Tag: Federal Reserve

Extraordinary Demand to Hold Cash—The Mystery Persists »

Since the fall of 2008, the Federal Reserve System has pumped an almost incomprehensibly large amount of reserves into the commercial banking system—about $1.4 trillion. In normal circumstances, this action would have given rise to hyperinflation. Of course, not only has no hyperinflation occurred, but scarcely any inflation at all has occurred, and policy...
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The Engine of Economic Growth Is Running, but Hardly at High Speed »

Real private fixed investment—the main driver of genuine economic growth—has recovered less than half of its loss between 2006 and 2010. As of the second quarter of this year, the amount of real private fixed (i.e., not including inventory) investment had barely recovered enough to exceed the low point it hit during the dot.com...
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QE3: An Example of Regulatory Capture »

One of Nobel Laureate George Stigler’s best-known articles is his “The Theory of Economic Regulation,” in which he argues that over time, regulatory agencies that are designed to regulate industries for the public interest become “captured” by the industries they are supposed to regulate. Stigler’s “capture theory of regulation” concludes that regulators end up...
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GM, QE3, and Crony Capitalism »

Yesterday on The Beacon I noted that the Federal Reserve’s new “quantitative easing” measure, QE3, is an example of crony capitalism: the use of public policy to increase the profitability of specific firms and industries. Today I want to compare QE3 with another example of crony capitalism to reinforce the point. General Motors provides...
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The Fed’s New Foray Into Crony Capitalism »

I’ve been teaching economics for decades, and until 2008 I taught my students that the Federal Reserve Bank (Fed) engages in monetary policy through open market operations by buying and selling government securities. (They have other policy tools too.) They dealt in government securities partly because their operations would alter the money supply without...
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Boom and Bust Banking—Causes and Cures »

The twenty-first century opened with optimism, as first the technology sector and then the housing sector boomed. But then came the financial crisis and the Great Recession—the worst economic malaise since the 1930s. Why, after several decades of economic stability, did the business cycle return with such force? Most attempts to answer this question...
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The Fading Promise of the Euro »

When the euro was created in 1999 the new currency promised to facilitate trade within the euro zone, to further unify Europe, and to challenge the dollar as the world’s reserve currency. The common currency does facilitate trade, but the differing goals of the member countries seem to be creating more divisiveness than unity...
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What’s a Geezer to Do? »

In 1968, I went to work as a faculty member at the University of Washington. Two years later, I noticed that a large deduction had been made to my monthly pay, and I inquired about it. I discovered that it was my personal contribution to a retirement plan. Because I had no recollection of...
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Anna Jacobson Schwartz (November 11, 1915–June 21, 2012) »

Anna Schwartz was one of the best economic historians of the past century. With Milton Friedman, she wrote (among many other works) that century’s most influential economic history book, A Monetary History of the United States, 1867-1960 (1963). Although not an economic theorist of Friedman’s caliber, she was a fine economist in her own...
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Krugman’s Mythology of U.S. Banking History »

Do the banking panics of the late 19th century prove that a safe and sound financial system requires government oversight of banks? Paul Krugman (and most every pundit) seems to think so. In his New York Times column of May 13, he writes: “Current right-wing mythology has it that bad banking is always the...
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