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Fed's Lacker Slams Fed For "Inappropriate" Bond-Buying, "Distorting Markets & Undermining Independence"
Authored by Richmond Fed head Jeffrey Lacker, op-ed via The Wall Street Journal,
Modern central banks enjoy extraordinary independence, typically operating free from political interference. That has proved critical for price stability in recent decades, but it puts central banks in a perpetually precarious position. Central-bank legitimacy will wane without boundaries on tools used for credit-market intervention.
Since 2009 the Fed has acquired $1.7 trillion in mortgage-backed securities underwritten by Fannie Mae and Freddie Mac , the mortgage companies now under government conservatorship. Housing finance was at the heart of the financial crisis, and these purchases began in early 2009 out of concern for the stability of the housing-finance system. Mortgage markets have since stabilized, but the purchases have resumed, with more than $800 billion accumulated since September 2012.
We were skeptical of the need for the purchase of mortgage assets, even in 2009, believing that the Fed could achieve its goals through the purchase of Treasury securities alone. Now, as the Fed looks to raise the federal-funds rate and other short-term interest rates to more normal levels, that normalization should include a plan to sell these assets at a predictable pace, so that we can minimize our distortion of credit markets. The Federal Open Market Committee’s recent statement of normalization principles did not include such a plan. For this reason, the first author, an FOMC participant, was unwilling to support the principles.
The Fed’s MBS holdings go well beyond what is required to conduct monetary policy, even with interest rates near zero. The Federal Reserve has two main policy mandates: price stability and maximum employment. In the past, the pursuit of higher employment has sometimes led the Fed (and other central banks) to sacrifice monetary stability for the short-term employment gains that easier policy can provide. This sacrifice can bring unfortunate consequences such as the double-digit inflation seen in the 1960s and 1970s.
But during the Great Moderation—the period of relatively favorable economic conditions in the 1980s and 1990s—a consensus emerged that, over time, the central bank’s effect on employment and other real economic variables is limited. Instead, the central bank’s unique capability is to anchor the longer-term behavior of the price level. Governments came to see that entrusting monetary policy to an institution with substantial day-to-day independence could help overcome the inflationary bias that short-term electoral pressures can impart.
The independence of the central bank cannot be boundless, however. In a democracy, the central bank must be accountable for performance against its legislated macroeconomic goals. What is essential for operational independence is the central bank’s ability to manage the quantity of money it supplies—that is, the monetary liabilities on its balance sheet—because this is how modern central banks influence short-term interest rates.
A balance sheet has two sides, though, and it is the asset side that can be problematic. When the Fed buys Treasury securities, any interest-rate effects will flow evenly to all private borrowers, since all credit markets are ultimately linked to the risk-free yields on Treasurys. But when the central bank buys private assets, it can tilt the playing field toward some borrowers at the expense of others, affecting the allocation of credit.
If the Fed’s MBS holdings are of any direct consequence, they favor home-mortgage borrowers by putting downward pressure on mortgage rates. This increases the interest rates faced by other borrowers, compared with holding an equivalent amount of Treasurys. It is as if the Fed has provided off-budget funding for home-mortgage borrowers, financed by selling U.S. Treasury debt to the public.
Such interference in the allocation of credit is an inappropriate use of the central bank’s asset portfolio. It is not necessary for conducting monetary policy, and it involves distributional choices that should be made through the democratic process and carried out by fiscal authorities, not at the discretion of an independent central bank.
Some will say that central bank credit-market interventions reflect an age-old role as “lender of last resort.” But this expression historically referred to policies aimed at increasing the supply of paper notes when the demand for notes surged during episodes of financial turmoil. Today, fluctuations in the demand for central bank money can easily be accommodated through open-market purchases of Treasury securities. Expansive lending powers raise credit-allocation concerns similar to those raised by the purchase of private assets.
Moreover, Federal Reserve actions in the recent crisis bore little resemblance to the historical concept of a lender of last resort. While these actions were intended to preserve the stability of the financial system, they may have actually promoted greater fragility. Ambiguous boundaries around Fed credit-market intervention create expectations of intervention in future crises, dampening incentives for the private sector to monitor risk-taking and seek out stable funding arrangements.
