Tag Archives: federal reserve

United States

Fifteen questions I would like to hear at tonight’s GOP debate

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GOPdebate

Yet another Republican presidential debate is upon us tonight. USflag

I do not expect to hear these questions and, if I did, I would not expect to hear the most clarifying answers.

  • Which document is more important in governing the United States: the Bible or the US constitution?
  • What would your administration’s strategy be regarding the Arctic region, both from an economic and security standpoint?
  • How many Syrian refugees should the United States admit in the year 2016?
  • Who would you appoint as Secretary of State in your cabinet and why? Who do you believe to have been the most effective Secretary of State in the past century?
  • Does the United States have the right to assassinate US citizens abroad, such as Anwar al-Awlaki, without due process? If so, in what constitutional and legal theory is your position rooted?
  • Suppose the DPP wins the next Taiwanese election, it universally declares independence, and mainland China launches a military attack against Taiwan. How would your administration respond?
  • Name two Obama administration policies — one on domestic policy and one on foreign policy — with which you agree.
  • Should the United States change its laws to allow for the export of crude oil and natural gas exports?
  • How can the Republican Party more successfully appeal to Asian Americans, the fastest growing immigrant group in the United States today?
  • What would your administration do if the United Kingdom’s voters elect to leave the European Union in 2017?
  • Given the Republican Party’s skepticism about the role of government, and given what we know about racial bias in sentencing , why should we trust state governments in carrying out the death penalty?
  • Given the rise of Islamic fundamentalism in sub-Saharan Africa at a time of breakneck economic growth for the region, what would your administration’s three most important priorities for US policy in Africa be?

Argentina

The big winner from FOMC’s decision on interest rates? Daniel Scioli

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Beleaguered emerging markets across the globe breathed a sigh of relief Thursday afternoon when the chair of the US Federal Reserve, Janet Yellen, explained that the Federal Open Markets Committee would not (yet) be raising the federal funds rate, expressly due, in part, to weak economic conditions in emerging economies where tighter US monetary policy could exacerbate macroeconomic conditions.USflagargentina

When it comes to world politics, the FOMC’s decision could give the strongest boost to the ruling party’s presidential candidate in Argentina, who currently leads polls ahead of the October 25 general election.

Many economists argue that seven years of interest rates at the zero lower bound have created a bubble in emerging economy assets. Investors looked to developing economies with potentially higher rates of return outside the developed world while the Federal Reserve was flooding the global economy with liquidity, not just by lowering interest rates to zero, but through several rounds of quantitative easing.

It’s already been a tough couple of years as investors have pulled back from developing economies, beginning with the Fed’s decision to begin tapering off from the peak of its QE bond-buying program. But the slowing Chinese economy and depressed prices for oil and other commodities (not, perhaps, entirely unrelated) have made life particularly difficult for emerging economies.

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RELATED: Scioli leads in Argentine race after primaries 

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By keeping interest rates at zero, the Federal Reserve will lessen pressure on those economies. Continue reading The big winner from FOMC’s decision on interest rates? Daniel Scioli →

Canada, United States

Could the United States and Canada effect a national merger?

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I spent an impromptu weekend in Ottawa and Montréal, which marked my first visit to Canada’s capital city — and its fourth-most populous (after Toronto, Montréal and Calgary).USflagCanada Flag Icon

Though Ottawa is a bilingual city that sits on the Ontario-Québec borders, there’s no doubting that this was a city founded by English Canadians (and, in fact, New Englanders founded the first colonial-era settlement) — which may explain why it’s impossible to find a decent meal other than poutine on a Sunday night after 10 p.m.).  But the trip gave me good reason to read the new book from National Post columnist Diane Francis, Merger of the Century: Why Canada and America Should Become One Country. 

OK, so let that sink in for a moment.  Merging the United States and Canada into one mega-country.  Impossible, right?  A national political space with room for both Jacques Parizeau and Haley Barbour? Come on.

But it’s not an unhinged read — it’s a page-turner, and Francis has a command of the data that motivates her argument.  It also meets the ‘learn something on every page’ test.  Did you know that Canada’s First Nations residents also have US citizenship?  Or that the US defense department, if it were a nation, would have an economy the size of Turkey’s?

The political hurdles are immense 

Let’s start with the obvious — in a world where the US Congress can’t even agree for three weeks on whether to fund the government, the appetite for a merger with Canada is probably less than zero, and Francis certainly knows this.  The politics of a US-Canada merger are impossibly difficult, and the weakest part of the book is that Francis glides over the political hurdles — the Québec question and the issue of Southern intransigence in the United States are dealt with in just over three pages.  I like to think that’s because Francis knows the political obstacles are insurmountable and prefers to spend more time making her very able case for the economic synergies that a merger would bring.

