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Fed chief says regulators' proposal for implementing capital accord is not intended to be a 'one-size-fits-all' approach.
September 13 -
The Federal Reserve announced an indefinite round of quantitative easing in hopes of improving the stagnant economy. Some feel the move may help the lagging job market, while others feel it illustrates Einstein's definition of insanity.
September 13 -
The Fed unveiled on Thursday a new publication and website aimed at community bankers, including a question and answer session with Chairman Ben Bernanke on the challenges facing smaller institutions.
September 6
For years, Federal Reserve chairman Ben Bernanke has been bashed from both the left and the right for his 0% interest rate policy. The criticism
I believe years of
The standard monetary model tells us that when the Fed cuts rates, the result is growth and, later, inflation. Then the Fed fights inflation by raising rates and causing a contraction. It rinses and repeats every decade or so. But something is broken in the economic model. Banks these days are looking for reasons not to lend money. And this creates curious dichotomies. Banks complain they shouldn't bother to lend if the interest they earn on loans is miniscule. And lend to who, they ask – to borrowers who are already overleveraged? Banks do have a point. The risk-reward simply doesn't look good.
Added to this, in the more partisan quarters, is the sentiment that "inflation is coming." I can see where inflation hawks are coming from: They think the system is awash with free cash. It may be, but that cash is not exactly in consumers' pockets. It's, as a result of rounds of quantitative easing, on banks' balance sheets. This is where the model starts to break down: It wasn't designed to consider who holds the cash. It always assumed the consumers did.
Additionally, the model did not factor in the overleveraged consumer or the massive overhang of household debt. So, for several years now, Wall Street, which for whatever reason (wishful thinking, perhaps?) didn't adjust its models, has been all but frozen in anticipation, breathlessly awaiting inflation. Many
In the meantime, both politicians and Wall Street are bashing Bernanke, who, by cutting rates, simply follows the book. (Although I'm sure he is aware of that model's breakdown). So when inflation didn't come in 2009 and then didn't come in 2010 and still didn't come in 2012, it caused some
When oil prices rose this past summer from $80 a barrel to nearly a $100, it was hardly due to the fact that more people began driving to work, as many inflation hawks would like to believe. More likely, the demand came from hedge funds that, for the lack of yield everywhere else, had now turned to commodities. This kind of demand can hardly qualify as a sign of the economy overheating.
Bernanke was right when he ploughed through with more rate cuts, ignoring the apocalyptic forecasts. Maybe that explains the calls to audit the Fed – many think Bernanke is hiding something. Bernanke, I'm sure, would like for some bona fide, consumer demand-driven inflation to appear, because that would indicate that the economy is back on its feet and moving along. But inflation – something conservatives, ironically, also need to bash the current administration with – has been
Meanwhile, inflation hawks are looking to cure us from the disease we don't have.
Katya Grishakova left the financial industry after spending more than a decade at various Wall Street firms. She is now a board member of ACT NOW, a New York progressive organization.