Bob Eisenbeis's Contributions

The New York Federal Reserve Bank released on Friday about 100 pages of emails and internal documents from both its own staff and Barclays concerning the LIBOR fixing problem.

This paraphrase of the famous question posed by Senator Howard Baker during the Watergate scandal is one that can and should be directed to a number of people as the Barclays LIBOR scandal unwinds.

The FOMC extended “Operation Twist” through the end of the year and committed to move another $267 billion of assets from its holdings of securities with maturities of 3 years or less into maturities of 6 years or more.

Europe continues to struggle with its banking, structural, and fiscal problems. The market’s reaction to Spain’s proposed €100 billion bank bailout was short-lived, suggesting that it was not likely to fix the banking problems.

Lesson number one is that whenever a politician publicly states that “Our banks are well-capitalized and safe,” then you know they are not. If we hadn’t already learned this lesson from the financial crisis, there is now no excuse, given the political and subsequent market responses to the banking problems in Spain.

Rumors have begun to circulate that the Basel Committee on Supervision is considering modifications to the draft proposals for Basel III standards by changing the risk weights for capital standards by moving gold asset holdings from Tier 3...

At the March 23 Federal Reserve Board conference (Conference on Central Banking: Before, During and After the Crisis, three prominent central bankers – Jean-Claude Trichet (former head of the ECB), Masaaki Shirakawa (governor of the Bank of Japan) and Jaime Caruana (BIS) – argued that policy makers needed to be aware of the unintended consequences and risks associated with their easy-money and quantitative-easing policies, put in place to address the financial crisis.

The political arena has been filled recently with rhetoric on both sides of the aisle concerning how much taxes various people pay. Mitt Romney’s tax return for 2010 showed that he paid an effective tax rate of 13.9%. And President Obama made it a point in his State of the Union Address earlier this week to highlight that it wasn’t right that Warren Buffet’s assistant had a higher tax rate than did Mr. Buffet.

A WSJ article of Monday, December 5th reported on the latest thinking within the Federal Reserve as to how to improve the clarity of its communications policies, which will be the subject of discussions at the upcoming FOMC meeting on December 13.

Europe is struggling and has yet to fully come to grips with several structural problems that are at the heart of the current crisis. Reports are now circulating that a new fiscal proposal is being discussed that would commit member countries to balanced budgets.

The so-called Super Committee, predictably, has failed in its task to reduce the deficit by $1.2 trillion or any other meaningful amount. As a consequence, mandatory across-the-board cuts in defense and discretionary spending will go into effect. The fallout from these events will have many dimensions, both political and economic.

The deficit reduction ‘super commission’ has now begun its deliberations amid fractious discord among its members. The official target is to reduce the deficit by a total of $1.5 trillion over a period of 10 years, although the actual number may still be up in the air.

Many readers have responded to recent commentaries in which I have discussed the US budget problem, the Federal Reserve’s de facto QE 3 policy, and the evolution of the EU toward more fiscal centralization as it attempts to deal with its unsustainable sovereign debt problems. My concern is that the US may be on a path that could lead to a European-style fiscal crisis caused by bloated government and safety-net programs.

Developments the last few weeks have significantly changed the monetary policy landscape in both the US and EU. The Fed has committed to holding its target federal funds rate between 0 and .25 percent through mid-2013 and to continue reinvesting principal payments from its existing security holdings.

Now that I have your attention, despite the political euphoria that will likely accompany the deal to raise the debt limit, a more careful examination suggests that once again our elected officials have opted for policies dictated by their desire to ensure their reelection rather than caring for the needs of the country.

The current debt-ceiling debate is cloaked in emotionally charged rhetoric and proposals characterized by undefined terms like “fair” and “balanced.” Who could be against programs that are “fair” and “balanced”? In his television appeal to the public on Monday, President Obama stated that people needed to pay their “fair share” and that we needed a “balanced” approach to solving the deficit problem.

At the Federal Reserve’s July 13, 2011 hearings before the House Financial Services Committee, Representative Al Green cited evidence that the Fed made a profit on its QE 1 and QE 2 asset acquisitions and that the transfer of those funds back to the Treasury had helped reduce the deficit.

A recent column by Allan Sloan and Doris Burke in the Washington Post claims that the distasteful financial bailout not only worked but also generated a profit for the government of at least $40 billion and perhaps as much as $100 billion.

Federal Reserve policy makers have recently ramped up both internal and public discussions of the desirability of adopting an explicit inflation target. In fact, several Federal Reserve officials have now come out publicly in support of such a policy.

Market uncertainty is accompanying the wind-down of the second round of the Fed’s quantitative easing policy. This concern is hard to understand, as we will explain, and it is likely due to a fundamental misunderstanding of the process.