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It’s tempting to believe that Canada’s relatively more statist and socially and economically liberal population would give the US Democratic Party an almost immediate lock on elections for the foreseeable future (and Francis hints as much), but that’s not necessarily the case.  It’s Canada that has a three-term Conservative prime minister in Stephen Harper and the United States that has a two-term Democratic president in Barack Obama (pictured above with Harper).  As John Ibbiston and Darrell Bricker argue in their own big-think volume from last year, The Big Shift: The Seismic Change In Canadian Politics, Business, And Culture And What It Means For Our Future, there’s a growing majoritarian coalition of immigrants, Westerners and Ontario suburbanites that could make Harper’s Tories the natural party of government in Canada in the 21st century — just as much as the Liberal Party of Wilfrid Laurier, William Lyon Mackenzie King, Pierre Trudeau and Jean Chrétien dominated the 20th.

It’s hard to imagine that Québec premier Pauline Marois and Texas governor Rick Perry would have much in common.  Still, there are common trends in the politics of the left and right on both sides of the border, and Toronto mayor Rob Ford proves that Canada has as many colorful characters in politics as the United States.

On the right, the rise of the ‘tea party’ movement on the US political right matches the rise of a new fiscal and social conservatism captured by the rise of Alberta’s new Wildrose Party (as an alternative to the long-dominant Progressive Conservative Party).  Harper’s own rise, and the merger of the western-based Canadian Alliance with the dwindling eastern-based Progressive Conservatives, is the story of the rise of a more anti-government, pro-Christian, social and economic conservatism in Canada.  That mirrors the rightward shift of US conservatism under the influence of Barry Goldwater, Ronald Reagan and others.

On the left, the late Jack Layton led the New Democratic Party to a historic breakthrough in the 2011 federal election in a way that mirrors the new progressive coalition of minorities, moderates and young voters that powered Obama in 2008 — first to win the Democratic Party nomination over Hillary Clinton, then to win the presidency.  The difference between the pragmatic, business-friendly Liberals and the social democratic NDP in Canada is the difference between, say, US senator Chuck Schumer of New York and US senator Patrick Leahy of Vermont.

Nonetheless, with all due respect to Paul Cellucci, the former US ambassador to Canada, the difference between Québec and Alberta is not the same as the difference between Massachusetts and Mississippi (despite the heritage of French Americans from Maine to Louisiana).  The cultural gulf between the United States and Canada is the gulf between revolution and evolution, fixed in place by 200 years of path dependence.

If I were Canadian, I would worry that the best aspects of Canadian culture and politics would be totally subsumed by US culture and politics — it was Trudeau, after all, who said that having the United States for a neighbor was like being a mouse sleeping next to an elephant.  For all the valid criticisms of the US military-industrial complex, it’s hard to believe that the Canadian influence would slow the militarism of US policy (though, frankly, deploying US troops to patrol the Arctic north or to fortify and develop new northern settlements seems a more productive endeavor than invading Iraq).  

As the United States has increasingly retreated behind a wall of homeland security in the wake of the 9/11 terrorist attacks, Canada has increasingly opened its borders to immigrants.  One out of every two residents of Toronto, Canada’s largest city, is foreign-born, and nearly seven million of Canada’s 35 million people are foreign-born.  In the 21st century, Canada is becoming the melting-pot society that the United States once was in the 20th century.  That would be endangered if Canada became merely the northern-most region within a greater North American superstate.

Francis also betrays a protectionist edge that view Chinese, Russian and Arab malevolence at every turn.  If I were Canadian, I’d be happy to know that China, Russia and other countries are willing to compete with US and Canadian investors to most efficiently develop the resources of Canada’s far north.  It seems to me that the kind of knee-jerk nationalism that led to the 2006 Dubai Ports World kerfuffle in the United States is something that’s more dangerous to democratic and economic institutions in North America than an investment here or there by China.

But when you get to the heart of Francis’s argument about the reasons for and benefits from a US-Canadian merger, it’s as thoughtful, radical and brilliant as you’ll find in any of the top books published last year.

Even the most outlandish ideas should win points for creative thinking.  A payout of $492,529 to each Canadian citizen at a total cost of around $17 trillion to the US treasury?  A bifurcated health care system that would include greater rights and freedoms for Canadians?  The concept that the US deep south, which chose segregation over industrialization and economic modernization for nearly a century, would sign up to a merger because it might mean more Canadians would migrate to the Sun Belt?  That Quebeckers would willingly give up what amounts to a veto on national policymaking for  irrelevance in a super-country whose First Amendment freedoms would make most of the province’s language regulations unconstitutional on Day One?  That the staid Bay Street approach to banking regulation would easily graft itself onto the creatively destructive mentality of Wall Street? None of these are politically feasible.

