A criacao do Federal Reserve -- review of Roger Lowenstein's book

Roger Lowenstein, America’s Bank: The Epic Struggle to Create the Federal Reserve. New York: Penguin Press, 2015. 368 pp. $30 (hardcover), ISBN: 978-1-594-20549-1.

Reviewed for EH.Net by Gary Richardson, Federal Reserve Bank of Richmond and Department of Economics, University of California at Irvine.

Roger Lowenstein, author of a series of New York Times’ best-selling books on recent financial history, including one of my favorite homilies on hubris, When Genius Failed, has written a new book on the foundation of the Federal Reserve, America’s Bank. The book illuminates the long and painful birth of the United States’ central banking system, which involved more than a century of debate about how to structure our nation’s financial system. America’s Bank is cogent, informed, and opinionated, but also polished, enlightening, and entertaining. The book is a work of scholarship based upon primary sources and demonstrating mastery of the academic literature. It could have been submitted as a doctoral dissertation in history at most universities in the United Sates, but it captures readers’ imaginations in ways that academic writing seldom does. It tells a story with heroes, like Paul Warburg, and ghosts, like Andrew Jackson, and brings to life politicians whose names every school child in the United States remembers, like Woodrow Wilson and William Jennings Bryan, and that most people have forgotten, like Carter Glass and Nelson Aldrich.

The introduction’s first paragraph establishes that the author is not an apologist for the Fed, with some offhand skepticism about recent Fed decisions. The author notes that the Fed today has enormous influence around the world, and that it “manages, sometimes adroitly and sometimes wantingly, the supply of credit whose ebb and flow alternately buoys and batters business. It supervises — or it is supposed to supervise — the nation’s banks” (p. 1).

After that, the book describes the Fed’s creation as a crowning achievement of Progressive politics circa 1913. The Federal Reserve Act reconciled ideas and ideals of three main streams of turn-of-the-century political thought — progressive, populist, and laissez-faire. The leaders of all of these movements in both political parties contributed ideas to and advocated passage of the final legislation. This reconciliation bridged intellectual and political divides between those in favor of and hostile to centralization and federalism which had bedeviled the American republic since its birth after the revolution from England.

The book’s introduction recounts Alexander Hamilton and Thomas Jefferson’s debate over the first Bank of the United States. Their debate sets the stage for “The Road to Jeykyl Island,” which is Part One of the book. Chapter 1 tells how “national bank” and “central bank” became phrases of condemnation in America’s political lexicon. The chapter explains the monetary babel of colonial and antebellum America, when thousands of currencies, all denominated in dollars of different potential values were issued by thousands of privately owned and operated commercial banks. This monetary chaos impeded commerce and bred panics, which every fifteen years or so shut down the financial system, triggering long and painful recessions. Each recession inspired a flurry of reform proposals by businessmen and politicians. The reiteration of recession and reform fills much of Chapters 2 and 3. These chapters also introduce the protagonists of this part of the narrative: Republican senator Nelson Aldrich, the chair of the Senate Finance Committee; Frank Vanderlip, president of National City Bank of New York (now Citibank) and a former Treasury official; and Paul Warburg, a successful, German-born financier who was a partner at the leading investment bank Kuhn, Loeb, and Co (which merged with Lehman Brothers in the 1970s). While these well-intentioned men and many others hoped to reform financial institutions which they believed impeded American commerce and industry, political tensions kept all of their plans on the drawing board. Chapters 4 through 6 focus on the Panic of 1907, the political response, the National Monetary Commission, and the realization rising in the minds of many businessmen and politicians that America should and could create a central bank. These efforts culminated in the Aldrich Plan to create a National Reserve Association, which the National Monetary Commission submitted to Congress without informing them that the initial draft of the plan had been written, secretly, by a cabal consisting of Aldrich, Vanderlip, Warburg, A. Piatt Andrew (an economics professor from Harvard and Assistant Secretary of Treasury), and Henry Davison (a senior partner at J.P. Morgan, a founder of Bankers Trust, and an adviser to the National Monetary Commission). Their infamous vacation on Jekyll Island, when they pretended to be on a duck hunt but actually wrote a proposal for a central bank, is the topic of Chapter 7.

My review skims over these chapters, because the content in them is well known, at least among economic historians. Elmus Wicker (2005) details the recession-reform dynamic in his monograph entitled The Great Debate on Banking Reform. Wicker elucidates the roles of Aldrich and Warburg and the conclave at Jekyll Island. That story has been known for nearly one hundred years. In 1916, B.C. Forbes wrote about it in articles published in Leslie’s Weekly and the magazine Current Opinion. The participants themselves denied the Jekyll Island caucus had occurred for twenty years, until the publication of Aldrich’s biography in 1930, after which all of the participants revealed their roles in drafting the blueprint for the Federal Reserve. From these personal accounts and the conventional academic literature, Lowenstein has crafted a compelling narrative that is accurate, informative, and fun to read. I’ve recommend this section of the book to students and relatives, including my brother and a cousin, who received copies for Christmas and found every page fascinating. A specialist who has read Wicker or the original sources will find pleasurable prose and a source to assign to students, but few historical revelations.

