Posts filed under “Think Tank”

The Fed’s Kohn on exit strategies/Does Vegas have odds?

Vice Chairman of the Fed Kohn in a speech titled ‘Central Bank Exit Policies,’ is laying out the ‘conditions for exit,’ ‘the tools for exit,’ and the ‘communication about exit.’ In contrast to comments from Warsh and Plosser about having to raise rates as quickly as they cut, Kohn is saying “I can’t predict how rapidly we will have to raise short term interest rates…that depends on how the economy seems to be recovering and the outlook for inflation.” He laid out the different options they have to reverse their easy policies and said they “will need to explain especially carefully…the evolution of our assessment of the economic situation.” He summed up by saying that due to a large output gap, subdued inflation and continued credit constraints, “exceptionally low rates are likely warranted for an extended period” and removal of policy accommodation “will be challenging.”

Bottom line, the vagueness in the comments are apparent in terms of WHEN as the Fed truly has no idea and is in ‘play it by ear’ mode which means reliance on their forecasts and judgment. Threading the needle is the easy cliché to describe what the Fed will need to do and I wish Vegas had odds to measure expectations of the possible outcomes. I’m a seller of any scenario that turns out to be smooth.

Category: MacroNotes

Chicago PMI

The Sept Chicago PMI was much weaker than expected and back below 50 at 46.1. Expectations were 52 vs 50 in Aug. Maybe call it the Clunker hangover as New Orders fell 6 points to 46.3, a 3 month low and Order Backlogs fell 9 points to 36.7. Employment was little changed at 38.8. Inventories…Read More

Category: MacroNotes


ADP said the private sector shed 254k jobs in Sept, 54k more than expected but it’s down from a loss of 298k in Aug and is the smallest decline since July ’08. Again, most of the cutbacks were in small and medium sized companies and also in the goods producing sector as manufacturing shed 74k…Read More

Category: MacroNotes

More jawboning on the US$

Add the President of the World Bank, Robert Zoellick to the calls over the past few days of a desire for a strong dollar as he is saying the US “can and should have a strong dollar.” The dollar has been benefiting for the past two days from the vocal support given to the US…Read More

Category: MacroNotes

Consumer Confidence – The future looks bright, but…

Consumer Confidence at 53.1 is below the estimate of 57 and down from 54.5 in Aug. It is well off the low of 25.3 in Feb ’09 but the improvement seen is almost all in Expectations. Present Situations (how people feel today as opposed to their belief about the future) fell almost 3 pts to…Read More

Category: MacroNotes

S&P/Case-Shiller Home Price Index

The July S&P/Case-Shiller 20 city Home Price Index said prices fell 13.3% y/o/y, less than the expected decline of 14.2%. It is the smallest decline since Feb ’08 and it takes the index to the highest since Jan ’09 as it rose 1.61% m/o/m. At 144.23, it is down 30% from the all time high…Read More

Category: MacroNotes

How Well Has The Federal Reserve Performed for America?

Washington’s Blog strives to provide real-time, well-researched and actionable information. George – the head writer at Washington’s Blog – is a busy professional and a former adjunct professor.


How well has the Federal Reserve performed for America? Mainstream pundits, of course, say that Bernanke has saved the world . . . . but they said the same thing about Greenspan. So let’s look at the actual historical record to determine how well the Fed has done.

Initially, Milton Friedman and Ben Bernanke have both said that the Federal Reserve caused (or at least failed to cure) the Great Depression through its poor monetary policy.

Many also blame the Fed for blowing an unsustainable bubble between 2001-2007 through artificially low interest rates. If this sounds too much like an Austrian economics perspective, that may be true. But remember that Hayek won the Nobel prize in 1974 partly for arguing that artificially low interest rates lead to the misallocation of capital and to bubbles, which in turn lead to busts.

Moreover, one of the Fed’s main justification has been that it can provide a “counter-cyclical” balance. In other words, during boom times it can put on the brakes (“take the punch bowl away right as the party gets started”), and during busts it can get things moving again. But as economist Jane D’Arista has shown, the Fed has failed miserably at that task:

Jane D’Arista, a reform-minded economist and retired professor with a deep conceptual understanding of money and credit [has a] devastating critique of the central bank. The Federal Reserve, she explains, has failed in its most essential function: to serve as the balance wheel that keeps economic cycles from going too far. It is supposed to be a moderating force in American capitalism on the upside and on the downside, the role popularly described as “leaning against the wind.” By applying its leverage on the available supply of credit, the Fed can slow down a boom that is dangerously overwrought or, likewise, stimulate the economy if it is sinking into recession. The Fed’s job, a former chairman once joked, is “to take away the punch bowl just when the party gets going.” Economists know this function as “counter-cyclical policy.”

