Former Fed governor Narayana Kocherlakota begins his critique of the Federal Reserve’s Board of Governors at Bloomberg View with this scathing indictment:
In the first 18 years of the new millennium, the U.S. economy has fared much worse than it could have. If the Federal Reserve wants to improve that performance, it should consider changing the way it manages growth and inflation.
He goes on to complain about the Fed’s handling of inflation, the distribution of income in which the Fed are been one of the main culprits, median incomes, and median net worth.
The graph above illustrates how poorly the U. S. economy has performed over the last 17 years. Let me translate it for you: the U. S. economy has underperformed relative to potential every year of the present millennium other than 2005-2006 and that notional success was the consequence of a disastrous housing bubble. He calls for an “attitude adjustment” of the Fed without specifying what that would entail.
What I think should concern us more is possibility that the results the Fed has realized may reflect that they’re doing their jobs as they understand them and that is to ensure that the ultra-rich become ultra-richer.
My suggestion is shoemaker stick to thy last. The Fed should stop trying to manage the economy, a task I believe is beyond its abilities, and shoulder their primary responsibility of regulating the banks. Here’s a statistic not cited by Dr. Kocherlakota: the number of commercial banks in the U. S. is just about half what it was in January of 2000. If rather than shuttering small banks and selling their assets at fire sale prices to the megabanks, maybe the Fed governors should think about regulating those big banks. While regulating small banks may keep you busy, regulating big banks may well be impossible.
“What I think should concern us more is possibility that the results the Fed has realized may reflect that they’re doing their jobs as they understand them and that is to ensure that the ultra-rich become ultra-richer.”
Careful. Sam may accuse you of ressentiment.
I think you would get strong pushback from Fed governors on that, even those who admit to pushing a wealth effect policy. It seems less a scheme to make the ultra-rich richer, and more just simply a boneheaded policy. They didn’t correctly gage both sides of the policy. Pushing down rates and creating yield chase into equities, as it turns out, of course benefits equity holders. I don’t think they understood how reliant some were on fixed income returns. If a person had saved $.5MM, $1MM, or $3MM and the prevailing prudent fixed income portfolio yielded 5%, income would be $25K, $50K and $150K, respectively. That’s equivalent to 1x – 6x annual SSecurity payments for an awful lot of people. I don’t know what the definition of ultra-rich is, but savings of those magnitude hardly qualifies.
The big bank/small bank issue is an interesting one. The big ones compete in a different world, and would argue that size is necessary to compete. That we have regulators, politicians and uninformed voters that allow regulatory capture is a separate issue. As for small banks, some may know their credit seeking population better than outsiders, making so called character loans. But unsophisticated is quite a generous description for many.
Well shucks, I was already forming a masterful denunciation of Big Banks and The Democrats Who Love Them Sinfully …. and Guarneri let the rhetorical air out of my tire. Oh sigh oh sigh!
Now I’ll have to go off and think before adding to this thread. How uncomfortable!