Why then, do I believe Lowenstein’s work merits substantial scholarly praise? The second part of the book, entitled “The Legislative Arena,” crafts a new and coherent account of the Jekyll Island proposal’s tumultuous transition into Congressional legislation acceptable to the American electorate. Numerous accounts exist, but often disagree, even on basic points, due to the cacophony of competing claims over authorship of the Federal Reserve Act. In 1914, Edwin Seligman, a prominent professor at Columbia University, wrote that “in its fundamental features the Federal Reserve Act is the work of Mr. Warburg more than any other man.” In the 1920s in his memoir, An Adventure in Constructive Finance, in speeches, and in submissions to prominent publications including the New York Evening Post and the New York Times, Carter Glass claimed credit for the key ideas in the Act. Critics responded. One example is Samuel Untermyer, former counsel to the House Committee on Banking and Currency. He published a pamphlet titled “Who is Entitled to the Credit for the Federal Reserve Act? An Answer to Senator Carter Glass,” in which he asserted that Glass’s claim of primary authorship was “fiction,” “fable,” and a “work of imagination.” Glass, he argued, claimed credit for many ideas advocated by Senator Robert Owen and Congressional staff. Another example is Paul Warburg. In reply to Glass’s memoir, Warburg published a two-volume tome describing his “recollections of certain events in the history of banking reform,” including copies of correspondence between himself and other founders of the Federal Reserve, and a line-by-line comparison of the Aldrich Plan, originally drafted at Jekyll Island and submitted to Congress in the final report of the National Monetary Commission, and the final Federal Reserve Act, which evolved from bills introduced in the House by Carter Glass and the Senate by Robert Owen in the spring of 1913. Warburg demonstrated that much of the text of the Federal Reserve Act was identical to text of the bill submitted by the National Monetary Commission and also to text of reform proposals that he had written single-handedly and published prior to the conclave on Jekyll Island.

As a professor of economics and professional historian, I had despaired at the confusion concerning who should receive credit for the creation of the Federal Reserve, confusion literally carved in stone on statues in the foyer of the Federal Reserve Building. I knew of one account, a chapter in a biography of Woodrow Wilson, which covered part of this ground, but I feared a comprehensive and coherent account would never emerge.

The second part of Lowenstein’s book fills this void. Chapter 8, “Into the Crucible,” tells how Warburg and other allies of Aldrich advocated for financial reform. They circulated the plan among bankers, incorporated suggestions, and established the National Citizens’ League for the Promotion of a Sounding Banking System, which sought to popularize reform on Main Street as well as Wall Street. Opposition solidified among progressives and Democrats, who feared the Aldrich Plan to create a National Reserve Association was a Trojan horse destined to create a national banking monopoly. Chapters 9 and 10 cover the 1912 presidential campaign, when opposition to the creation of a central bank appeared as a key plank in the Democratic Platform, and William Jennings Byran required Woodrow Wilson to publicly repudiate the Aldrich Plan in return for political support. Chapters 10 through 13 tell how after winning the election, the Democrats adopted the mantle of reform, and turned the Republican plan to create a National Reserve Association into their own plan to create a Federal Reserve Association, based upon similar scientific principles but with a different political superstructure. President Wilson then convinced Republicans and Democrats as well as progressives and populists to vote for the proposal, which was signed into law two days before the first Christmas of Wilson’s presidency.

Lowenstein’s novel narrative is a substantial scholarly achievement. I checked many of his sources, and over the phone and in person, I questioned him about how he came to key conclusions. Future historians may revisit aspects of his story, but I believe the core of his work will stand the test of time. I recommended this part of the book to members of the Federal Open Market Committee, to my Ph.D. advisor (who told me he had learned little from the first half of the book and stopped reading) — and I recommend it to readers of my review.

The epilogue discusses how our nation’s perpetual debates about centralization versus local autonomy, Main Street versus Wall Street, and elastic versus stagnant monetary systems continue today. While reiterating these core concepts may be useful, the epilogue is the weakest part of the manuscript. It begins by stating that “The Federal Reserve System established in 1913 was identical in its framework to the system today. The federalist structure enacted a century ago remains in force; so does the essential purpose … along with setting short-term interest rates … the Fed is in charge of the nation’s monetary policy.” These statements seem misleading or incorrect. The Banking Act of 1935 replaced the Fed’s federalist structure of regional Reserve Banks with authority to operate independently with a national central bank controlled from Washington via the Board of Governors and Federal Open Market Committee. When the Fed was founded, its essential purpose was not monetary policy. The original Fed determined neither the inflation rate nor the exchange rate. Those aggregate prices were set by the gold standard, which had been de jure since the Gold Act of 1900 and de facto for several decades before. The original Fed did not alter interest rates to influence levels of employment, unemployment, or output. Despite my qualms about the epilogue (and a quibble about the inconsistent and inaccurate use of the term “fiat money” throughout the manuscript), I think America’s Bank is worth reading repeatedly. I will assign it to undergraduates when I teach about the history of the Federal Reserve, and I will keep a copy on my bookshelf next Alan Meltzer’s three-volume History of the Federal Reserve and Milton Friedman and Anna Schwartz’s Monetary History of the United States.

Reference:

Elmus Wicker, The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed, Columbus: Ohio State University Press, 2005.

Gary Richardson is the Historian of the Federal Reserve System, a research economist at the Federal Reserve Bank of Richmond, a professor of economics at the University of California at Irvine, and Research Associate at the National Bureau of Economic Research.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (February 2016). All EH.Net reviews are archived at http://eh.net/book-reviews/

Ah, essa Plutocracia americana! A alianca entre o poder e o dinheiro num livro sobre a criacao do Federal Reserve (1913)

Livro percorre alianças entre bancos e o governo dos EUA

ELEONORA DE LUCENA
DE SÃO PAULO

24/05/2014  

Na ilha de Jekyll, no litoral da Geórgia, costa leste dos EUA, surgiu o conceito de condomínio de milionários. Lá, no início do século 20, banqueiros, políticos e industriais passavam férias exclusivas numa paisagem onde predominavam carvalhos, pântanos, dunas e ventania.

