growth, said Isaac, now chairman of Cincinnati-based Fifth Third Bank Corp. and a senior managing director of FTI Consulting.

Click here to view the full article and video of the interview

[William Dunkelberg, chief economist for the National Federation of Independent Businesses, recently wrote the blog below on the impact of the Federal Reserve’s interest rate policies. It’s short and to the point.]

Vice-Chair Janet Yellen recent told the Society of American Business Writers and Editors “Progress on reducing unemployment should take center stage for the FOMC, even if maintaining that progress might result in inflation slightly and temporarily exceeding 2 percent”, a view that appears to be shared by most if not all of our “Johnny One-Note” Board of Governors (all appointed by President Obama).

There are two important dimensions of this policy to consider. First, what evidence is there that the Fed policy of expanding its balance sheet by $2+ trillion dollars has created any jobs? Interest rates have been “0” for years now, job creation has been very weak and about what might be expected due to jobs resulting from population growth of 3 million annually. Investment spending has certainly not shown a dramatic response to these historically low rates. In simple terms, how many extra jobs has QE produced over and above what the private economy would produce with its own momentum?

The second consideration is the magnitude of the “inflation slightly and temporarily exceeding 2 percent” TAX that the Fed is willing to impose on us to get whatever extra jobs were generated, if any (one might argue that the uncertainty and distortion in resource allocation created by QE actually cost job creation, a subject that economists will try to measure empirically). Exactly what will each extra job cost consumers in terms of reduced purchasing power? Much was made of the potential impact of the restoration of the 2% FICA tax, how different is the impact of a 2%+ inflation rate? Or if 2% is supposed to be the new normal that we expect and accept, what will the “+” cost us per extra job?

Add to this the whopping penalty accruing to savers who can’t earn a decent low risk return on their money and whose bonds will take a beating when rates do rise. Those “extra jobs”, if they exits, are looking quite expensive!

As Chris Sims (“Paper Money.” American Economic Review, 103(2): 563-84) and others have noted, this is “fiscal policy” and the lines are becoming quite blurred, especially with the Fed arguing that inflating equities was one way it could stimulate spending via wealth effects and create jobs. WOW!

By Lanny Davis

[Lanny Davis served as special counsel to President Clinton from 1996-1998 and is currently a Washington attorney and principal in the firm of Lanny J. Davis & Associates. He recently wrote an article on the fiscal crisis for The Hill. I commend it to you highly.]

I have been writing this “Purple Nation” column for a long time, waiting for the “purple moment” when President Obama and Speaker John Boehner (R-Ohio) would agree on an important position on the budget and deficits. Little did I know that when it finally happened, I would be disappointed, to say the least.

“We don’t have an immediate crisis in terms of debt,” President Obama told ABC’s “Good Morning America” host George Stephanopoulos, in an interview that aired March 13. “In fact, in the next 10 years, it’s gonna be in a sustainable place.”

Then a day or so later, Boehner said he agreed with the president!

Instead of cheering this as a magic purple moment, I could only think of this metaphor, which I believe is apt: There’s a ticking time bomb in your living room. You know the bomb will certainly explode in 10 to 15 years, and you choose only to reassure your family, “There is no ‘immediate’ danger.”

That is pretty much the situation we face today. Here are a few scary facts:

Here is the link to the full article

As part of the bailout of the economy of Cyprus, European authorities have proposed to haircut both uninsured and insured depositors — just under 7 percent on insured deposits and just under 10 percent on uninsured. This decision, particularly with respect to insured depositors, is a horribly bad idea that could undermine depositor confidence in other countries. The link below takes you to an American Banker article on March 19, 2013 that considers the potential ramifications, including whether such a move could ever happen in the US.

Here is the link to the full article

[Robert Pringle is chairman of Central Banking and author of The Money Trap (Palgrave Macmillan, 2012), a book that proposes solutions to the financial crisis. Robert is a widely recognized authority on the international financial system and has written a piece on the future of the dollar as the world's reserve currency. With his permission I am reproducing it below and hope you will find it thoughtful and provocative.]

DOES THE DOLLAR HAVE A FUTURE AS A RESERVE CURRENCY?

By Robert Pringle

The US dollar can be compared to a great oak tree. Its roots stretch deep into the earth of the global economy. Many creatures find shelter under the canopy of its sturdy branches and its leaves. Like an old tree, the dollar has withstood many storms and is still standing. Yet even as a tree can be weakened by decay, drought, and disease, so is the dollar vulnerable to attack from within and without. Right now, it is suffering from harsh conditions and the question must be how long it can weather them.

It is important to remind ourselves first of the dollar’s strengths before turning to consider the doubts about its future.