Mind Over Market

At the request of Senator Judd Gregg, New Hampshire Republican and ranking member of the Senate Budget Committee, the Congressional Budget Office has completed a report titled The Budgetary Impact and Subsidy Costs of the Federal Reserve's Actions During the Financial Crisis. See the report at this link: http://www.cbo.gov/ftpdocs/115xx/doc11524/05-24-FederalReserve.pdf The report, written by Kim Kowalewski and Wendy Kiska of CBO's Macroeconomic Anlaysis Division, comes up with what most willl surely think is a low ball estimate of the subsidy cost of the extraordinary actions during the financial crisis of 2007 and 2008. From July 2007 to the end of 2008, the Fed's balance sheet grew from $790 billion to $2.275 trillion. Of that total, loans and other types of support extended to financial institution made up $1.686 trillion. By the end of 2009, direct loans and other support had fallen to $280 billion, but the Fed held just over $1 trillion in mortgage-related securities...

Fed Governor Elizabeth Duke took a look at recent key credit market indicators and compared them to credit declines in past recessions to measure the impact of the Fed's 'credit easing' policies. She found that, except for home mortgages, credit declines in this downturn have not been as severe as in past recessions. Further, the decline in home mortgages is not particularly large in comparison to declines in some credit markets in the past. Given the severity of the current financial crisis, this is an “early indication” that the Fed’s policies have been “broadly successful in relieving stresses in the key credit markets,” according to the Fed Governor. By Robert Stowe England June 22, 2009 Last week Federal Reserve Board Governor Elizabeth A. Duke took time out, she said, “to look back on the policies that have been implemented throughout the financial crisis and consider how well they have worked to lessen the broader impact of financial market disruptions.” Duke, who jo...

To maintain the Fed’s independence in monetary policy and its ability to successfully fight inflation (and deflation) the Fed and the Treasury need to sign a Federal Reserve Credit Policy Accord, says economist Marvin Goodfriend. He offers six principles to guide such an accord. By Robert Stowe England April 25, 2009 A call for a Federal Reserve Credit Policy Accord between the Fed and the U.S. Treasury was issued yesterday (April 24) by Marvin Goodfriend, professor of economics and chairman of the Gailliot Center for Public Policy at the Tepper School of Business at Carnegie-Mellon University in Pittsburgh. He was speaking at a symposium conducted by the Shadow Open Market Committee ( http://www.somc.rochester.edu/ ) at Cato Institute in Washington, D.C. Goodfriend’s concern was aimed at the Fed’s decision to provide more than $1 trillion of credit through the Term Asset Lending Facility (TALF) and other arrangements. The effort includes loans to banks and other financial institutions...