Em 1910, o lugar foi cenário de uma reunião secreta. Por dez dias, um seleto grupo de banqueiros e altos funcionários do governo norte-americano discutiram as bases da criação do banco central dos EUA, o Fed.

Os Estados Unidos se recuperavam do pânico de 1907 e constatavam que precisavam de solidez no sistema bancário, cada vez mais amplo. Os barões industriais e seus filhos estavam se transformando em financistas e queriam uma fórmula para enfrentar emergências e catapultar sua influência pelo mundo.

A criação do Fed, em 1913, significou a aliança entre os poderes da presidência da República e dos banqueiros. Apesar da retórica da independência técnica, o banco central serve primeiro aos banqueiros, mantendo o fluxo de dinheiro e atuando como emprestador de última instância.

A visão é da jornalista norte-americana NomiPrins no recém lançado "All the Presidents'Bankers - The Hidden Alliances that Drive American Power" [todos os banqueiros dos presidentes, as alianças ocultas que movem o poder americano]. "A matemática das operações do Fed foi concebida para servir principalmente os grandes bancos", escreve.

Num trabalho minucioso, ela recupera cartas, jantares, telefonemas, documentos que contam a história dessa relação solidificada a partir dojantar de peru recheado com ostras na ilha de Jekyll há mais de cem anos.

GUERRAS E CRISES

Já na Primeira Guerra Mundial, onde foi importante a atuação do banco Morgan, o livro mostra como se confundiram os interesses de bancos e governo. Papéis para levantar fundos para guerra foram lançados amplamente.

Pequenos agricultores, trabalhadores urbanos e empresários se transformaram em investidores, num movimento que, depois, desaguaria na crise de 1929. Dinheiro barato do Fed para os bancos pavimentou a explosão especulativa daqueles anos.

Na recessão dos anos 1930, bancos foram criticados por segurar empréstimos para mover a economia. Mais do que isso: investigações comprovaram práticas fraudulentas e manipulações que levaram o país ao desastre.

Com Franklin Delano Roosevelt, os banqueiros viveram tempos tensos, com a aprovação de legislação restritiva. A lei Glass-Steagall, de 1933, forçou a separação entre bancos comerciais e de investimentos (ela só seria derrubada por Bill Clinton em 1999). Rooselvet, amigo e vizinho de Morgans, Rockefellers eVanderbilts, chegou a ser classificado por eles como um traidor de sua classe.

A Segunda Guerra Mundial turbinou o desempenho dos EUA e estreitou as relações entre as finanças e governo para acelerar a economia. Foi quando os bancos norte-americanos dispararam sua internacionalização, consolidando a dominação do dólar.

MAIS PODEROSOS

A partir do governo Reagan, começa a desregulamentação, beneficiando os grandes bancos, que passam a concentrar mais poder. No final dos anos 1990, milionárias contribuições a partidos políticos ocorreram na derrubada da legislação que restringia ações nasfinanças –abrindo a porta para a crise que estourou em 2008.

Detalhista até a gestão Carter, o livro fica mais rarefeito quando entra nos anos 1980. Segundo a jornalista, existe dificuldade em obter informações de bastidores a partir desseperíodo –não há gravações da Casa Branca desde Nixon, e banqueiros não costumam escrever cartas e telegramas como antes.

Já tendo atuado em instituições de Wall Street,Prins é pessimista. Enxerga bancos mais poderosos, interconectados e com menos preocupação com o público. Para ela, Obama não tem poder para forçar reconstrução nas finanças, que hoje ocupam uma posição de maior influência do que antes do crash de 1929.

"All the Presidents' Bankers - the Hidden Alliances that Drive American Power"
AUTORA Nomi Prins
EDITORA Nation Books
QUANTO A partir de US$ 15 (R$ 33,45; 544págs.)
CLASSIFICAÇÃO Bom 

Presidente do Banco Central Br, tipo exportacao... para presidir o Fed

Armínio Fraga foi cotado para comandar o Banco Central americano

Ex-presidente do BC brasileiro durante o governo de FHC foi citado pelo ex-secretário do Tesouro americano como 'confiável e competente'

13 de maio, 2014

Timothy Geithner, ex-secretário do Tesouro americano e atual presidente do Warburg Pincus (um fundo de compra de participações empresariais), sugeriu ao presidente Barack Obama o nome do brasileiro Armínio Fraga para presidir o Federal Reserve, o banco central americano. O cargo é ocupado desde fevereiro deste ano por Janet Yellen, a primeira mulher a assumir o posto.

Fraga, que presidiu o Banco Central brasileiro durante o governo de Fernando Henrique Cardoso e atua como conselheiro econômico do candidato tucano à presidência, Aécio Neves, é mencionado no livro de memórias de Geithner (lançado na última segunda-feira, 12, nos EUA) Stress Test – Reflexões sobre Crises Financeiras, como “confiável e competente”. Na publicação, o ex-secretário recorda a crise financeira global de 1998, que levou à desvalorização do real, após um período de paridade com o dólar.

“Após abandonar uma tentativa inicial de se manter a paridade do real com o dólar, uma brilhante liderança econômica no Brasil conseguiu dar a volta por cima em poucos meses”, relata. Timothy Geithner fez questão de citar a dupla cidadania de Armínio Fraga: “O então presidente de Banco Central brasileiro, Armínio Fraga, que também tem cidadania americana, foi tão notável que mais tarde eu o mencionei para o presidente Obama como um potencial presidente do Fed”.

O livro tem 580 páginas e analisa, logo no início, a crise dos anos 1990 no país, além de detalhar o efeito tequila no México, a crise russa e a do Sudeste Asiático. Porém, em sua maior parte, trata da crise de 2008 e do polêmico resgate aos bancos depois do colapso do Lehman Brothers. Na ocasião, Geithner era presidente da divisão do Fed em Nova York.

