James Pethokoukis

Politics and policy from inside Washington

The Fed as a growth driver

Sep 28, 2009 17:11 UTC

Does the Obama administration care more about creating wealth or redistributing wealth? Maybe the strategy is for the WH to worry about the latter and let the Fed take care of the former. Scott Grannis, the Calfia Beach Pundit, makes an interesting observation (bold is mine):

Many, including most Fed governors, fear that an early reversal of quantitative easing, which would undoubtedly require higher short-term interest rates, might jeopardize the economy’s nascent recovery. I think it makes more sense to worry about what might happen if the Fed waits too long. I seriously doubt that this economy is so fragile that it can’t support short-term interest rates of at least 2-3%. I really worry that an inflationary error from the Fed at this point, which would weaken the dollar and undermine confidence in the U.S. economy, would do far more damage. Far better to pursue a path that builds confidence in the strength of the dollar, rather than gambling everything to boost the economy. Monetary policy was never designed to be a tool for raising or lowering the economy’s growth rate.


Dear James: Aecon for sure has a headache in Quito, Ecuador. For starters you should know Aecon started an Airport, an aeronautical project, without any studies which would confirm that Tababela, the site chosen, is a good place for an airport. As a matter of fact, my person, unveiled hidden past studies that confirmed that Tababela was not a good site to build that airport. That airport has been a shame for the canadian Government because corrupt canadians broke the law in Ecuador and lied to the american investment companies in several ways.International entities rule normally in favor of airport fees as public not private. ICAO(international civil aviation administration orgaization) regulations apply here because these corrupt canadian companies are building an international airport. Furthermore, BOT(build operate and transfer) contracts, specify that the canadians are supposed to build that airport with their funds , at their own risk.When they admit that they are using airport fees from one ecuadorian airport to build the other they are admiting that they are breaking the law, and it is enough proof for the american financists that their Project Finance Model will fail. Canadians may mean angels and bells to you but they are a corrupt government who are experts in arms deals, have a horrible nature contamination record in the mining business. So you know, I am an american citizen, no I am not a leftist. Get your facts straight, will you?. Next time you visit Ecuador, look me up and do not ride the coattails of Stockwell Day, a man who is part of the Sting.Fernando Lopez (see you in Ecuador) bring your eyes open

Climate change: 3.6 degrees or $46 trillion

Sep 28, 2009 17:02 UTC

They may not know all the stats and numbers, but people instinctively don’t seem to want to pay a lot of dough to limit carbon emissions. Not even close.  In fact, you can find plenty of climate experts who doubt they ever will, particularly in India and China. Betting on mitigation and technology seems the more realistic route. A bit from Bjorn Lomborg:

Urged on by environmental activists, many politicians are vowing to
make carbon cuts designed to keep expected temperature rises under 3.6
degrees (2.0 Celsius). Yet it is nearly impossible for these promises
to be fulfilled.

Japan’s commitment in June to cut greenhouse gas levels 8 percent
from its 1990 levels by 2020 was scoffed at for being far too little.
Yet for Japan — which has led the world in improving energy efficiency
– to have any hope of reaching its target, it needs to build nine new
nuclear power plants and increase their use by one-third, construct
more than 1 million new wind-turbines, install solar panels on nearly 3
million homes, double the percentage of new homes that meet rigorous
insulation standards, and increase sales of “green” vehicles from 4
percent to 50 percent of its auto purchases.

Imagine for a moment that the fantasists win the day and that at the
climate conference in Copenhagen in December every nation commits to
reductions even larger than Japan’s, designed to keep temperature
increases under 2 degrees Celsius. The result will be a global price
tag of $46 trillion in 2100, to avoid expected climate damage costing
just $1.1 trillion, according to climate economist Richard Tol, a
contributor to the Intergovernmental Panel on Climate Change whose cost
findings were commissioned by the Copenhagen Consensus Center and are
to be published by Cambridge University Press next year.

Update: A good post from John Tierney on why government isn’t doing more to look for technological fixes like atmosphere scrubbing.


your updated link 404′s me.