How to capture the benefits of greater cooperation

The good news is that the United States and Canada don’t actually have to become one nation-state in order to effect a lot of the benefits that Francis outlines, which is where her book really shines.  That’s especially true in a globalized world where national borders are conceivably less important than at any time in the post-Westphalia era.  A handful of efforts could bring much of Francis’s dream to reality without a supranational acquis communautaire or admitting Canada’s provinces and territories as the next 13 American states:

Continue reading Could the United States and Canada effect a national merger? →

Israel, United States

Why Stanley Fischer is such an inspired choice as US Fed vice chair

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It’s really quite incredible that there’s been more ink spilled over the decision of the American Studies Association, a US-based academic group, to boycott Israel than the potential nomination of Stanley Fischer, the former governor of the Bank of Israel, to become the next vice chair of the US Federal Reserve.ISrel Flag IconUSflag

It’s somewhat ironic that at a time when many critics are attacking the ASA’s decision (is it morally right to boycott the exchange of ideas, academic debate and discussion?), Fischer’s transition from Israeli central banker to US central banker would be a spectacular opportunity — for Fischer, for the Fed, for Israel, for the United States and, if the initial reaction holds, world markets, too.  Reuters reported late last week that Fischer was offered the spot, though there’s not been an official announcement.

Janet Yellen, the current Fed vice chair, is US president Barack Obama’s nominee to chair the Fed after Ben Bernanke completes his second term on January 31, 2014, and she is expected to be confirmed as the new Fed chair by the US Senate in a vote later this week.

Fischer, as the number-two official at the Fed, would bring with him eight years of experience setting monetary policy for Israel and the rock-star status of one of the world’s most accomplished economists.  As a longtime professor at the Massachusetts Institute of Technology, he not only served as thesis supervisor to Bernanke, the current Fed chair, but also Mario Draghi, the chair of the European Central Bank.

As The Financial Times reported last week, Fischer has a ‘dream resumé’ for the position, topped off by an eight-year stint as Israel’s central bank governor that is universally acclaimed:

Some clues to how Mr Fischer thinks about monetary policy come from his tenure as governor of the Bank of Israel. He was one of the country’s most respected public figures; when he announced he would be stepping down earlier this year, one commentator said the country was losing its last ”responsible adult”.

His eight years as governor coincided with fast economic growth, low unemployment – currently 6 per cent – and low inflation. Israel survived the financial crisis in 2008-9 without seeing a single bank collapse.  Unlike his predecessor Jacob Frenkel, who had a tight focus on fighting inflation, Mr Fischer is credited with broadening the Bank of Israel’s remit to influence growth and employment. His decisions were marked by pragmatism: he slashed interest rates in the wake of the financial crisis, then abandoned economic dogma to try to hold down Israel’s currency, before raising rates as the economy recovered.

Fischer was so successful in stabilizing Israel’s economy that the Bank of Israel was already raising interest rates by September 2009 — if it hadn’t been for his age (he’s 70 today), he would have been a strong candidate to succeed Dominique Strauss-Kahn as managing director of the International Monetary Fund in 2011.

Born in what is today Zambia, Fischer spent his childhood there and in what is today Zimbabwe (and what was then the colonial apartheid state of southern Rhodesia).  Fischer first came to the United States in 1966 for his Ph.D in economics at MIT, and he remained there as a professor through 1988, when he took a position as the World Bank’s chief economist for two years.  From 1994 to 2001, he served as the first deputy managing director of the IMF during the Asian currency crisis of the late 1990s and other financial crises from Mexico to Argentina to Russia.  After a brief stint in the private sector with Citigroup, he was appointed governor of the Bank of Israel in 2005 by then-prime minister Ariel Sharon — and recommended by the finance minister at the time, Benjamin Netanyahu.  He holds dual Israeli and US citizenship, and he would have been as credible a candidate to lead the Fed as either Yellen or former treasury secretary Lawrence Summers.

As Dylan Matthews wrote earlier this year for The Washington Post, Netanyahu and Sharon took a big chance on Fischer, who wasn’t an Israeli citizen at the time of his nomination:

No matter — Fischer’s results were more than enough to assuage any doubts. No Western country weathered the 2008-09 financial crisis better. For only one quarter — the second of 2009 — did the Israeli economy shrink, by a puny annual rate of 0.2 percent. That same period, the U.S. economy shrank by an annual rate of 4.6 percent. Many countries, including Britain and Germany, fared even worse.