Fontes: Folha de S.Paulo-Armínio Fraga foi sugerido para Obama para comandar o Fed

Federal Reserve: aniversario de cem anos, e tao incompetente quantosempre foi - El Pais

Nao evitou crises, nao protegeu a população da inflação, não defendeu o dólar. Algum motivo de comemoração?

Na verdade, não se trata só do Fed: governos são incompetentes e politicos sempre perdulários.

Paulo Roberto de Almeida 

Un siglo definiendo el poder de la Reserva Federal de EE UU

9 El Pais Economia / by Sandro Pozzi 

/ 21/12/2013

Benjamin Strong fue uno de los que mejor conocía el sistema financiero de EE UU. Eso le convirtió hace un siglo en un poder dominante en las cosas del dinero. Para entonces había 7.500 bancos en el país, que operaban completamente independientes los unos de los otros. Solo compartían los riesgos. Wall Street gobernaba una economía dependiente de la fortuna de magnates como John Pierpont Morgan, Paul Warburg o John Rockefeller.
El nombre de Strong aparece en la historia como el primer presidente de la Reserva Federal de Nueva York, el brazo ejecutor del banco central más poderoso del mundo. Llevó tres años crear el organismo que durante los últimos ocho dirigió Ben Bernanke. Todo empezó con una reunión secreta en Jekyll Island, el lugar de retiro de la élite de la época en la costa de Georgia. Este lunes cumple el primer centenario de su fundación, a un mes de que Janet Yellen se convierta en la primera mujer en dirigirlo.
Será la décimo quinta personalidad al frente de la Fed desde que Charles Hamlin asumiera ese mismo cargo en agosto de 1914, ocho meses después de que presidente Woodrow Wilson estampara su firma en el acta que dio vida a la autoridad monetaria. La primera reunión de su consejo de gobierno, en la que participó Strong, llegó en diciembre de ese año. Pero entonces, la figura del chairman estaba subordinada a la secretaría del Tesoro.
La concepción de la Fed no fue fácil. Surgió al tercer intento. Hubo ya una especie de banco central creado por Alexander Hamilton en 1791, durante la presidencia Thomas Jefferson. Pero funcionó solo dos décadas, lo que autorizó el Congreso. El segundo lo torpedeó el presidente Andrew Jackson, en 1836. Fracasaron por la desconfianza hacia la centralización del poder. Por eso el sistema de Fed está diseñada con 12 bancos regionales.
La experiencia de Europa sirvió de modelo para tratar de transformar el sistema y eliminar situaciones de pánico como la que se vivió tras el terremoto de San Francisco. Ese fue el primer objetivo de la Fed. Nació como un banco de bancos con capacidad de crear dinero. Como señala Athanasios Orphanides, profesor del MIT y exgobernador del Banco de Chipre, “la existencia de una nación puede verse amenazada si no hay poder de emitir dinero”.
Evitar las crisis bancarias no fue lo único que tenían en mente los fundadores. El segundo fue proteger el dólar. Para entonces, EE UU era ya la mayor economía del mundo, pero la proyección de su moneda era menor. Gran parte de las exportaciones e importaciones se financiaban por bancos europeos. La Fed abrió la puerta a su banca para operar en ese negocio, justo cuando la Primera Guerra Mundial desolaba Europa y sus mercados financieros.
Las entidades estadounidenses empezaron literalmente a comerse el mundo. Una década después de nacer la Fed, financiaban la mitad del comercio internacional con EE UU como origen o destino. El dólar se convirtió en la principal moneda de reserva. Para entonces, la Fed ya desarrollaba las primeras políticas para contener precios y creó el órgano que dirige la política monetaria.
En ese momento, en 1928, la atención de la Fed se tornó hacia Wall Street y en buscar la manera de evitar que el crédito no fuera utilizado para alimentar la especulación. Empezaron a imponerse las primeras restricciones a la banca para limitar lo que podían hacer con el dinero que les prestaba. Aún se debate si el apretón fue el que provocó el frenazo que desencadenó la Gran Depresión.
Ocho décadas después, también se discute si la Fed está en el origen de los problemas que arrastra EE UU por su pasividad ante la burbuja tecnológica y su ceguera ante la inmobiliaria. También sobre si el sistema está en realidad construido para beneficiar a los grandes bancos, por su pobre supervisión antes de la crisis. La Fed que hereda Yellen vive así el momento más controvertido desde el periodo de la Gran Inflación de los años 1980.
Es el mismo forcejeo que tuvo que afrontar Charles Hamlin. Como señala Jerry Jordan, expresidente de la Fed de Cleveland, “llevamos un siglo debatiendo sobre el concepto del banco central y el monopolio de la autoridad monetaria”. En su caso, dice que la independencia de la Fed “es un mito” porque, por un lado, trata de corregir los errores del Gobierno, y, por otro, porque no hay reglas que gobiernen cómo inyecta la liquidez.
Julio Rotemberg, de la Universidad de Harvard, señala que la manera de actuar de la Fed sufrió muchos cambios durante los últimos 100 años y ve un patrón. “Cuando algo va mal, enseguida hay una competencia entre los críticos por explicar sus errores y en ese momento la Fed se siente culpable y trata de no cometer el mimo pecado”, explica. Admite que el banco central cometió fallos. “Pero también hay algo de misterio”, remacha.
Entre los que más cargan en público contra la Fed se encuentra George Selgin, de la Universidad Georgetown. Señala que el banco central tiene ahora más poder que nunca y su mayor balance en la historia, con cerca de cuatro billones en activos. “¿Así es cómo se mide su éxito?”, se pregunta con ironía, señalando que EE UU vive en una de las recuperaciones más lentas de la historia. “La Fed está desesperada por decir que su estrategia funciona”.
William Fleckenstein, autor de Greenspan’s Bubbles, considera que la Fed “fracasó” a la hora de prevenir calamidades económicas y financieras. No solo se refiere a las dos últimas burbujas, piensa que está creando una nueva manteniendo los tipos en el 0% y con la compra masiva de deuda. Tampoco se resolvió la opacidad y el apalancamiento del sistema bancario. Como Selgin, lamenta que la Fed no sea responsable de sus errores.
Orphanides deja claro que la creación de la Fed fue “una buena idea”. Pero igual que un país necesita de un banco central para garantizar el correcto funcionamiento de un sistema monetario, prerrequisito, dice, para la grandeza de cualquier nación, la gran cuestión es “cómo debe ejercer su poder para no crear problemas en el futuro”. Por este motivo considera que la Reserva Federal debe aceptar las cosas que hizo mal y mejorarlas.
El presidente Bernanke sí admitió recientemente en un discurso dedicado a los 100 años de historia de la Fed que la institución falló a la hora de cumplir el mandato de preservar la estabilidad. Pero se refería en su caso a la Gran Depresión. También atribuyó los errores a la muerte de Strong, en 1928, que dejó un sistema aún muy descentralizado sin un líder efectivo, y a una carencia intelectual que los impidió entender lo que sucedía.
Bernanke no hizo la misma admisión respecto a la última crisis, pero sí señaló que la historia muestra que la doctrina y la práctica de la Fed nunca son estáticas. “Nosotros y cualquier banco central mundial deberá seguir trabajando duro para adaptarse a los eventos, a las nuevas ideas y a los cambios en el ámbito económico y financiero”, remachó Bernanke en su intervención.
“Claro que se cometieron errores”, remacha Gerald O´Driscoll, tras calificar el registro del banco central de “mixto”. Se refiere a su incapacidad para generar una recuperación normal, especialmente del empleo. Sin embargo, concluye que pese a las críticas y los ataques, como del congresista republicano Ron Paul, “la abolición de la Fed que algunos profesan es impensable”. “La historia sí muestra con claridad”, añade, “que una reforma fundamental es necesaria”. Así como comienza el segundo siglo de la Fed.

