Should Jerome Powell wear a clown nose? - Printable Version
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+--- Thread: Should Jerome Powell wear a clown nose? (/thread-19579.html)
Should Jerome Powell wear a clown nose? - OutsiderFan - 04-29-2020
Seriously, Fed Chairman Jerome Powell just upended the foundational principal of economics, supply and demand.
He said, and I can't even believe this, that we have a "limitless" pot of money. If it is limitless, by definition, there is no reason everyone can't have as much as they want. I guess money is like oil now. There is so much supply it has no value. This while announcing a $500 Billion direct lending facility to corporations! They don't even make them go to banks for their money now. Apple can just go to the Fed and ask it to print as much money as it wants now!
When do we start getting paid in gold coins and IOUs for them?
RE: Should Jerome Powell wear a clown nose? - BostonCard - 04-29-2020
Monetary policy is starting to stray away from the purpose of this board. It's obviously not completely unrelated to COVID-19, but we are a couple of steps removed.
BC
RE: Should Jerome Powell wear a clown nose? - OutsiderFan - 04-29-2020
(04-29-2020, 01:23 PM)BostonCard Wrote: Monetary policy is starting to stray away from the purpose of this board. It's obviously not completely unrelated to COVID-19, but we are a couple of steps removed.
BC
I don't know, our money becoming worthless seems like something that warrants discussion, even as a tangential impact of Covid-19.
RE: Should Jerome Powell wear a clown nose? - stupac2 - 04-29-2020
Without context it's hard to know what he was getting at, but our monetary supply really is limitless in principle, the fed can print as much of it as they want. The constraints are in practice, with inflation being the main problem of a monetary supply that's too large.
Of course, you can go the other way too, and have a monetary supply that's too small. I think that right now the risk is all on the "too small" side, but the best tools for the fed to pump money into the economy aren't strictly speaking legal*, so we'll see what they do.
*I say strictly speaking because at least one of the fed's recent moves was likely illegal, according to what I've read, but the fudged it and it seems no one cares.
RE: Should Jerome Powell wear a clown nose? - BostonCard - 04-29-2020
Not saying that it's not important or that it doesn't merit discussion, just that it is at best tangential to the COVID-19 discussion. To wit, your original post did not mention COVID-19 at all.
BC
RE: Should Jerome Powell wear a clown nose? - Snorlax94 - 04-29-2020
While I think this discussion runs a minor risk because people can have heated opinions about monetary policy just like politics, so far, I think it's reasonably on-topic, because it relates to the government response to the crisis.
Yes, Jerome Powell's statement, if he said that, is not literally true, but it covers a concept that is sort of true -- that the United States, because it repays its debts in dollars and because of the US's unique position in the world, has within the reasonable domain of actions, an "unlimited" ability to take actions like these -- buying bonds, buying corporate debt, providing free loans.
To the extent as it relates to the current situation, I have mixed feelings. The Fed has emerged as the key player during the last few economic crises because they can take rapid, unilateral action that is supposedly not politically-based or biased.
However, one of the frustrations is that they have a near unlimited ability to help certain businesses and certain industries -- financial companies and firms that use the financial markets in some way end up being saved more. It can create the wrong long-term incentives -- as businesses "know" that their business conduct (like taking on unreasonable amounts of debt while buying back shares) is risky and inappropriate, they may keep doing it knowing that the Fed will bail them out. At least during the financial crisis of 2008, they let a few banks fail (investment and commercial) and let the stockholders get wiped out, as a warning.
So, in the short run, I am supportive of the Fed taking quick action and would give them good leeway. As a taxpayer and voter, I want this to be the last time. When the dust settles, Congress should pass laws to make things more fair. One thought off the top of my head -- they could require, in the future, if the Fed buys up corporate bonds to save companies, they could require the companies to issue options to the Fed. It helps the Fed act rapidly in future crises to stop an economic meltdown, but it dilutes upside so in a way that punishes inappropriately risky behavior, but it doesn't punish them *immediately* (which helps the economy recover), and it could also generate some bucks for the government.
RE: Should Jerome Powell wear a clown nose? - Mick - 04-29-2020
(04-29-2020, 01:07 PM)OutsiderFan Wrote: Seriously, Fed Chairman Jerome Powell just upended the foundational principal of economics, supply and demand.
He said, and I can't even believe this, that we have a "limitless" pot of money. If it is limitless, by definition, there is no reason everyone can't have as much as they want. I guess money is like oil now. There is so much supply it has no value. This while announcing a $500 Billion direct lending facility to corporations! They don't even make them go to banks for their money now. Apple can just go to the Fed and ask it to print as much money as it wants now!
When do we start getting paid in gold coins and IOUs for them?
Might be the beginning of the end. Or, just possibly, Jay (he doesn't go by Jerome) meant:
1) Technically, we can print as much money as we want.
2) We're facing a terrible COVID-19 pandemic, which has upended society and we need to respond.
3) In extraordinary times we need to take extraordinary measures.
4) We will print as much money as we need (versus as much as we want) to address the short term problem.
5) Normally printing money is inflationary, but these economic circumstances are likely to be deflationary, particularly giving the steady stream of layoffs which should be announced at 30 million cumulatively over six weeks and may reach double that.
6) Commercial banks are insufficient to the lending task, and we need to supersede their lending authority, hence we may allow businesses to borrow directly from the Fed.
7) To reiterate, this situation is temporary, and as soon as the American economy restarts, we will take measures to combat inflation/deflation as necessary.
8) OutsiderFan will be provided enough money to buy his own island.
Seven of those eight, in all likelihood, is what Mr. Powell intends.
Incidentally, I don't really think of Mr. Powell as a clown nose. Princeton undergrad, Georgetown Law, in Finance since 1984, rocketed up through the ranks, was George H. W.'s SecTreas for Domestic Finance, member of Board of Fed Govs since 2012. Ultimately had oversight over "too big to fail" banks, so his monetary policy isn't really a surprise. He has faced sustained and repeated criticism from Trump, which should be good enough on this board for his canonization. He told Maxine Waters that Trump could get stuffed if Trump wanted him gone. I like the guy.