So what would his appointment mean for the Fed?  Continue reading Why Stanley Fischer is such an inspired choice as US Fed vice chair →

United States

Yellen is the ‘tan socks’ candidate for Fed chair — and that’s why Obama should pick her

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janetyellen

Financial reporter David Wessel provides a hilarious anecdote about Ben Bernanke, currently the chair of the Federal Reserve, from his days on the Bush administration’s economic team in his 2009 book, In FED We Trust: Ben Bernanke’s War on the Great Panic, that captures in capsule form one of the reasons why Bernanke has made such a great Fed chair: USflag

One day, Bernanke showed up for a monthly Oval Office meeting wearing a dark blue suit and light tan socks.

Bush notices. ‘Ben,’ the president said, according to one participant, ‘where did you get those socks?’

‘Gap,’ replied Bernanke. ‘Three pair for seven dollars.’

The president wouldn’t let it go, mentioning Bernanke’s light tan socks repeatedly during the forty-five-minute meeting.

At the next month’s meeting, Bernanke had convinced nearly the entire staff, as well as U.S. vice president Dick Cheney, to wear tan socks, getting the last laugh on Bush.  Beyond the innocent prank, the implication is clear enough — Bernanke, always a bit of an outsider in Washington, was wearing tan socks in a city of black socks.  That’s perhaps appropriate for a Jewish economist who grew up in South Carolina.

That distance has been one of the understated keys to Bernanke’s success as Fed chair since 2006 — he’s a rare Fed chair who has enough distance from official Washington to be a credibly independent central banker but also sufficient experience to navigate Washington’s politics.  Despite his eight-month stint as chair of the Bush administration’s Council of Economic Advisers, Bernanke had also chaired Princeton University’s economics department for six years and served as a member of the Fed’s seven-person Board of Governors from 2002 to 2005.  He’s not the kind of Washington fixture that Alan Greenspan had increasingly become in his 19 years as Fed chair, nor is Bernanke’s wife a consummate political insider like NBC correspondent Andrea Mitchell, Greenspan’s wife.

As Felix Salmon writes today at Reuters, the Fed chair is one of the two most important officers in the United States.  Bernanke’s successor, who will take office in February 2014, will be even more important to world politics, in at least an indirect capacity for his role in global markets, than U.S. secretary of state John Kerry, U.S. treasury secretary Jacob Lew or U.S. defense secretary Chuck Hagel.

Right now, there are two frontrunners:

  • Lawrence Summers, treasury secretary in the Clinton administration from 1999 to 2001, Harvard University president from 2001 to 2006 and the hard-charging director of the Obama administration’s National Economic Council from 2009 to 2010; and
  • Janet Yellen, vice chair of the Federal Reserve since 2010, president of the Federal Reserve Bank of San Francisco from 2004 to 2010, and the chair of the Clinton administration’s Council of Economic Advisers from 1997 to 1999.

The conventional wisdom is that Summers has an edge, because Obama knows him so well, and trusts him, on the basis of his role earlier in the administration.  So Obama therefore prefers to appoint Summers, as do all of the top economic policymakers close to Obama, such as Lew, former treasury secretary Timothy Geithner and current NEC director Gene Sperling.

The conventional wisdom is also that while Summers is a exceedingly brilliant and talented economist, he is not someone who values collaboration, a key trait for someone whose goal is to lead the 12-member Federal Open Market Committee that is comprised of the seven members of the Board of Governors and a rotating slate of five of the 12 regional Federal Bank presidents.  The substantive knocks on Summers are even greater.  He supported deregulation within the financial industry during the Clinton administration that allowed for the proliferation of new financial derivatives markets, and he opposed the ‘Volcker Rule’ in the 2010 Dodd-Frank package of financial reforms that restricts banks from using deposits in riskier trading.  That’s not counting his controversial turn at Harvard, when he was forced to resign over comments suggesting that men have a greater natural aptitude for the sciences nor does it take into account the conflicts of his post-government employment with private-sector Wall Street firms like Citigroup and hedge fund D.E. Shaw or his lack of actual experience within the Federal Reserve system.

Tyler Cowen at Marginal Revolution argues that Summers is preferable to Yellen because Summers has more ‘right-wing street cred,’ and therefore might work more easily with the current Republican-controlled U.S. House of Representatives and a potential future Republican presidential administration, both because he’s taken more criticism from the left than Yellen and because of Yellen’s background at Berkeley.