Email

Visit website

As origens da inflacao monetaria nos EUA - Joseph Salerno

How the Fed Learned to Stop Worrying and Love Easy Money
by Joseph T. Salerno 

Mises daily, on November 2, 2013

In this selection from chapter 19 ofReassessing the Presidency (newly available as an ebook from the Mises Store), Joseph Salerno examines one example of how the Federal Reserve and U.S. presidents work together to expand the size and scope of government.

... It was not ultimately budget deficits that allowed Kennedy to initiate the corporatist planning and militarization of the U.S. economy that bore first fruit in the emergence of the American welfare-warfare state during Johnson’s Great Society and culminated in Nixon’s fascist New Economic Policy. The policy that facilitated Johnson’s simultaneous financing of extravagant expenditures on welfare programs and the military adventure in Vietnam and made conditions ripe for Nixon's imposition of wage and price controls was not newfangled functional finance but old-fashioned monetary inflation. As the historian of macroeconomic policy, Kenneth Weiher, has pointed out, it was not the much-vaunted “fiscal revolution” but the overlooked “monetary revolution” that took place during the Kennedy administration which turned out to be the predominant influence on the economic events of the 1960s and 1970s. As Weiher stated: “There was a revolution all right, but the most important change occurred at the Federal Reserve; however, 10 years passed before more than a handful of people caught on to what was happening.”

