Fiscal Times: The National Debt is a Bigger Problem Than You Think…

Today, The Fiscal Times published my opinion piece on U.S. Treasury debt.  Key ideas include:

– The debt situation is worse than commonly realized – when evaluated back to 1946.
– Fortunately, a few debt management policy tweaks can yield great benefit with limited costs.
– It’s our debt.  It’s our problem.  Let’s fix it.

To view the full article:
http://www.thefiscaltimes.com/Columns/2017/06/07/National-Debt-Bigger-Problem-You-Think

Allan Meltzer

It is with sadness that Center for Financial Stability (CFS) mourns the passing of internationally renowned economist and Carnegie Mellon Professor Allan Meltzer.  Author of more than 10 books and 400 papers, he was one of the leading experts on the Federal Reserve.

Allan was a brilliant economist with contributions of historic importance.  He moved through life with the highest level of integrity and tenacity.  Allan was an economic intellectual with a remarkable ability to get along with economists having diverse views.  He and Karl Brunner were the founders of the Shadow Open Market Committee, which often disagreed with Federal Reserve policy.  Nevertheless, Allan was greatly liked at the Fed and was regularly invited to serve on the semiannual Panel of Academic Advisers, who met in the Board Room with the Governors.  The Federal Reserve’s initial decision to start providing monetary aggregates to the public long ago was based upon advocacy by Allan at the St. Louis Federal Reserve Bank.

Over decades, he influenced many CFS experts, colleagues, and friends.  Since the launch of CFS, Allan often took the time to voluntarily provide feedback or be involved in issues stretching from the Bretton Woods institutions, bank capital, Fed policy, to CFS Divisia monetary measures.  Allan was very familiar with the CFS Divisia monetary aggregates.  Soon after CFS Director William A. Barnett originated the Divisia money aggregates and presented his research in Tokyo, Allan served as a consultant to the Bank of Japan to produce and maintain Divisia monetary measures for Japan.

CFS thanks Allan for his meaningful and longstanding contributions.

Response to WSJ Comments…”What’s Money?”

Thank you for your interest in my letter highlighting how determinants of inflation can be better understood.  To clarify, two types of money exist ‘state money’ produced by the Fed and ‘bank money’ created by the private sector.  Bank money drives growth. Today, bank money includes the service value of traditional commercial bank products such as deposits as well as shadow banking services such as commercial paper, money market funds, and repurchase agreements. In fact, what constitutes money may change over time as new financial products are introduced.

So, it is essential that the Fed, economists, and market participants measure and monitor both state and bank money.  CFS Divisia accomplishes this feat by identifying assets that serve as money.  Importantly, not all of these monetary assets provide equal amounts of service as money to the economy.

Bill Barnett uses the example of measuring the service value of transportation.  Would a pair of roller skates and a locomotive provide equal value to the economy?  No.  So, CFS Divisia derives weights that vary over time.

For the theory, history and math behind CFS Divisia, please see Bill’s book Getting It Wronghttp://www.centerforfinancialstability.org/getting_wrong.php

For a practical application of CFS Divisia see http://centerforfinancialstability.org/research/why_cfs_divisia_071316.pdf

WSJ: What’s Money?

The Wall Street Journal weekend edition printed my letter highlighting how determinants of inflation can be better understood.

CFS Divisia money growth warned about rising inflation and clearly explained why it was low coincident with QE.

To be clear, CFS Divisia money monitors the output of the financial system and its role in the monetary transmission mechanism.  It is an essential barometer of the economy, whether one is a market practitioner, Keynesian, or monetarist.

Read the full letter – It May Make the World Go Round, but What’s Money

An Interview with William A. Barnett

CFS Director William A. Barnett is interviewed by Apostolos Serletis.  The conversation covers Bill’s life as a rocket scientist, work at the Federal Reserve Board, pioneer of monetary aggregation and complex dynamics, founding journals and societies, work at CFS, and more.

The interview is similar in construct to discussions with eminent economists in Bill’s book co-edited with Nobel Laureate Paul Samuelson – “Inside the Economist’s Mind.”