But Salmon argues that Yellen would be a better chair on the day-to-day matters that are crucial to stabilizing the U.S. and global economy (noting that any Fed chair would respond to a financial crisis guns-a-blazin’).  Ezra Klein, at The Washington Post‘s Wonkblog, argues that we don’t know which candidate would be stronger on financial regulation, another key Fed role.  Paul Krugman argues that Yellen’s detractors are motivated by rampant sexism:

Sorry, but it’s hard to escape the conclusion that gravitas, in this context, mainly means possessing a Y chromosome.

In the grand scheme of things, both Yellen and Summers are likely to pursue similar policies.  Even though Yellen has been labeled an inflation ‘dove,’ there’s no indication that either Yellen or Summers will abandon Bernanke’s January 2012 decision to set an explicit 2% inflation rate target for the first time in Fed history.  But the next Fed chair will most certainly wind down the Fed’s extraordinary ‘quantitative easing’ actions of the past five years whereby the Fed has purchased assets, bonds and other securities at an unprecedented rate, thereby boosting liquidity in the global financial system.

The reason to appoint Yellen is not because she is a woman, because she’s an inflationary ‘dove,’ because we think she might be a stronger advocate of financial regulation or even because she has more experience within the Fed.  It’s because she will be seen to have more independence  at a time when central bank independence will be crucial to the Fed’s success — that makes Yellen the ‘tan socks’ candidate for Fed chair, and it’s the key reason why Yellen’s nomination should be a slam-dunk case for Obama. Continue reading Yellen is the ‘tan socks’ candidate for Fed chair — and that’s why Obama should pick her →

United States

The next U.S. treasury secretary will be more important to world affairs than John Kerry

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Now that we’ve gotten the excitement about the nomination of U.S. senator John Kerry out of the way, we’re still a long way off from knowing who will succeed Timothy Geithner as U.S. president Barack Obama’s treasury secretary.

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Although in terms of protocol, Kerry will undoubtedly remain the top American diplomat, the next U.S. treasury secretary will be just as important — if not more important — than the incoming U.S. secretary of state, and he or she may well have a greater hand in setting foreign policy, given the precarious nature of the U.S. economy.

Although the most recent GDP estimates show that the economy grew at a 3.1% pace in the third quarter of 2012, growth in 2011 was around 1.7%, and any number of global factors could topple even an otherwise impregnable recovery.

Consider all of the key international issues on U.S. president Barack Obama’s agenda over the next four years:

  • the ongoing eurozone crisis and the destabilizing blowback to the U.S. economy from a eurozone breakup or further recession, unemployment and depressed aggregate demand in the European Union;
  • in the world’s second-largest economy — China — a new leader in Xi Jinping will face a slowing economy and a renminbi currency that remains elevated in value vis-a-vis the U.S. dollar;
  • in the world’s third-largest economy — Japan — a new leader in Shinzō Abe will embark upon a massive public spending binge in a country that’s set to become the largest external holder of U.S. debt (supplanting China, which held that role for a decade, and which has seen its own U.S. dollar inflows from export trade slow over the past four years);
  • Obama will want to leave office having concluded the Trans-Pacific Partnership, an ambitious trade and cooperation agreement among various North American, South American and Asian countries;
  • as the United States transitions from a net energy consumer to a net energy producer in the coming decade or so, foreign policy in the Middle East will become relatively less important as the United States becomes less dependent on Arab oil; and
  • for the first time in a generation or more, ‘investment’ and ‘boom,’ rather than ‘AIDS,’ ‘civil war,’ ‘famine’ and ‘genocide’ are more applicable to sub-Saharan Africa, taken as a whole — there remain major problems, but for the first time, the narrative of ‘cheetah’ economies from Nigeria to Ghana to Ethiopia has outpaced the narrative of horrors (like the ongoing violent morass in the Democratic Republic of the Congo).

All of that means Obama’s next treasury secretary — whether current chief of staff Jacob Lew, BlackRock CEO Larry Fink or someone else — will be at the forefront of the Obama administration’s foreign policy in the next four years.

Remember, too, that the chairman of the Federal Reserve, Ben Bernanke, has been more important than anyone else in the United States over the past four years in stabilizing the world economy after the 2008 financial panic, and his continued emphasis on expansionary monetary policy has implications that go far beyond the U.S. economy.  His term ends in 2014, and he’s indicated he won’t stay on for a third term; minds have been known to change in Washington, but economic policymakers and investors alike will be keenly interested in the policy background and ideas of Bernanke’s successor — a choice that will likely be shaped with input from Geithner’s successor (and who may even be Geithner himself). Continue reading The next U.S. treasury secretary will be more important to world affairs than John Kerry →