$4.95

In the three years of the Kennedy administration the growth of the money supply as measured by M2 averaged about 8 percent per year. If we take the eleven prior years going back to 1950, the rate of growth of M2 averaged 3.6 percent per year; if we go back four more years, to the first postwar year of 1946, the average annual rate of M2 growth over the fifteen-year period drops to 3.3 percent.
There were basically two reasons why the role of monetary policy tended to be so grossly underplayed in the economic histories of this period. The first was that the new economists themselves, as unreconstructed Keynesians, uniformly denigrated the potency of monetary policy while touting the effectiveness of fiscal policy. Thus the Kennedy tax-cut bill, which did not even take effect until 1964, receives the lion’s share of the credit for stimulating the recovery from the 1960-1961 recession. Second, because most economists since the 1930s, including and especially those of Keynesian orientation, identified inflation with increases in the price level, and interpreted the 1.2-percent average annual rate of increase of the CPI during the period 1961-1963 as evidence of the absence of inflation ...
Despite the negligible increase in the CPI, however, the effects of the rapid, and initially unanticipated, monetary inflation were visible in credit markets as real interest rates trended steadily downward throughout the decade. Unfortunately, both Keynesian and central bank orthodoxies of the 1960s focused on the nominal interest rate as an important indicator of the degree of ease or restraint of monetary policy, making no allowance for the effect of inflationary expectations on the nominal interest rate. Consequently, neither the new economists nor the monetary authorities believed that monetary policy was “unduly” expansionary because short-term nominal interest rates rose from 1961 to 1963. Indeed, the new economists were quite pleased with monetary policy during this period, an attitude typified in Seymour Harris’s observation that “the [Federal Reserve] board provided the country with a reasonably easy money policy ...”
Given that monetary policy was indeed grossly inflationary during the Kennedy years, what accounts for the sudden and radical shift in Federal Reserve policy from the moderate inflationism under the Eisenhower administration? The answer is Kennedy and his new economists, who conducted a relentless and incessant campaign for easy money from the very beginning of his administration. This campaign took the form of repeated public utterances on the part of the president and his economic advisers, as well as direct presidential pressure on William McChesney Martin, who was chairman of the Fed under Eisenhower and continued in that position until 1970.
Kennedy and key members of his administration also doggedly prodded the Fed, both publicly and privately, to ease monetary policy, even threatening to terminate its independent status if it did not acquiesce. As early as his campaign for the presidency, Kennedy expressed his disappointment with the Fed’s tendency to resort to restrictive monetary policy to rein in inflation and his intention to break with such a policy. In April 1962, Kennedy petitioned Congress for a revision of the terms of the Fed chairmanship that would enable each president to nominate a new chairman at the beginning of his term. Heller, Treasury Secretary Dillon, and Treasury Undersecretary Roosa also weighed in with calls for the Fed to ease monetary policy. Despite some initial foot-dragging and repeated caveats that the Fed would only finance real economic growth and not budget deficits, Fed Chairman Martin ultimately capitulated to the insistent demands of Kennedy and the new economists for a cheap-money policy. In fact, in February 1961, the Fed abandoned its long-standing “bills-only doctrine,” which dictated that open market operations be conducted exclusively in the market for short-term securities. In doing so, the Fed was accommodating the administration’s request to reduce long-term interest rates by buying long-term securities while simultaneously selling short-term securities in order to nudge up short-term interest rates. This attempt to artificially twist the interest-rate structure — nicknamed Operation Twist — was devised by the new economists to accomplish two goals: to stimulate domestic business investment and new housing purchases and to discourage the outflow of domestic and encourage the inflow of foreign short-term capital as a means of mitigating the U.S. balance-of-payments deficit. Needless to say, this attempt to have one’s cake and eat it too — to pursue a domestic cheap money policy and to avoid its adverse consequences for the balance of payments — was a failure ...
Our conclusion then is that Kennedy and the new economists succeeded in wringing from the Fed precisely the inflationary monetary policy they desired and that this policy represented a radical break with the monetary policy pursued in the 1950s. This conclusion, which is certainly reflected in the money-supply growth rates cited above, also accords with the perceptions of the new economists themselves. Seymour Harris, long-time Kennedy economic adviser and chief academic consultant to the Kennedy Treasury, made this pellucidly clear in his book on the economic policies of the Kennedy years. Harris concluded that:

In short, monetary policy under Kennedy was much more expansionist than under Eisenhower. ...
Federal Reserve policy in 1961-1963 was not like that of 1952-1960. At the early stages of recovery in the 1950s, the Federal Reserve, overly sensitive to inflationary dangers, aborted recoveries. Whether the explanation was the growing conviction that inflation was no longer a threat, or whether it was an awareness that the Kennedy administration would not tolerate stifling monetary policies, the Federal Reserve made no serious attempts to deflate the economy after 1960. In fact, in 1963 Mr. Martin boasted of the large contributions made to expansion ...

Thus, inflationary monetary policy was the sine qua non for the regime of permanent budget deficits that was initiated in the early 1960s and continued uninterrupted almost to the end of the twentieth century. That private investment was able to continually expand concurrently with sharply increasing government spending on military and other programs was attributable in large measure to the fact that, during the Kennedy years, the Fed was induced to “cooperate” by routinely monetizing the cumulating budget deficits necessary to finance these programs.

Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.
Joseph Salerno is academic vice president of the Mises Institute, professor of economics at Pace University, and editor of the Quarterly Journal of Austrian Economics. He has been interviewed in the Austrian Economics Newsletter and on Mises.org. Send him mail. See Joseph T. Salerno's article archives.
You can subscribe to future articles by Joseph T. Salerno via this RSS feed.

O FED e as duvidas da economia americana - Rogerio Studart

Sai Summers, ficam as incertezas

Rogerio Studart *

19/09/2013

Como um dos economistas mais influentes na administração Clinton (de quem foi Secretário do Tesouro), Lawrence Summers foi um dos principais defensores do processo de desregulamentação financeira. Este processo por sua vez permitiu os três pilares da crise de 2008: a consolidação acelerada do setor financeiro norte-americano (gerando o problema sistêmico conhecido como “too big to fail”); o desenvolvimento de uma série de instrumentos financeiros (como alguns tipos de derivativos) utilizados basicamente para manobras especulativas; e o crescimento sem precedente da alavancagem e do risco sistêmico.

Já fora do governo, continuou a defender o avanço daquelas inovações e da alavancagem financeiras, mesmo quando os sinais de perigo eram evidentes. Por exemplo, em 2005 na reunião anual de Jackson Hole, dos presidentes dos principais bancos centrais do mundo, Raghuram Rajan (hoje liderando o Banco Central da Índia) demonstrou em um artigo que a existência de produtos financeiros complexos, somada a uma estrutura de remuneração dos principais executivos financeiros, gerava incentivos perversos, que terminavam por engendrar bolhas especulativas e elevados níveis de risco (sistêmico) para toda economia. Com isto, Rajan apresentou uma das mais contundentes evidências de que a liberalização financeira então em curso estaria levando a economia a uma crise de grande escala, com possíveis efeitos catastróficos.  Summers pediu a palavra e, de pé, basicamente desqualificou os argumentos de Rajan, chamando-o por fim de “ludita” – ou seja, um radical que se opõe ao progresso.

Summers é um economista controverso, para dizer o mínimo. Além de seu decisivo apoio a politicas econômicas que se mostraram desastrosas, ele não mede suas palavras, mesmo quando para falar de infundados preconceitos. Por exemplo, ainda como presidente da Universidade de Harvard, fez declarações tidas como sexistas, dentre as quais a de que “a baixa representação de mulheres em ciências exatas e engenharia se devia a uma diferença da habilidade das mulheres nestes campos, e não por razões de discriminação e socialização”.