To view the full interview:
http://centerforfinancialstability.org/research/Barnett_Interview.pdf

I hope that you find the exchange about Bill and his remarkable career informative and enjoyable.

Bank of England conference in honor of William A. Barnett – Call for papers extended

We are delighted to announce a conference in honor of CFS Director William A. Barnett at the Bank of England on May 23 – 24, 2017.

The call for papers has been extended to March 15, 2017.

Liquidity plays a pivotal role in financial markets, the banking sector, and the economy as a whole. Since the 2008-09 financial crisis, it has become increasingly necessary to understand the creation, dissemination, measurement and management of liquidity.

This conference seeks and invites proposals to understand and assess the macroeconomic implications of liquidity, the liquidity creation process, and the impacts of liquidity on financial markets and economic activity. Theoretical, empirical, quantitative, qualitative, institutional, and historical perspectives that address current theory and policy questions are welcome.

For details to attend the conference or submit papers:
www.centerforfinancialstability.org/events/BoE_Barnett_conference_021417.pdf

Similarly, excellent peer reviewed papers will be considered for a special issue of the Journal of Financial Stability.

Today’s WSJ: ‘Focusing on Bank Size, Missing the Real Problem’…

Today, The Wall Street Journal published an op-ed titled “Focusing on Bank Size, Missing the Real Problem.”

CFS Board Member and former Treasury Under Secretary Randal Quarles and I note how:

The new president of the Minneapolis Federal Reserve Bank, Neel Kashkari, along with Bernie Sanders, Elizabeth Warren, and Sherrod Brown believe that breaking up “too big to fail” institutions or turning them into regulated utilities is the only way the country can be confident that the 2008 bailouts won’t be repeated.

This proposal is misguided.

We offer three solutions:

– Facilitate orderly liquidation of failing or failed banks.
– Adopt a monetary policy rule to reduce the incentive for banks to take dangerous risks.
– Fully measure and evaluate the impact of Dodd-Frank before arbitrarily taking an ax to big banks and irreparably damaging the economy.

View the full article.

Pulling Away Punch Bowls

Ike Brannon – from Capital Policy Analytics – wrote a review for the Weekly Standard of the recent CFS publication Wall Street, the Federal Reserve and Stock Market Speculation: A Retrospective by Elmus Wicker.

To read the review, click here:http://www.weeklystandard.com/pulling-away-punch-bowls/article/2000251

To read the monograph, click here:http://centerforfinancialstability.org/books/WickerWallStreet20151202.pdf

Release – Wall Street, the Federal Reserve and Stock Market Speculation: A Retrospective

Today, the Center for Financial Stability (CFS) is delighted to release Wall Street, the Federal Reserve and Stock Market Speculation: A Retrospective — a new monograph written by Professor Elmus Wicker.

Professor Wicker’s ideas about the Federal Reserve and financial markets are of special interest now, as:

– The Federal Reserve is poised to raise its policy interest rate for the first time since the onset of the Great Recession; and

– Central banks around the world are on the verge of gaining new macroprudential powers.

Wall Street, the Federal Reserve and Stock Market Speculation: A Retrospective provides historical insights on the interplay between the stock market and the Federal Reserve as well as fodder for further study and debate.

We thank Jordan Wicker, Ike Brannon, and Kurt Schuler for help in bringing the manuscript to print.

For the full monograph in electronic format:
http://centerforfinancialstability.org/books/WickerWallStreet20151202.pdf

WSJ / Trump on Yuan and Hacking…

Today “The Wall Street Journal” published a letter “Trump’s Right on Hacking, Wrong on Yuan” by Kevin Brock (CFS senior fellow / cybersecurity strategy) and me on page A18.

Donald Trump’s “Ending China’s Currency Manipulation” (op-ed, Nov. 10) mistakenly conflates cyberbreaches and currency manipulation.

View the full letter.

Sincerely yours,
Lawrence Goodman

President
Center for Financial Stability, Inc.
1120 Avenue of the Americas, 4th floor
New York, NY 10036
lgoodman@the-cfs.org