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In the news

Jeff Hummel in the Wall Street Journal on the Federal Reserve; his article is titled "The New Central Planning."

A Business Week article on Divisia money supply measures, a subject I have touched on in a few of my posts.

Skepticism about the Cyprus Bitcoin ATM story.

That will have to do for now since I am working on the galley proofs for a hardcover edition of the book I edited with Andrew Rosenberg, The Bretton Woods Transcripts, currently available only in electronic form.

  • Rick

    Regarding the Hummel article about Federal Reserve Corp. (Fed) central planning and the Divisia article regarding the Fed not objectively reporting the money supply, it appears to me that Fed lawyers fully understand their Rule 1.13 duty of loyalty to their organization, but I doubt all Treasury Department lawyers know about theirs to their organization (the Treasury Department) as a legal entity that is independent of the Fed, so first, here's the rule (with a link to commentary about the rule at the bottom):
    http://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_13_organization_as_client.html

    This rule means, in a nutshell, that at any bank incorporated under U.S. law:

    When depositors do not specify a preference for Treasury-direct coin-based accounts, Fed lawyers are obligated to support their organization in its capacity as a money issuer, and Treasury lawyers must generally yield to that demand from depositors and support the Fed by enforcing a substitute-currency-regulating income tax.

    When depositors *do* specify a preference for Treasury-direct coin-based (M0) accounts, Treasury lawyers are obligated to support Congress's sovereign power over metallic coin under Article 1, Section 8, Clause 5, and are required to assure that the Treasury's coin actually filters down to the depositor. In this circumstance, however, Fed lawyers are required to yield to their duty as Congress's fiscal agent and are in violation of Rule 1.13 if they obstruct the depositors preference for coined money.

    There is no third position, no position where either Fed or Treasury lawyers are permitted to neglect their Rule 1.13 duty of loyalty to their respective organizations, nor to be willfully blind to that duty.

    • Rick

      In "Drawing the Line (continued)," Kurt states: "My reading of the monetarists is that for them, the line between M0 and M1 or M2 is in practice less important than the line between M2 and M3—not neglected, just less important."

      Yes, but this neglect is no small matter, nor should it be permitted. By definition, debt or promissory notes can't be base money M0, no matter if Congress has conferred legal tender status on them. There must ultimately be an M0 that represents the money being represented by the borrowing/note creation, a money that represents final payment of the note. Either promissory notes need to be demoted from the M0 designation, or some other "M" needs to be invented that represents real base money.

      • Rick

        Nevermind. I have a solution. Instead of referring to the vague and ambiguous "M0," I'm going to break it down into Coined M0 (CM0) and Public Opinion M0 (POM0).

  • Gonzalo R. Moya V.

    Another excellent article of my former professor from SJSU. Regarding Bernanke´s three primary functions of a central bank (1. to conduct monetary policy; 2. to serve as lenders of last resort; and 3. to regulate the financial system), I want to comment that many countries around the world are delegating this third function to an institution which is independent of the central bank. In Peru, it is the SBS, which stands for "superintendence of banks, insurance companies, and pension funds administrators" in Spanish, and where I am about to finish my training period (which started early in January and has the recognition of a graduate degree, but I digress). In the last month of the program, people from equivalent institutions at other countries from Latin America have come also for the training and to compare our supervisory practices. It seems that there is a good reason for this trend (i.e. regulatory independence); mainly, to make a clear distinction between liquidity and solvency problems, where the former can be aided by the lender of last resort, while the latter must be dealt by the countrý´s "SBS" (or whatever its acronym is at that country).

  • Gonzalo R. Moya V.

    In principle, there is nothing wrong with the central bank paying interest on the additional reserves that private banks deposit above the minimum legal. It sets a lower bound for the interest rate that private banks charge among themselves, the same way that the interest the central bank charges for its loans sets an upper bound for it. Having an interbank interest rate that is bounded both above and below allows the central bank to conduct its monetary policy more precisely, although I agree with my former instructor Dr. Hummel that having a positive lower bound in times of a recession is counter-productive, as it undermines its monetary policy instead, by generating incentives to save the extra money rather than lending it out to the public and promote economic activity.