Apesar disto tudo, sua nomeação ao Fed, o banco central norte-americano, era dada como certa. De fato, Obama tem razões de ser-lhe grato. No começo do seu governo, Summers atuou como um dos seus principais assessores nos programas de salvamento do setor financeiro e nos de estímulo econômico que se seguiram – cujos resultados, frente à profundidade da crise de 2008, são tidos como bons. Mas Obama teria alguma dificuldade de defender o nome de Summers perante o comitê do senado responsável pela nomeação – já que quatro membros, democratas, entre os doze senadores do comitê já haviam se declarado contrários a esta possível nomeação, mesmo antes das audiências protocolares.

Neste último domingo, Larry Summers retirou sua candidatura. A sua saída da disputa é, de certa forma, uma boa notícia. E não somente por suas declarações machistas, o que, a meu ver, já seria por si só uma boa razão para não nomeá-lo. Mas porque ela sinaliza que uma parte da sociedade americana não esqueceu a História recente, e como a visão de Summers sobre economia e sobre política econômica foram desastrosas para esta sociedade – e para o resto do mundo.

A saída da competição de Summers é, portanto, um alívio. Mas, infelizmente ela não é um indicador de como o Fed irá se comportar no futuro próximo, nem muito menos uma garantia de que a História não se repetirá.  No que tange à futura atuação do banco central norte-americano, o debate principal aqui é se se deve ou não dar continuidade à política extremamente expansionista dos últimos cinco anos – o chamado “quantitive easing” (QE). Esta política se iniciou em 2009 com a compra sistemática de ativos financeiros privados de longo prazo (incluindo hipotecas). Esta política gerou pelo menos dois enormes inconvenientes. Por um lado, desde 2008 o balanço das gigantes instituições financeiras privadas engordou quase simetricamente ao crescimento acumulado do passivo do Fed (cerca de US$ 3,7 trilhões). E como houve um processo de consolidação do setor financeiro após a crise, agora estas instituições são ainda maiores e mais concentradas do que antes. Ou seja, nunca o argumento de “too big to fail” foi mais válido: a bancarrota de uma única grande instituição americana poderia mais que nunca gerar processos encadeados de quebra nos Estados Unidos e no mundo.

Por outro lado, o crescimento e consolidação das instituições financeiras privadas têm possibilitado crescentes “voos especulativos” dentro do sistema. Já falamos, na nossa coluna, como alguns destes “pousaram” em economias emergentes, na forma de fluxos de capital excessivos – com todas as suas sequelas desestabilizadoras. Mas, para o debate interno nos EUA, o que mais tem preocupado é a possibilidade que, de novo, se esteja criando uma bolha no mercado acionário, e, especialmente, no mercado imobiliário. Nós todos já vimos este filme antes, e o final não foi feliz.

Tudo isto indicaria que o Fed deveria começar a repensar sua forma de atuação já na sua próxima reunião. Porém há um “detalhe”: apesar da melhora do mercado de trabalho americano, os sinais de recuperação ainda não são tão fortes assim.

Ou seja, o Fed atualmente enfrenta um dilema de difícil solução: se não para o QE, continua a colocar querosene num processo de crescente risco sistêmico que cada vez mais se assemelha à fogueira especulativa que nos levou ao colapso financeiro de 2008. Mas se ele para, ameaça uma ainda frágil retomada da economia americana. Hoje (terça-feira) e amanhã o comitê do Fed se reúne para discutir esta questão. Mas sabemos que qualquer que seja o resultado desta reunião, as incertezas e as dúvidas sobre a atuação do Fed infelizmente continuaram muito depois que o capítulo da sucessão de Bernanke se resolva.

* Professor da UFRJ e Diretor Executivo Adjunto pelo Brasil no Banco Mundial.

As opiniões aqui expressas são pessoais. 

Alerta, alerta: catastrofe economica chegando: FED deixa de calibrar o chope da festa...

Segundo uma velha piada entre economistas da área, o banqueiro central é aquele sujeito que chega no meio da festa, quando o pessoal está embalado, no máximo da energia, soltando a franga, como se diz no Brasil, e aí corta o chope, desliga a música, apaga as luzes e manda o pessoal para casa...
Pois é, por esse critério, o Federal Reserve errou tremendamente a mão: serviu chope à vontade para o pessoal, aumentou o som, distribuiu umas bolinhas, e só desligou tudo quando estava todo mundo por terra, arrasado...
Também andou promovendo festas fora de hora, em dias errados, errando no compasso, atravessando o refrão, perturbando a marcha das passistas, um desastre.
Pelas regras do economista John Taylor, uma delas chamada precisamente de Taylor Rule, o Fed deveria ter aumentado os juros nas fases de inflação alta, e cortado quando a inflação estava baixa. Parece que ele errou a mão, de forma vergonhosa.
Vai dar água no chope, mais uma vez...
Paulo Roberto de Almeida