Central bank operational independence is a unique institutional privilege. While such independence is vitally important to preserving monetary stability, it is likely to prove unstable—both politically and economically—without clear boundaries. Central bank actions that alter the allocation of credit blur those boundaries and endanger the stability the Fed was designed to ensure.
* * *
Why would he do this? CYA? What does Lacker know that investors don't? His reasoning certainly suggests this is his 'get out of jail free' card for when the house of cards falls and he can say - see, I told you so... or maybe we are just cynical and Lacker is reflecting more generally on The Fed's actions...
Oh to be a fly in the wall at the next FOMC meeting when he enters the room.
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ahhh, the good cop, bad cop charade.
END THE FED!
Oh someone's just begging for a good nailgunning.
Yep- he'll be dead by "ebola" by noon.....
Lacker should win the Nobel Prize for Acting.
http://www.naturalnews.com/047168_conspiracy_theorists_sanity_propaganda...
The ol' good douche bad douche...
Sit. Stay. Buy a house you dont need.
Good Pavlovian hairless monkey. Good monkey
Okay Lacker, since you are such a good guy, you get hung last.
-everyone
"Modern central banks enjoy extraordinary independence, typically operating free from political interference."
LOL! What a fucking liar!
Damn, beat me to it! 'We've got trouble brewin...time to send out a Fed bad cop!'
"END THE FED!"
My thoughts exactly. Just say that, or STFU Lacker.
Lacker is to the Fed what Ron Paul is to Congress, a powerless voice of reason.
He drew the "voice of reason" card this week.
Must be his turn this week to be the dissenter.
Should read:
Fed's Lacker Slams Fed Ofr Monetizing Debt.
The "good cop/bad cop" kabuki theater from the Fed continues. Evans was just on CNBC saying the exact opposite. Desperation setting in big time.
So Evans line was the Fed is doing just right and needs to do more now? For fucks sakes.
go blow an ebola goat lacker
To help keep all the talking Fed Heads straight, here's a useful Dove/Hawk scale I refer to often: http://graphics.thomsonreuters.com/F/10/scale.swf
The average is right in the middle of the scale.
Perpetual debate perpetuates a state.
Would love to see real debate, instead they just preen for the cameras, like Congress.
Lacker is a nobody. Dudley, Yellen and Evans are all super doves and run the show.
You left out Fischer, Yogi.
Fischer's the one who eats what's in your pic-a-nice basket. Yellen merely steals it from you.
http://www.irmep.org/fischer_aipac.htm
Please, Lacker will fall in line just like Fisher did when the pressure was on.
Lacker should stay away from small planes and nail guns.
That he is merely stating the obvious will of course be lost on most readers of The Economist - which is why we can't have nice things...
Captain Obvious to the rescue!!
Obomber- 'Lemme be perfectly clear....Im not about supporting a bunch of Wall St banker folks!'
LOL people actually bought that shit.
Sheep loved the Fat Cat speech
How many seniors starved to death in the last 6 years because of ZIRP?
They still turned out to vote for him, all 110% of them.
IF there was a balance of gentiles and jews in the treasury, the FED, and the Chicago Board, instead of the monopoly that the jews have---i.e., Greenspan, Bernanke, Geithner, Gensler, J Yell and J Lew, there might be closer adherence to their charter.
But when Bernanke printed a quadrillion dollars most all it given to the Jewish Mafia on Wall Street, the FED lost any cred it ever had. It now functions to keep those from the Tribe splashing around in the lap of luxury even though, at this point Goldam Sucks, Aig, and several others run buy the Tribe should be in bankruptcy proceedings, and clawbacks in the trillions made manifest.
The FED is nothing more than a printing machine for the Jewish Mafia. Regardless of their failures including the illustrious Robert Rubin, and LArry Summers.
By all that is holy these men shoud be living under a box, cold, and hungry sucking on a paper bag. But for the FED they would be.
Exactly -- where's all the fucking "Diversity" in the banking sector and the media conglomerates? Jews have an unfair advantage because they can pass for white so nobody calls them out on it.
It's like Martians have taken over the whole world and control everything.
