The Fed, Mugabe Bucks, and the Yuan

One of the nice things about the Christmas holiday period is the chance to catch up on some reading. I finally put the finishing touches on two really interesting books; Tim Geithner's memoir, Stress Test, and a book Lawrence McDonald's Colossal Failure of Common Sense about the failure of Lehman Brothers. Both are compelling points of view on the unprecedented and chaotic days of 2007-2009. One of the most interesting elements of both books is the role of the state, and officials at the U.S. Federal Reserve, in particular.

Is Monetary Policy Out of Bullets?

Over the years, I have become more and more interested in the conduct of monetary policy, perhaps because it seems to be in a fascinating period of sustained crisis and re-evaluation. Monetary policy has always been an inexact kind of policy instrument aimed at mainly at price stability, but in a kind of mission creep, has also become responsible for stimulating employment. The most obvious way in which the Federal Reserve indirectly influences the interest rates you and I pay, and therefore economic activity, is by altering the Fed Funds Rate; the interest rate the Fed charges commercial banks to borrow money. For almost a decade, the Fed Funds Rate has been set close to zero. Because the Financial Crisis essentially froze much of the lending between banks and from banks to consumers, the Fed has been loathe to increase the interest rates it charges banks to borrow. In effect, the Fed has been without one of its chief policy instruments for a decade.

Trumping the TPP

In early November, I argued that the release of the text of the Trans Pacific Partnership wasn't the start of a long fight over Congressional approval, but somewhere closer to the mid-way point on a road stacked toward approval of the deal. To put things in baseball terms, we were in the 5th or 6th inning of a game that was already being won by the proponents and architects of the deal. As I said then, it will be an ugly fight with lots of atmospherics. But on balance, I still give the edge to the TPP being approved in the United States.


But what are we supposed to make of the U.S. Senate Majority Leader's comments Thursday saying that the TPP should not come before Congress for approval until after the November 2016 presidential elections? Moreover, Mitch McConnell (R-KY) is not alone. Senator Orin Hatch (R-UT), chairman of the Senate Finance Committee-- where any TPP implementing legislation will be considered-- has also questioned the merits of the TPP. Yet, both were among the 47 Senate Republicans that voted for the Trade Promotion Authority (TPA) facilitating the Obama Administration's final push to complete the TPP negotiations this past fall.

What's going on? Is the TPP text so bad that McConnell and Hatch (among others) are now reversing themselves? Did the Administration effectively lie to everyone on Capitol Hill back in June during the TPA debate? Did Congress fall asleep afterward and take their eyes off the TPP negotiations? Did the White House fail to consult with Congress-- as required by TPA-- about the TPP as it was being negotiated? The answer to all of these questions is NO!

The real answer might be Donald Trump!!!!