Food For Thought on the Federal Reserve’s Disclosures

Brad Delong, responding to some stuff I wrote back when:

Back before World War I there was a hard-money politically-powerful rentier class: landlords whose lands were let out on long-term leases at fixed nominal rents, coupon-clippers whose money was in nominal government bonds or private bonds or mortgages. They did not benefit from faster economic growth and lower unemployment. They lost significantly from inflation and devaluation.

But today there is no such rentier class. Even–especially–the shareholders and option holders of JPMorganChase make much more money with 5% unemployment and 5% growth than with 9% unemployment and 2% growth. 5% unemployment and 5% growth turns their lead troubled fixed-income assets into silver. 5% unemployment and 5% growth turns their equity positions into rivers of gold. It greatly increases the confidence of their creditors that JPMC will still be around in a decade–and so allows them to leverage up cheaply and profit even more from a general rise in financial asset values.

Though I still think Kalecki is right on the elite class here, Brad’s is an important political economy point to deal with in understanding this recession.

Meanwhile here’s Binyamin Appelbaum, on the Federal Reserve’s asset disclosures:

…Richard W. Fisher of the Dallas Fed, who reported assets worth at least $21.5 million….

Mr. Fisher, a constant siren on the subject of inflation, owns at least $1 million in gold, and smaller quantities of platinum and uranium, popular investments for those who fear inflation. He also owns thousands of acres of land in Texas and other states…Mr. Fisher also owns millions of dollars in municipal bonds, which lose value as inflation rises, and he holds shares in a wide range of corporations, particularly in the technology and industrial sectors.

Fisher has been one of the most important people in determining how the economic recovery has gone.  Fisher had a speech on March 4, 2008 – three months into the recession, right before Bear Stearns collapsed, at the moment when monthly job creation was about to hit negative six figures – that argued “Containing inflation is the purpose of the ship I crew for, and if a temporary economic slowdown is what we must endure while we achieve that purpose, then it is, in my opinion, a burden we must bear, however politically inconvenient…Our obligation is to prevent inflation in order to sustain long-term employment growth.”  Or that monetary policy was too loose at that moment.

My personal favorite is from the Wall Street Journal:

Federal Reserve Bank of Dallas President Richard Fisher said the Fed’s recent moves are giving lawmakers an excuse to avoid making hard choices on fiscal policy, the Associated Press reported Tuesday.

“The more we offer accommodative monetary policy, the less incentive they have to pull their socks up and do what’s right for the American people,” Fisher told the news service in an interview.

The short-term deficit is high because (a) people are unemployed and capacity is going idle, hence less tax revenue and (b) people are unemployed, so automatic stabilizers are kicking in and the unemployed are using more government resources.   If I read that quote right, it’s almost as if Fisher is saying that the Fed shouldn’t seek full employment because at full employment politicians won’t have the stomach to pass something like the Ryan Budget.  A budget which will radically reduce taxes on the rich income makers, remove new regulations on the financial sector, and remove all taxes on dividends and capital gains.  Or the type of budget which will help those who made a ton of money from hedge funds.

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2 Responses to Food For Thought on the Federal Reserve’s Disclosures

  1. foosion says:

    Better policy may or may not generate more economic growth and therefore higher returns to businesses and their owners. High unemployment generates lower labor costs, which is a definite amount of cash today. Inflation decreases the value of nominal assets in a clearly defined manner. Cutting government spending and taxes may hurt growth, but the benefits are tangible.

    Rentiers appear to prefer certain amounts of cash today over possible benefits to more growth tomorrow, especially if that growth is likely to be at least partially offset by higher labor costs.

  2. Tom says:

    I just went and read Kalecki’s “Political Aspects of Full Employment,” Wow! It’s like a road map for debating austrian austerity types!

    A quite interesting find from part IV.2 is that he describes how a cycle of tax/interest rate cuts during slumps, not matched by increases during the booms, can lead to a liquidity trap! He diagnosed the cause of the current deep slump 70 years ago.

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