Monday, March 22, 2010

St. Louis Fed's Bullard on "Exit Strategy"

CNBC interviewed St. Louis Fed President Bullard this morning. This is the video below. It's a bit of a long clip, so if you are interested only in his comments with respect to exiting the "Quantitative Easing" aka Credit Easing, fast forward to the 11:00 mark.

There is a massive preoccupation in the financial media with this so called "exit strategy". The Fed is of late very accommodating in addressing these concerns.



6 comments:

Mike Sandifer said...

I am so tired of these Fed people acting as if there really is a zero bound problem. What prevents them from offer the banks negative interest rates? Instead, the Fed vastly expands the monetary base, but then starts paying interest on reserves. What kind of stupid policy is this?

Listen to this guy talk about a slow recovery, while talking about shrinking the Fed's balance sheet at the same time. Does he not see the relationship?

This whole crisis was preventable if the Fed had kept nGDP constant. I'm tired of these incompetents.

Matt Franko said...

Mike S,

Remember it is the banks capital and the existence of credit worthy deals that drive bank lending; "gets the banks lending again".

I was a bit pleasantly surprised that no one mentioned "lending out the reserves" but just focused on the "size of the balance sheet" in this clip. I think this is a small victory for MMT. Even at the Fed top three (Bernanke/Dudley/Sack) they have stopped using the phrase "lending out the reserves", but now (almost as bad) they are still focusing on the "size of the balance sheet",

Yes, he is ready to move on. The press is hounding them on this "exit strategy".

Gallup just today reported that they have "under employment" now at 20%+, and we have to hear about an "exit stratgey". Yes its time to just move on, exit, who cares about the unemployed....SICK!

I'm not saying this is going to happen here; but IF they stop these MBS purchases here at the end of march and then risk assets start to go down again, Tbonds up; monetarism/monetary policy will have been proven to be a gigantic fraud. Then we'll have to get them to admit it! Resp,

TomatoBasil said...

There were two guys sitting in a bar and one was a fed president and the other a senator on the finance and banking committee. The senator asks the president who was responsible?
The unregulated shadow banks comprised of non-bank banks caused the problems. Lehman Brothers or Bear! The fed's own reports showing exponential curves of consumer debt growth with only linear income growth for more than a decade are the sort of decisions based on "data" that Bullard kept talking about aren't they? No mention of the exponential curve of financial debt in the latter years before the crash. The guys that are supposed to create the rules, regulations, and monetary policy are complaining about the regulations and policies they set. I don't believe these guys have the capacity to create a system that will grow the prosperity of the nation if they don't understand their own powers.

Matt Franko said...

TB,

Thanks, I almost forgot that a US Senator was sitting there!

Yes, Bullard says they will be data dependent.

I think Warren Mosler has posited that what they will do is just conveniently re-define full employment level to 7% or something from previous levels of around 4% unemployment. Justifying their rate increases with unemployment still at (to me) unacceptably high levels.

Resp,

googleheim said...

Matt,

Are rate hikes coming ?

please indicate.

Matt Franko said...

Goog,
Of course it is my conjecture, but I dont think so, not any time soon.

Just to look at Bullards comments here, he says LIFO (last in first out) meaning that the last thing they did was Credit Easing (QE) so to him, they should let some of the balance sheet (QE)run off first a while before they raise Fed funds Rate.

The big thing for me now to look at is what happens next month when they stop the QE MBS purchases. This has to have had a major impact on MBS prices directly and other financial asset prices generally. They have been buying about $100B a month average for 15 months.

When Mike used to analyze the effect of institutional buying in the commodities market, I think the numbers were like the "investors" put in (just like the Fed here: "long only") about 500B but over maybe a 5-7 year period and commodity prices skyrocketed. the Fed has put 1.5T in over about 15 months.

I think the Fed believes that things have stabilized and the system should be able to function without this market/price support mechanism....at least that is what they are saying.