The Fed not only lost control, D’Arista asserts, but its policy actions have unintentionally become “pro-cyclical”–encouraging financial excesses instead of countering the extremes. “The pattern that has developed over the last two decades,” she wrote in 2008, “suggests that relying on changes in interest rates as the primary tool of monetary policy can set off pro-cyclical foreign capital flows that tend to reverse the intended result of the action taken. As a result, monetary policy can no longer reliably perform its counter-cyclical function–its raison d’être–and its attempts to do so may exacerbate instability.”…

The Fed is also supposed to act as a regulator for banks and their affiliates, but failed miserably in that role as well.

Indeed, the central bankers’ central banker – BIS – has itself slammed the Fed:

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Category: Think Tank

Does M&A activity follow or lead stock market action?

With yesterday’s roaring stock market rally on the heels of the deal announcements, the action begs the question, is M&A activity a precursor to a good market or does it follow an already buoyant one. I believe its the latter but a good market can last a while as can the M&A deals, particularly strategic…Read More

Category: MacroNotes

A Week of Talk, Not Action

Good Evening: After wobbling a bit last week in the wake of the FOMC meeting, U.S. stocks sharply rallied today. Wednesday’s FOMC communiqué was light on the exit strategy hints some market participants had feared prior to the meeting, so investors decided to bid share prices higher almost as soon as the Fed’s statement hit…Read More

Category: Markets, Think Tank


Bill Dunkelberg is currently a professor of economics at Temple University where he served as dean of the School of Business from 1987-95. Prior appointments were at Purdue, Stanford and the University of Michigan. He has served as the Chief Economist for the National Federation of Independent Business for 35 years, is the Chairman of Liberty Bell Bank (NJ) and Economic Strategist for Boenning & Scattergood (1914, Philadelphia).


The debate over health care “reform” has been confusing indeed and its meaning seems to have eluded even those who are attempting to write the legislation that is supposed to “reform” the system. For some, this is about efficiency, delivering the same or more health care at a lower cost. For others, it is about “redistribution”, giving access to the “poor”, funded by taxpayers. And some are concerned about “fairness”, desiring all people to have access to health care, regardless of their health (and have this access funded regardless of the cost, thus protecting families from dreaded medical bills that result in financial ruin). Most recently, the debate has focused on “insurance”, guaranteeing insurance to everyone regardless of cost, rather than on “efficiency”, reducing the cost of delivering the current level of care. Failing to distinguish clearly among these objectives is responsible for much of the turmoil surrounding the issue.

The goal of adding “47 million” alleged uninsured to the health care market while lowering costs appears logically impossible to achieve (without reducing the level of medical care received by currently insured individuals). Resources are limited and it takes a decade to increase the supply of doctors. On the day of Census measurement, there may have been 47 million who told the Census they were uninsured. But far fewer are uninsured for long periods of time (they get jobs). Roughly 10 million of these people are non-citizens, and taxpayers should be able to decide how much if any care they wish to provide to this group. Another 9 million are covered by Medicaid, but haven’t signed up because they haven’t accessed the medical care system (or may not view this as insurance). When they do, they are covered. Similarly, about 4 million “uninsured” children are covered under SCHIPS, but have not been enrolled. About 10 million are from families making enough money to buy health care (income exceeding 300% of poverty line) but choose not to, some paying for care out of pocket, others, many young, preferring to spend the money on a better car and take their chances, knowing that if they have an accident, the hospital will take care of them. Using “47 million” is misleading and not helpful for identifying the nature of the issues and what might be done. Indeed, many critics of reform point out that everyone gets health care today since none are turned away. This is inefficient, but suggests that we aren’t going to add “47 million” new people to the system, creating doctor shortages, because they are already in the system and their care is paid for by explicit and implicit subsidies (hospital room charges cover bad debts for example).

Most industrialized countries set a health care budget and manage (ration) delivery to meet the budget. In the U.S., we don’t know how much we spend until we add it up at the end of the year. One observer noted that the goal of managed systems is to “save money” while the U.S. goal is to “save lives”. There is an important kernel of truth in that statement. All health care is paid for by consumers, directly, or through private insurance, or through taxes (to pay for Medicare, Medicaid and SCHIPS for example). In that sense, the government’s concern about its budget is misplaced, it is just one conduit we use to pay for the medical care we want. Characterizing the large share of our GDP paid for health care as a “crisis” is not appropriate if one believes that the task of markets is to deliver what consumers want. It is appropriate to worry about inefficiencies (including price distortions like a “free” doctor visit or excessive law suits) that cause us to misuse or overuse our valuable medical resources. But as the baby boomers age, they will spend more on health care and it is inappropriate (if you believe in consumer sovereignty and markets) to attempt to reduce the care retirees take.

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Category: Think Tank