Monetary policy is no magic wand. That may not have been the message the Milken Institute Global Conference wanted me to hear. I'm doubtful banks will lend to anyone but big corporates, and one another, anytime soon.
The mission of Milken is to "move capital, policy and momentum toward realistic solutions." Not one, not two, but four current Federal Reserve Bank Presidents were on the conference agenda. Unfortunately, what the four Fed Presidents said in Beverly Hills last week was less exciting than the chance of spotting one of the finance, government or media stars walking the halls of the Beverly Hilton.
Dallas Fed President
Fed fanboys asked long, drawn-out questions with obscure economic jargon. "We're in a liquidity trap" was a favorite answer to everything. A liquidity trap is a Keynesian term describing conditions where the short-term nominal interest rate is zero. Like now. When that happens, increasing money in circulation has no effect on output or prices. "The Keynesian liquidity trap is therefore only a true trap if the central bank cannot stir expectations, " says the New York Fed.
Good luck with climbing out of that trap.
San Francisco Fed President John Williams joined former Mayor of Chicago Richard Daley and business executives to talk about
Super. Check back with Williams in two years.
Fed Presidents
The articulated Fed goal is to keep inflation at around 2%, plus or minus. But Evans said economists, and their tools, are not perfect. "When you have inflationary trends developing…the power of monetary policy to correct that is not nearly as known a quantity as the power of monetary policy to bring inflation under control."
In other words, economists don't see the semi tractor-trailer coming nor can they avert the crash but once the truck hits they're pretty good at mopping up the body parts.
Fantastic.
Journalists pushed at Evans and Lockhart during the press briefing, attempting to read the tea leaves of the
Dennis Lockhart wants everyone to stick to the story line. Yes, he actually said "story line."
"The story line is the economy continues to recover at a very modest pace. …There's some fragility still so if something very strong like a sustained spike in oil prices…"
One of the journalists at the briefing queried, "What if gas goes above $4 this summer?" "Above $4 is definitely a concern," said Lockhart. "For a lot of Americans it hurts when you get above $4."
No kidding. In Chicago where Charlie Evans lives, we've had
Fed President Evans thinks more accommodation, such as injecting money into the system even if it means inflation hits 3%, will eventually start something rolling. Evans says maybe we'll get lucky. "It could be the case that things all of a sudden start picking up, uncertainty goes away, people get optimistic and the deleveraging has run its course…"
But the banking system, the distribution channel for monetary tools such as cheap liquidity to the rest of the economy, is not playing along. Over and over we heard at the Milken Institute Global Conference that there’s
The Fed may have to roto-rooter Wall Street to loosen things up.
Francine McKenna writes the blog