Are You Ready for This Coming Disaster? By Evaldo Albuquerque, Editor of Retirement Strategist Dear Paulo Roberto, Last month, everyone thought the punch bowl was going to be taken away. On June 19, Federal Reserve Chairman Ben Bernanke said he planned to reduce the size of the Fed’s money-printing program (Quantitative Easing) later this year. But last week, Bernanke backpedaled by pouring a couple bottles of liquor into the punch bowl to keep the party going. On Wednesday, he suggested that the economy may actually be weaker than he initially thought. For that reason, cutting the size of QE is not a done deal. Heck, Bernanke could still increase the size of the Fed’s money-printing program. He made it clear that all options remain on the table. The stock market loved it. But, here’s the bad news…  This party will not end well. Bernanke’s easy-money policy will end up creating another bubble, followed by a crash. This doesn’t surprise me. The Fed has always had a bias toward easy monetary policy. It tends to keep interest rates too low for way too long, therefore mastering the art of creating booms and busts. We’ve Seen This Movie Before … When Alan Greenspan was the Fed chairman in 2001, he kept interest rates below 3% for about four years after the tech bubble burst. Starting in July 2003, he kept the rate at 1% for a full year. Greenspan’s actions led to a boom in the economy and financial markets between 2003 and 2007. But, by keeping interest rates below the rate of inflation for a long time, Greenspan planted the seeds of the next bubble. His easy-money policy helped create the housing and credit bubbles. Bubble Creation 101: Keep Interest Rates Below the Inflation Rate See larger image Bernanke is now repeating Greenspan’s mistakes, but on a much larger scale. He’s not only keeping interest rates at 0%, but also printing trillions of dollars. Bernanke is planting the seeds of the next bubble in a very big way. With interest rates below the inflation rate, investors feel they have no alternative but to invest in stocks. After all, if they keep money in the bank, inflation will eat away their purchasing power. That’s why keeping rates below inflation is a surefire way to create speculative bubbles. Exiting in Baby Steps It’s clear that interest rates will remain at low levels for a very, very long time. The Fed will remove the stimulus in baby steps because it has no other choice. Any significant moves would send world markets into a tailspin. First, the Fed will reduce the size of QE. For example, it may print $65 billion a month, instead of the current $85 billion a month. It will likely take at least 12 months before the Fed stops printing money all together – maybe even longer. And when the money printing finally stops, the Fed will still keep interest rates at zero for a while, just to make sure the economy can stand on its own feet. Only then – and if everything goes well – will the Fed slowly begin to hike rates. How Will This Party End? Well, most bubbles burst when the Fed starts to move rates above the inflation rate. As you can see in the chart above, that’s what happened in 2006. But, the Fed will only do that when inflation starts to get out of control. We’re not there, yet. For now, stay invested and make sure you use a trailing stop-loss for all of your positions. Your best strategy is to keep dancing until the music stops. Just make sure you’re dancing close to the exit door. Because when the music stops, only those who are prepared to move out of the market quickly will be able to escape the bloodbath. Regards, Evaldo Albuquerque Editor, Retirement Strategist

A frase da semana: Ludwig von Mises

True, governments can reduce the rate of interest in the short run. They can issue additional paper money. They can open the way to credit expansion by the banks. They can thus create an artificial boom and the appearance of prosperity. But such a boom is bound to collapse soon or late and to bring about a depression.

Ludwig Von Mises 

recolhida de um dos muitos comentários a este artigo de opinião publicado no Wall Street Journal deste sábado: 

The Federal Reserve: From Central Bank to Central Planner

John Cochrane

The Wall Street Journal, September 1, 2012

O Federal Reserve pune poupadores e premia devedores...

Inacreditável! O Federal Open Market Committee, do Federal Reserve, vai continuar punindo os poupadores e beneficiando devedores, ao manter a mesma taxa irrealista de juros até o FINAL DE 2014!
Estão supostamente beneficiando a atividade produtiva, mas na verdade acumulando distorções até perder de vista.
Paulo Roberto de Almeida 

FEDERAL RESERVE BANK, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

APRIL 25, 2012. 

FEDERAL RESERVE ISSUES FOMC STATEMENT. 

Information received since the Federal Open Market Committee met in March suggests that the economy has been expanding moderately. Labor market conditions have improved in recent months; the unemployment rate has declined but remains elevated. Household spending and business fixed investment have continued to advance. Despite some signs of improvement, the housing sector remains depressed. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, longer-term inflation expectations have remained stable. Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects economic growth to remain moderate over coming quarters and then to pick up gradually. Consequently, the Committee anticipates that the unemployment rate will decline gradually toward levels that it judges to be consistent with its dual mandate. Strains in global financial markets continue to pose significant downside risks to the economic outlook. The increase in oil and gasoline prices earlier this year is expected to affect inflation only temporarily, and the Committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate. To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014. The Committee also decided to continue its program to extend the average maturity of its holdings of securities as announced in September. The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Dennis P. Lockhart; Sandra Pianalto; Sarah Bloom Raskin; Daniel K. Tarullo; John C. Williams; and Janet L. Yellen. Voting against the action was Jeffrey M. Lacker, who does not anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014.

http://www.federalreserve.gov/newsevents/press/monetary/20120425a.htm

o  APRIL 25, 2012. FEDERAL RESERVE BOARD AND FEDERAL OPEN MARKET COMMITTEE RELEASE ECONOMIC PROJECTIONS FROM THE APRIL 24-25 FOMC MEETING. The Federal Reserve Board and the Federal Open Market Committee on Wednesday released the attached table and charts summarizing the economic projections and the target federal funds rate projections made by Federal Reserve Board members and Federal Reserve Bank presidents for the April 24-25 meeting of the Committee. The table will be incorporated into a summary of economic projections released with the minutes of the April 24-25 meeting. Summaries of economic projections are released on an approximately quarterly schedule. ECONOMIC PROJECTIONS OF FEDERAL RESERVE BOARD MEMBERS AND FEDERAL RESERVE BANK PRESIDENTS, APRIL 2012. ADVANCE RELEASE OF TABLE 1 OF THE SUMMARY OF ECONOMIC PROJECTIONS TO BE RELEASED WITH THE FOMC MINUTES: http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120425.pdf