They control the politics, the banks, the miltary, the health industry, courts. You name it and Martians are in charge. It's brilliant in a sick kind of way because not only do the Martians use their media to tell you how full of hate you are for being pissed, but half the earthlings agree with the Martians and defend their pointy heads.
Then, the argument completely shifts from "should we stop the Martians" to how everyone is a racist! It's fucking brilliant! Mother fuckers!
they are not going to be raising rates anytime soon. plosser & fischer retiring, obama gets to nominate their replacement (hint-hint, NOT hawks going in). kochela-crackhead spoke for them yesterday: "not appropriate to raise rates in 2015" --- welcome to the roach-motel ... we're not leaving & rates are heading lower due to the great rotation OUT of stocks and INTO bonds. all the "strategists" were on the wrong side of the bond vigilantes: the REAL bond vigilantes were the ones WAITING to get INTO bonds at higher rates. they are waking up to the fact the globe is NOT growing but rather is SLOWING. so now, they are forced to get in at any level and its forcing rates LOWER. fed ghost is gone & this is the result. fuggin sucks but it is what it is. until the real heavy, industrialized shit hits the fan only will rates go higher IMO.
Then quit your job and become an advocate for ending the FED, ya douche. If not, then I have a nice piping hot cup of STFU for you.
Arrest those FED fraudsters. Arrest the FED.
If he wanted credibility, Lacker should have written this in early 2010. If you want the phoenix to rise from the ashes, something must burn. If you want nothing to burn, you are a socialist and fighting mother nature. Can humans conquer mother nature? If you say yes, please fly to Liberia and show the world the convictions of your principles.
Exactly, they're all crawling out of the woodwork now stating what was already obvious to everyone 4 years ago. I hate these guys.
The 'Opt Out' nation: Why uninsured Americans decided to pass on Obamacare - Yahoo Finance
SUCCESS!
$95 fine.....big freakin deal. Any bigger and the US population would lay waste to Congress....and I think they know it.
I think the USA deficit is goin up fast as we speak...Obamacare..the wars...immigrations costs...Ebola costs...and employment lower and incomes lower....So how in Hell can they raise rates....they cant...it will really show the world how bancrupt we are....and the faster they will run away from our dollar...our only good news is our oil and gas production...but you can bet Saudi Arabia will try to quash that by tanking the price down
Endgame here is hyperinflation. The Fedcoats MUST create inflation, which has a psychological component that is diificult to control. You've still got time to prepare.
Everyone's broke, they can't fund inflation. What we're seeing though is hyper disinflation.
But he lacks the guts to do anything about it.
They just make him say that so when everyone blames the FED they can say they were actually against this program and point to Lacker quotes.
Infinite conjecture is a sophist's best friend. Meanwhile, I'm constantly sickened by the herd's acceptence of the Fed having political mandates. The idea that a fucking bank should be in charge of managing employment levels is beyond insane. (of course, that's true with any entity, but a BANK????)
I'm going to have to start drinking much, much earlier in the day it seems.
I wish all the FED bootlickers would just stop referring to the FED as "The INDEPENDENT Central Bank".
They should just say "The PRIVATE Federal Reserve Bank, Corp."
The FED is "independent" like Exxon Mobil, McDonald's, and Berkshire Hathaway is independent.
only Congress has power to revoke charter right?
I see that Friday humor has arrived early this week.
it seems the fed has congress' blessing. i wonder what percent of the average senator's wealth is in stocks?
Two sides of the same coin:
1) FED keeps Fiscal incompetance pressure off of Congress while
2) Congress allows and profits from the FEDs feeding and enabling WS Welfare
Congress and the state legislatures thru an Article V convention.
Yup, the same congress whose officers recieve millions in funds from... the banks that own... the Fed.
do we have to put up with this horse and pony show. Can't someone just SHUT THE FRIGGING FED DOWN!
We won't have the charade and BS to contend with and can get on fixing things!
The Fed really has no ability to do anything helpful other than make the banker piece of the pie bigger at the expense of everything else. However, they could be destructive as hell if they wanted.
all Bernanke needed was 15 minutes
It does amuse me how all of these motherfuckers are coming out of the woodwork now, rather than calling it sooner and risking spooking the psuedo-bull market because they didn't want to interrupt the beta party they were busy profiting from.