Hey, Ron Paul, end the Fed … as financial regulator

Sep 28, 2009 16:38 UTC

If not for unprecedented actions by the Ben Bernanke-led Federal Reserve, the United States economy might be mired in a depression.

Yet the Fed finds itself on the defensive on Capitol Hill. There was its general counsel, Scott Alvarez, pleading last week to the House Financial Services Committee to reject attempts to expand Government Accountability Office audits of the Fed. Already, the GAO reviews the central bank’s supervisory and regulatory functions. But a bill introduced by Representative Ron “End the Fed” Paul, a Texas Republican, would also subject monetary policy and discount window operation to GAO audits. The bill has nearly 300 co-sponsors and as well as conceptual approval by Barney Frank, chairman of the committee.

The Fed views these expanded audits as threats to its independence from political pressure. As Alvarez put it, “These concerns likely would increase inflation fears and market interest rates and, ultimately, damage economic stability and job creation.”

For instance, when it comes time for the Fed to start withdrawing monetary stimulus from the economy despite continuing high unemployment, the last thing it will need is haranguing from Capitol Hill that it’s moving too fast, too soon.

And if the Fed becomes the regulator of systemically important financially institutions, as the White House advocates, it’s easy to imagine how the central bank would be subject to even more intense and frequent grilling from an emboldened Congress.

Now the move for expanded Fed audits results from both the Fed’s unprecedented efforts to end the financial crisis and its regulatory failures that contributed the financial crisis. The audit bill should be a wakeup call to the central bank that the more it gets involved in the regulatory process, the great future scrutiny from a skeptical Capitol Hill.

And it’s not just Congress. World Bank President Robert Zoellick says that after reviewing the Fed’s regulatory performance, he’s concluded that it’s a bad idea to “vest the independent and powerful technocrats at the Federal Reserve with more authority.”

Past regulatory failures have already undercut confidence in the Fed – “technocrats” is hardly a compliment — and breaking new regulatory ground in the field of systemic risk increases the chances for further erosion. As it is, the Fed is already buckling to congressional pressure. Alvarez told the committee that the Fed would be “happy to work” with lawmakers on ways to release names of companies that borrow from the central bank, perhaps after a period of time.

Not only should Congress reject the idea of expanded Fed audits, it should reject the idea of expanding the Fed’s role as regulator. If need be, create a new regulatory agency or council. Let Team Bernanke focus on executing its stimulus exit strategy and strengthening its reputation as an inflation fighter.


For those of you who want to end the FED, lets end the defense depart. The state dept. and Pentagon and our standing army as well. That would save an abundance of our tax money. We shouldn’t be in foreign countries anyway.And we should be promoting peace not war. Oh I forgot peace is not profitable, so that won’t happen. But don’t forget that we the people will have to join militias to protect our country since we won’t have an army anymore. I don’t know about you but I don’t think I would have the time or energy to join, I am too old. :)

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Is Obama planning a VAT surprise for America?

Sep 28, 2009 13:34 UTC

So John Podesta, co-chairman of Obama’s presidential transition team, says a value-added tax is “more plausible today” than ever, adding that “there’s going to have to be revenue in this budget.” A few thoughts:

1) Podesta is also president of the George Soros-funded Center for American Progress, a liberal think tank closely allied with the White House.

2)  It’s consensus among centrist economists, like those in the White House, that America will need to raise taxes to cover budget shortfalls and a VAT is the most efficient way of doing this.

3) At the G20, Obama promised more coordinated economic policies, including having the US lower its borrowing and consume less. This could be done via a VAT, which would also let the US have more tax synchronization with other OECD countries.

4) It seems like the WH is staring to redefine its pledge not to raise taxes on those making less than 250k as applying only to income taxes.

Bottom line: These Podesta remarks sure sound like a trial balloon by the White House.



I would be such an American, that is in favor of a VAT tax. The economy of the United States is hemmorraging money and will continue to do so, as baby boomers increase SS, Medicare, etc. obligations. Throw in additional spending measures, and revenues are greatly needed.

I am aware of many other individuals that are in support of a VAT. Perhaps out of necessity, rather than affection, but support nonetheless.

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