Just how big is the benefit that too-big-to-fail banks receive from their implicit taxpayer backing? Federal Reserve Chairman Ben Bernanke debated just that question with Massachusetts senator Elizabeth Warren during a recent hearing of the Senate Banking Committee. Warren cited a Bloomberg study based on estimates from the International Monetary Fund that found the subsidy, in the form of lower borrowing costs, amounts to some $83 billion a year.
Bernanke, who has argued Dodd-Frank financial reforms have made it easier for regulators to shut down troubled institutions, questioned the study’s validity.
Watching Ben Bernanke testify before Congress in recent years, it’s hard to shake the feeling that this is a Fed Chairman who has been largely abandoned by his own party. Hearing after hearing, Bernanke receives steady support and praise Democrats for his efforts to stimulate a fragile economic recovery – and takes constant heat from Republicans for what they perceive as the possible dangers of low interest rates.
Many people forget Bernanke was first nominated to his current role by a conservative Republican president, George W. Bush. Bush, though he was reappointed to a second term by President Barack Obama. Bush first named Bernanke to the Fed’s board in 2002, then brought him to the White House to lead his Council of Economic Advisors.
The U.S. workforce has been shrinking rapidly in recent years, but a new report from UniCredit highlights just how massive the effect of this trend really is. Economist Harm Bandholz says it amounts to a gaping 3.6 percentage points of U.S. unemployment.
That means the U.S. jobless rate, which dropped to 7.7 percent in February, would actually be around 11.3 percent without the decline in labor force participation. This would put American unemployment a lot closer to the euro zone’s recently reported record high rate of 11.9 percent.
Massachusetts’ rookie Senator Elizabeth Warren was out making waves again at a Senate Banking Committee hearing on Capitol Hill today. The former Harvard law professor contrasted the legal code affecting drug prosecutions with what she depicted as cushy settlements for large Wall Street firms that committed egregious crimes.
Take Standard Chartered. They were fined $667 million by U.S. regulators for breaching sanctions related to Iran and three other countries. Yet the bank posted a tenth straight year of record profits.
After two days of testimony from Federal Reserve Chairman last week in which he decisively criticized Congress’ decision to slash spending arbitrarily in the middle of a fragile economic recovery, a report on money market funds from the New York Fed nails home the point.
The paper’s key finding is that, as most observers already knew, investors were a lot more worried about a break-up of the euro zone in the summer of 2011 than they were about U.S. congressional bickering over the debt ceiling.
WASHINGTON, March 5 (Reuters) – The Federal Reserve’s
aggressive monetary stimulus will make it harder for the U.S.
central bank to engineer a smooth retreat from its
unconventional policies, a top Fed official said on Tuesday.
“I fear that small mistakes (could have) large
consequences,” said Jeffrey Lacker, President of the Federal
Reserve Bank of Richmond and an inflation hawk who has been
skeptical of central bank bond buying.
That’s not a typo in the headline. In a recent speech that took some mental gymnastics to absorb, Federal Reserve Chairman Bernanke countered critics of his low rates policy by arguing that a loose monetary policy is the best way to ensure rates can rise to more normal levels.
Why? Because interest rates will naturally move higher once stronger economic growth leads to higher rates of return on investment, Bernanke said. Here’s his argument:
WASHINGTON (Reuters) – Janet Yellen, the Federal Reserve’s influential vice chair, said on Monday the U.S. central bank’s aggressive monetary stimulus is warranted given how far the economy was operating below its full potential.
Downplaying the potential costs of the Fed’s unconventional easing efforts, which currently include $85 billion in monthly asset purchases, Yellen highlighted the dangers of a prolonged period of economic malaise.
Despite the Obama administration’s cataclysmic warnings about the effects of $85 billion in looming spending cuts known as the “sequester,” chances are the lights will not go out when they kick in this weekend. Still, the economic impact could be significant. The cutbacks might shave a half percentage point or more from an economy that is forecast to grow around 2 percent this year — but which only mustered a 0.1 percent increase in annualized fourth quarter GDP. This, at a time when a similar austerity-driven approach has left much of Europe mired in recession.
Both the public and the markets seem to be taking Washington’s latest war of words in stride. After all, people are becoming inured to the regularly scheduled fiscal crises that have become a part of the capital’s landscape. But the sequester’s most frightening potential consequence is much broader than its near-term economic ripples. The real danger is that, with every new episode of political theater over the budget, America’s credibility as a serious, trustworthy nation is eroded. The concept of political risk, once reserved for banana republics in the developing world, is now very much alive in the United States. And that is one liberty a debtor nation cannot afford to take.
WASHINGTON (Reuters) – The U.S. jobless rate is unlikely to reach more normal levels for several years, Federal Reserve Chairman Ben Bernanke said on Wednesday as he again defended the central bank’s forceful easing of monetary policy.
Appearing before a congressional panel for a second straight day, Bernanke downplayed signs of internal divisions at the Fed, saying the policy of quantitative easing, or QE, has the support of a “significant majority” of top central bank officials.