Wait for more of the 'called it' crowd to emerge as they try to distance themselves from this clusterfuck. Yeah, we see what you're doing....
When you sense that justice is closing in, raise your voice in condemnation of the crimes you happily committed for 6+ years.
Quote...
"Modern central banks enjoy extraordinary independence, typically operating free from political interference. "
M'kay, unless you count Lord Rothschild's directives as, um, "non political."
Lies, misinformation and disinformation.
Do I have to post this yet again? Some dipshit named Jefferson already covered this a couple hundred years ago:
I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
Well you could modify it and eliminate "private banks" and name names. Like Greenspan, Dudley, pPaulson, Kashkari, Cayne, Fuld, Bernanke, J Yell, J Lew, Geithner, Shapiro, Summers, Rubin, and the entire banking, finance pointy heads that are responsible for the current state of monopoly by a few key people at the FED who can print money at will.
The problem lies not so much in our institutions but the hijacking of them by a Tribe of dedicated tyrants who want it all.
Why would you act as if these institutions weren't created in order to be hijacked?
Institutions are immortal, and thus are always subject to hijacking, as long as they are believed serving some other beneficial purpose.
Without the institution of external government, for example, the world's greatest criminals would be nothing but common street thugs.
I understand your sentiment. Certainly the individuals involved are a problem but I disagree with you and emphatically feel that the institution itself of the Fed is the problem. The existence of the Fed is THE problem.
As we sit here right now bitching about the Fed do we all really absorb the reality that a group of merely a handful (controlled by the "Cabal" or whatever label you choose) of self-proclaimed, genius bankers bestowed upon us from the beloved Ivory Towers can literally slap their dickbeaters across their Ipads and determine how much funny money will or will not exist/be printed, who gets it, and what market prices for various "assets" and instruments should be. Ummm, I'm thinking that is not how the Founding Fathers envisioned things.
Terminate the Fed. Install term limits. Literally I see this as the ONLY way to possibly allow human involvement in certain things. Bankers and politicians will ALWAYS resort to greed/politics. I still project the future of something like BTC comes down to whether people trust each other, mathematics, and decentralization or if they will continue to tolerate dominance/control by politicians/bankers. It's not rocket science.
+1. Just to drive your point home! :
"When a government is dependent upon bankers for money, they and not the leaders of the government control the situation, since the hand that gives is above the hand that takes. Money has no motherland; financiers are without patriotism and without decency; their sole object is gain.'
-Napoleon Bonaparte
"Banks lend by creating credit. They create the means of payment out of nothing."
- Ralph M. Hawtrey, Secretary of the British Treasury
"Paper money has had the effect that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice." .
- George Washington
"Whoever controls the volume of money in any country is absolute master of all industry and commerce."
- James A. Garfield
"The bold effort the present (central) bank had made to control the government ... are but premonitions of the fate that await the American people should they be deluded into a perpetuation of this institution or the establishment of another like it."
- Andrew Jackson
No State shall .......... coin Money; emit Bills of Credit; (and) make anything but gold and silver Coin a Tender in Payment of Debts...
-The Constitution of the United States, Article 1, Section 10
Fed dude slams Fed....
....right......
There is no end to the number of people in positions of power to royally fuck up our lives, starting from stupid Commissioners in small courts who are incapabale of even making simple rulings (John Seldomridge, Hugh Roark former comissioner and judge of Elizabethtown, KY or the judicial namesake of "dumb and dumber") all the way up to Chief Justice Roberts who opines Obamacare is a tax...when neither party even made the issue of tax as a controling issue in the arguments in the first place. In summary, there are right and wrong decisions, implying a wrong decision at least has some arguments behind it. But the incompetence is so deep, that we are no longer dealing with right or wrong decisions, we are dealing with OFF THE WALL decisions.
Lacker makes a reasonable case for why he should not be introduced to the gibbet. But he's been an eager, active supporter for the first 6+ years of contravening representative government in monetary/fiscal policy via printing and handing Preezy a blank check for war and tyranny. Sorry, bud, off with your head!
