Now, almost a decade after the Great Recession hit, the story of its origins and course has become familiar. It began in December 2007, soon after the U.S. housing bubble burst, triggering the widespread collapse of the U.S. financial system. Credit dried up, as banks lost confidence in the value of their assets and stopped lending to one another.
Today, there is essentially one accepted narrative of the economic crisis that began in late 2007. Overly optimistic homebuyers and reckless lenders in the United States created a housing price bubble. Regulators were asleep at the switch.
With another interest rate rise potentially on the horizon, please join Federal Reserve Governor Lael Brainard for a discussion on the economic outlook of the United States and the monetary policies of the U.S. Federal Reserve.
Benn Steil’s May 20 op-ed on the PBS NewsHour Making$ense site, co-authored with Emma Smith, explains the practical and political barriers to further monetary or fiscal loosening in nations representing at least 60 percent of the global economy. This spells trouble ahead if economic conditions worsen.
Benn Steil’s latest op-ed in The Weekly Standard examines Paul Krugman’s continuing calls for fiscal stimulus, as well as his defense of government wage intervention and mercantilism. These have all been grounded in the assertion that the United States is in a “liquidity trap,” in which monetary policy is ineffective. Steil explains why the theory of liquidity traps is logically inapplicable when the central bank’s policy rate is positive, as it has been in the United States since December, and concludes that it operates as a fig leaf behind which to advocate policies with less scientific rationales.
Benn Steil’s op-ed in the March 30 edition of the Wall Street Journal, co-authored with Emma Smith, looks at presidential campaign charges that China is engaged in “currency manipulation” to boost net exports. They show that the aims of China’s pegged exchange rate regime have varied over the past two decades, and have not always been mercantilist. In recent months, with capital flowing out of China at a prodigious rate, its interventions have been to keep its currency up—not down. Launching a trade war with China over currency management, as Donald Trump and Bernie Sanders intend, would therefore be nonsensical—as well as damaging to U.S. interests.
Benn Steil and Emma Smith’s article explains the difference between using rate hikes and balance-sheet reductions to tighten monetary policy and shows why Richard Koo is mistaken in arguing for the Fed to do the latter.
The Treasury Department released this document,a side agreement of the Trans-Pacific Partnership. For the first time in the context of a free trade agreement, participating countries adopted a declaration that "addresses unfair currency practices by promoting transparency and accountability."
Benn Steil’s op-ed explains how the mechanics of implementing Federal Reserve monetary policy have changed radically since the crisis. Little known is that the new plumbing is not actually controlled by the FOMC, but by the much smaller Board of Governors. Given that the Board is decidedly more dovish than the FOMC, Fed watchers focused on the latter may be expecting a more aggressive timing and pace of rate rises than is likely.
Benn Steil’s new Forbes op-ed examines Paul Krugman's data analysis purporting to document definitively that "austerity," defined by declines in real government purchases, damaged growth between 2010 and 2013. He shows that this finding collapses entirely when he excludes countries without independent monetary policies, such as those in the Eurozone. For countries with independent monetary policies, changes in real government purchases had no effect on growth.
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