Opinion

Felix Salmon

Counterparties: A Fed divided

By Ben Walsh
January 3, 2013

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The minutes from the December meeting of the Fed’s Open Market Committee came out today and managed to include everyone’s least favorite word: “divided”.

At the same time that the Fed made the unprecedented move to tie monetary policy to specific unemployment targets — promising to keep rates low until unemployment fell below 6.5% — “several” members of the committee wanted to end or slow the central bank’s asset purchasing program “well before” the end of the year. Joe Weisenthal calls today’s news the “first real signal of an eventual return to normal policy”.

James Hamilton has a great look at the Fed’s $3 trillion balance sheet, through its various asset-buying programs since the crisis — QEs 1-3, if you will. The takeaway: the unprecedented programs may have helped employment “a little” and done no harm to inflation. (Bill Gross, in seemingly his millionth such warning, thinks this “inflation dragon” is flying our way right now).

By almost every account, the fiscal policy has been even more heterodox. The fiscal deal just passed by Congress goes against just about every major school of economic thought and does nothing for unemployment or the deficit. Cullen Roche says the deal will cut about 1.3% from 2013 GDP; Brad DeLong puts it at more like 1.75%. To Chris Dillow, this all means the basic post-war role of politicians in providing economic certainty is gone. To Kevin Logan, HSBC’s chief economist, Congress is now the biggest risk to the economy.

Justin Fox says fiscal showdowns won’t go away anytime soon — it’ll take a long while to wash the anti-government ranks out of the Republican Party. As for the Fed, Cardiff Garcia smartly warns us not to freak out: the Fed’s asset purchases are intended to juice the “near-term momentum of the economy”. If the economy sours again, the Fed could always just begin its largely unproven, possibly bubble-causing asset-purchasing program all over again. — Ben Walsh and Ryan McCarthy

On to today’s links:

Departures
Tim Geithner has a plan to avoid the debt ceiling debate – Bloomberg

Must Read
The unexpected culprit behind America’s crime problem: lead exposure – Kevin Drum

Awesome
The macroeconomics of Middle Earth – Worthwhile Canadian Initiative

The Oracle
Warren Buffett is building the world’s biggest photovoltaic solar project – Bloomberg

TBTF
What’s inside America’s banks? Not even the most sophisticated investor knows – Frank Partnoy and Jesse Eisinger
Basel III includes 78 calculus regulations, 509 pages and a whole lot of conflicting rules – Yalman Onaran
You can’t regulate with nostalgia – Felix

Your Bottomless Inbox
Email now sucks so much that by 2020, it will be competing with the post office – Quartz

Taxmageddon
The fiscal cliff negotiations in one chart – Dylan Matthews
The CEO push on a fiscal cliff paid off, at least in corporate tax breaks – Tim Fernholz

Wonks
American does have a mediocrity problem, but corporations aren’t it – Noah Smith

New Normal
First amendment rights for drug companies – Mina Kimes

Oxpeckers
Andrew Sullivan’s sales pitch – Foster Kamer
Buzzfeed raises $19 million – and it’s reportedly still sitting on the $15 million it raised a year ago – Ad Age

Stock and Flow
Portland drinks so much coffee it has caffeinated the sea – National Geographic

Contrasts
Zipcar: Entrepreneurial genius, public-company failure – WSJ

Legalese
Meet the patent troll who wants to be paid $1,000 every time you use a scanner - Ars Technica

Fails
Antivirus products are bad a stopping viruses – NYT

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