Showing posts with the label Federal Reserve System

Brexit: Now What?

Now that a little time has passed,  we can review the Brexit vote with more perspective and forecast its impact on the US financial system more objectively. To do so, we believe it important to consider the following: Brexit's main short term impact will be to restrict the ability of the Fed to respond to domestic economic and financial issues, already evident in their decision to keep rates low. Further, the Fed may have to create a special QE Brexit liquidity facility to support American firms in the UK who now need to move operations either back to the US or to the Continent. Finally, having announced at the House Financial Services Committee Monetary Policy Hearing this week a November conference to examine black unemployment, we predict this effort will be placed on hold as the Fed struggles to deal with the uncertainty that follows the Brexit vote. Uncertainty is, of course, the greatest legacy of Brexit. Consider this: each and every contract signed in the UK when the UK was p…

An unprecedented move by the FED

In an unprecedented move, the Federal Reserve tied monetary policy to a specific social metric, an unemployment rate of 6.5%. Given stubbornly high unemployment levels, this new monetary policy target is entirely appropriate. Looks like its working.

Mr. Bernanke appears to be willing to risk his reputation as an inflation fighter in order to lower the unemployment rate. I think the Bernanke Gambit is good news for the unemployed and good news for the country as a whole.

Bernanke signaled that bondholders would no longer dominate monetary policy considerations. This is for their own good, since they will benefit, over the long term, from a fairer and more stable economy.

The majority of American citizens are bond sellers, not bondholders. In a downturn, government spending, required in order to get the economy out of a recession, is financed through the creation, by fiat, of new money. The resulting increase in the quantity of money gives rise to inflation, assuming the quantity of goods …