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Benjamin · 14-01-2009, 20:02

Bernanke, Philadelphia Fed's Plosser differ publicly on new policy

Jan. 14, 2009

Philadelphia Fed Bank president Charles Plosser publicly took issue with positions advocated by Fed chief Ben Bernanke.
Plosser urged the Fed to "proceed with caution" with the new policy.
On Monday, Bernanke signaled that it was full speed ahead - with existing programs needing additional resources and new ones in the works to stabilize the financial system.

The Fed has expanded its balance sheet from $900 billion to well over $2 trillion in its efforts to restore the credit markets to health.

Bernanke has argued that focusing on the size of the balance sheet misses the point, arguing the Fed's various asset purchase programs are not easily summarized in a single number.
But Plosser said that the growth of the Fed's balance sheet was a key metric.
"It is not appropriate to ignore quantitative metrics in this new policy environment," Plosser said.
"The size of the balance sheet does offer a possible nominal anchor for monitoring the volume of our liquidity provisions," Plosser said.

Fed officials who pay attention to the money supply believe that the Fed's current policy of printing money never ends well and the danger of inflation is very high. They believe the Fed must withdraw the stimulus before there is any sign of inflation or it is too late.
Bernanke wants the flexibility to take his time.
William Poole, who recently left his post as president of the St. Louis Fed, says it is crucial that the Fed set a target for cutting its balance sheet.
Poole said the expansion of the Fed's balance sheet is unprecedented and research suggests that a surge of inflation is sure to follow.
"I would say if the policy is not reversed, there is a high probability that the unpleasant risk (of inflation) materializes," Poole said in an interview.
"I believe that the Fed should set a hard number - a target that they take seriously for the overall size of the balance sheet," he said.
Plosser also argued that the Fed has put its independence at risk by buying long-term assets. He worried that some "interest groups" will try to use political persuasion to stop the Fed from selling these longer-term assets even if the central bank has decided it makes sense.
"We will need to have the political fortitude to make some difficult decisions about when our policies must be reversed or unwound," Plosser said.
Bernanke said that he would watch this situation closely but didn't expect it to be a "significant problem."
Poole said he was very concerned that the Fed could simply lend money to anyone, without constraint.
In the Soviet Union and Eastern Europe during the Cold War era, economies were inefficient because they had a soft-budget constraint. If a firm got into trouble, the banking system would give them more money, Poole said.
The current situation at the Fed seems eerily similar, he said.
"What is discipline - where are the hard choices - when does Fed say our resources are exhausted?" Poole asked.

Siehe dazu auch die Charts in Beitag 49: https://www.traderboersenboard.de/for...221#post347221

14-01-2009, 20:02	#121
Benjamin TBB Family Registriert seit: Mar 2004 Beiträge: 10.374	Bernanke, Philadelphia Fed's Plosser differ publicly on new policy Jan. 14, 2009 Philadelphia Fed Bank president Charles Plosser publicly took issue with positions advocated by Fed chief Ben Bernanke. Plosser urged the Fed to "proceed with caution" with the new policy. On Monday, Bernanke signaled that it was full speed ahead - with existing programs needing additional resources and new ones in the works to stabilize the financial system. The Fed has expanded its balance sheet from $900 billion to well over $2 trillion in its efforts to restore the credit markets to health. Bernanke has argued that focusing on the size of the balance sheet misses the point, arguing the Fed's various asset purchase programs are not easily summarized in a single number. But Plosser said that the growth of the Fed's balance sheet was a key metric. "It is not appropriate to ignore quantitative metrics in this new policy environment," Plosser said. "The size of the balance sheet does offer a possible nominal anchor for monitoring the volume of our liquidity provisions," Plosser said. Fed officials who pay attention to the money supply believe that the Fed's current policy of printing money never ends well and the danger of inflation is very high. They believe the Fed must withdraw the stimulus before there is any sign of inflation or it is too late. Bernanke wants the flexibility to take his time. William Poole, who recently left his post as president of the St. Louis Fed, says it is crucial that the Fed set a target for cutting its balance sheet. Poole said the expansion of the Fed's balance sheet is unprecedented and research suggests that a surge of inflation is sure to follow. "I would say if the policy is not reversed, there is a high probability that the unpleasant risk (of inflation) materializes," Poole said in an interview. "I believe that the Fed should set a hard number - a target that they take seriously for the overall size of the balance sheet," he said. Plosser also argued that the Fed has put its independence at risk by buying long-term assets. He worried that some "interest groups" will try to use political persuasion to stop the Fed from selling these longer-term assets even if the central bank has decided it makes sense. "We will need to have the political fortitude to make some difficult decisions about when our policies must be reversed or unwound," Plosser said. Bernanke said that he would watch this situation closely but didn't expect it to be a "significant problem." Poole said he was very concerned that the Fed could simply lend money to anyone, without constraint. In the Soviet Union and Eastern Europe during the Cold War era, economies were inefficient because they had a soft-budget constraint. If a firm got into trouble, the banking system would give them more money, Poole said. The current situation at the Fed seems eerily similar, he said. "What is discipline - where are the hard choices - when does Fed say our resources are exhausted?" Poole asked. Siehe dazu auch die Charts in Beitag 49: https://www.traderboersenboard.de/for...221#post347221 Geändert von Benjamin (14-01-2009 um 20:14 Uhr)