After having purchased a home at the peak in 2008 only to lose my shirt but fortunately sell, I have been leasing ever since even though I could buy. BUT, the last thing I will do is purchase another home at an inflated price and get stuck. I would much rather have a lower (reasonable) purchase price and higher interest (realistic rate) with more stability. The markets are totally screwed up. With the quantity of currency (not money) having increased to insanity, the quality has decreased to insanity. In summary it is all insane. The SHTF one day.
Apparently there was a sh*it-storm at the Richmond Fed during the 2008-Present financial crisis. Lacker went ballisitc on the NY Fed during conference calls supporting the TARP/TALF programs and other bailout proposals. He may be the sanest of the bunch - which ain't saying a whole lot.....
OK, let me get this straight, "Since 2009 the Fed has acquired $1.7 trillion in mortgage-backed securities underwritten by Fannie Mae and Freddie Mac...with more than $800 billion accumulated since September 2012...
and then I receive an accounting 101 lesson..."A balance sheet has two sides, though, and it is the asset side that can be problematic..."
So China started getting cold feet when AIG's crap started to smell due to Barney and friends illicit conduct between the sheets in promoting don't ask / don't tell policies regarding in-come and bifurcation practices. We now have an abundance of Fed paper and cyphrage circulating around the globe now back by these ever increasing, foul smelling and decomposing "assets". Something tells me there are factors other than wretched MBSs that are causing the fed's problems.
jmo.
so now that everyone knows there is a stock market correction happening, and its near the european close....will the customary trend reversal of trent into euro close, take hold once again?
this type of down 3% up 1% is death by a thousand cuts to bulls....kind of like actual bullfighting
You all are talking like you are part of the Fed's constituency. You ain't.
"In a democracy, the central bank must be accountable for performance against its legislated macroeconomic goals."
we no longer have a functioning democracy in the United States
We never did, the founders hated democracy.
Bob is right filthy dog goyim only role in the Talmud is to serve the Babylonian Princes! your souls must be eaten! How else would they prove they are true jews if they did not enslave, subjugate and dominate the filthy whitey dog goyim! I mean c'mon here people play your motherfockin roles! "idiots"
No shit Sherlock. Back door bail out to the Banksters. Simple as that. Not the first time in history. Just the latest cleavor tactic. Good luck unloading those toxic MBS. Will never happen but banks are happy. Bring on the meltdown.
"But when the central bank buys private assets, it can tilt the playing field toward some borrowers at the expense of others, affecting the allocation of credit"
That was the plan and you know it lacky!
Question for ekm1 : when did Lacker get drafted?
This statement:........ Such interference in the allocation of credit is an inappropriate use of the central bank’s asset portfolio. It is not necessary for conducting monetary policy, and it involves distributional choices that should be made through the democratic process and carried out by fiscal authorities, not at the discretion of an independent central bank. delineates the FED's own carry and demonstrates the sheer theivery of its inevitable redistribution of wealth. All of these FED heads speak with a forked tounge - trying to describe the color of the water when everybody is busy drowning in the financial and economic chaos the FED alone has created.
Its fucking retarded actually. And people like Lacker oughta STFU because he is every bit as fucking guilty as anybody - (see past FOMC minutes to see what this fucker has said in the past).
They all start pointing fingers and looking around when things go to shit.."wha...wait...me?....nuh...uhh...no..."
END THE FUCKING FED AND THEIR APOLOGISTS ALREADY.
Somebody break it to Lacker that the very FACT of money-printing by the Central Bank alters the allocation of credit.
HEY!
LACKER!
What? You pretend THIS is a side-effect?
It is NOT a side-effect. The FED is working exactly as intended.
Lacker you Dumbass.
Please tell me you're not just now figuring out what ZH'ers have known for years:
...That the Fed has caused gross capital misallocations, dislocated entire markets, and caused real, honest price discovery of virtually all asset classes virtually impossible distorting every asset beyond recognition.
Come on guys this is all a show by them to pretend they are not the thieves that they really are. ZH is falling for it by publishing this kind of article. Thought we had brighter guys at the helm. Tylers??