Counterparties: A hawk in dove’s clothing

September 20, 2012

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The QE3 press tour has begun. Yesterday, the president of the Dallas Fed blasted the central bank’s decision. Today, in separate speeches, the presidents of the Atlanta, Boston and Minneapolis Feds defended the monetary stimulus decision and gave us some insight into how QEternity will play out.

As part of QE3, the Fed promised to keep interest rates low till at least mid-2015. Minneapolis Fed President Narayana Kocherlakota argues that the FOMC should keeps rates “extraordinarily low until the unemployment rate has fallen below 5.5 percent”. For context, unemployment rates have not been below that level since April 2008. As Neil Irwin writes, Kocherlakota’s target is especially noteworthy because he is “generally viewed as one of the more hawkish, or inflation-phobic, members of the FOMC”. If he’s on board with QE3, Tim Duy’s conclusion that the hawks have been marginalized, or at least converted, appears true.

The Atlanta Fed’s Dennis Lockhart struck a less polemic tone in stressing the “far from satisfactory” state of the US job market. But he made a clear defense of QE3 by drawing a distinction between training America’s workforce and helping its workers in the short term: “Economic development is about jobs for people. Workforce development is about people for the jobs”. The implication: BAs and vocational training, while helpful, won’t be enough get us out of an employment crisis.

Eric Rosengren of the Boston Fed was far less subtle, delivering a speech entitled “Acting to Avoid a Great Stagnation”. In his view, the logic of QE3 is simple and emphatic: “improve economic conditions much more quickly – so the period of very slow recovery … does not persist”. — Ben Walsh

On to today’s links:

Must Read
The persistence of intergenerational poverty in rural America – Huffington Post

Tax Arcana
How the tax code encourages companies to gorge on debt – Jesse Eisinger

Long Reads
Taleb on Rubin: “Nobody on this planet represents more vividly the scam of the banking industry” – Bloomberg Businessweek

Bad News
The mega-merger that could turn the music industry into an effective monopoly – Huffington Post

The government is having a hard time prosecuting banks for Libor manipulation, shocking exactly no one – WSJ
Libor-like manipulation is possible in a whole slew of other markets – Bloomberg

Crisis Retro
Sheila Bair: Maybe we kinda overdid that whole massive financial system bailout – Fortune

Data Points
When it comes to central bank balance-sheet-to-GDP ratio, the euro zone is a world-beater – Also Sprach Analyst

Dubious Trends
The four histories of “the 47%” talking point – Mike Konczal

Growth Industries
The folks in HR are now letting you buy and sell your vacation days – WSJ

HUD may have paid more than $1 billion in false claims intended for struggling homeowners – WSJ

Financial Arcana
Dewey’s dragooned capital – Ben Walsh

Revolving Doors
Tim Pawlenty, bank lobbyist – Politico

Who’s had the better 10-year returns, Goldman’s shareholders or its employees? – Lauren Tara LaCapra

Obama and Romney have remarkably little to say about the housing crisis – Reuters

The Fed
QE3 has been “manna from heaven” for big bond firms like Pimco and TCW – Reuters
Mitt Romney also believes in monetary-policy urban myths – Paul Krugman
The Fed’s legitimacy problem – Simon Johnson

Useful Reminders
An open letter to Urban Outfitters regarding their Che Guevara T-shirts – Huffington Post

The strange beauty of patent drawings – FastCo

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