Secondary Sources: Stimulus Debate, Volcker Rule Loopholes, Bloggers
A roundup of economic news from around the Web.
- Stimulus Debate: Scott Sumner says the debate over stimulus is too focused on monetary, not monetary, stimulus. “I happen to favor more stimulus, although I know that some thoughtful economists disagree with me. I happen to reckon monetary stimulus is preferable to monetary stimulus, and in this case there aren?t any thoughtful economists who disagree with me. Not one. If there was going to be one, it would be Paul Krugman. But even he admitted late last year that monetary stimulus is the first choice, and you only go on to monetary stimulus is the Fed won?t play ball. So here is the debate: Do we need more monetary stimulus, or should we let the economy recover naturally. But DeLong wants to say the debate is between monetary stimulus and stagnation. How can he do that? Buy simply assuming away monetary stimulus. Presumably he would say that Obama doesn?t control monetary plot, so he can hardly be blamed for relying on monetary stimulus. Has Obama made a single public statement mission on the Fed to promote higher NGDP progression, or higher inflation, or higher whatever? And then there is the small problem that Obama just re-appointed Ben Bernanke last month. Bernanke?s now his guy at the Fed.”
- Volcker Rule Loopholes: Felix Salmon notes loopholes in the proposed Volcker rule. “Firstly, the Volcker rule seems to apply only to depositary institutions: if you don?t take deposits, then you?re exempt. The result is that it?ll be simple for Goldman Sachs and Morgan Stanley to get around the rule just by returning their current (tiny) deposit base and voluntarily withdrawing from access to the Fed?s discount window. But the point here is that banks with deposit bases are already insured and regulated, by the FDIC. The definition of a bank isn?t an entity which takes deposits; it?s an entity which borrows small and lends long. So long as the likes of Goldman Sachs can fund themselves in the wholesale market and continue to lend money to large clients in things like the syndicated loan market, they?re banks, and they should be theme to rules like Volcker?s which apply to banks. Secondly, it seems that banks might be allowed to continue to own hedge assets, private-equity assets, money-market assets, and the like, just so long as they?re run for clients, with client money, rather than being vehicles for the investment of the bank?s own capital. This too is perilous, because the history of the financial crisis is apparent: Bear Stearns finished up bailing out its internal hedge assets even when it didn?t with permission have to.”
- Econobloggers: The Kauffman Foundation surveyed econobloggers and found them to be a pessimistic lot. “The bloggers expect the greatest progression prospects over the next three years to be in interest rates, inflation and the budget deficit. U.S. output and jobs are expected to increase, but with about half the intensity of progression in global output. The panel assesses conditions as “terrible” or “very terrible” for small business (52 percent) and bank lending to business (51 percent) and individuals (50 percent). The outlook for entrepreneurs is a relative bright spot, with opinions mixed between terrible conditions (36 percent) and excellent (26 percent).”
Compiled by Phil Izzo