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Guest An Bearin Bui

Helicopter Ben Outlines His Game Plan

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Guest An Bearin Bui

When I first started posting on this site, I put up a link to some of Ben Bernanke's research on "non-standard" economic policy options that the Federal Reserve would consider using to manage a crisis i.e. taking measures more extreme than just IR cuts. Paul Krugman has just posted a link on his blog to another interesting research paper from Helicopter Ben that appeared in 2004.

Monetary Policy Alternatives at the Zero-Bound

Excerpts:

Following Bernanke and Reinhart (2004), we group these policy alternatives into three classes: (1) using communications policies to shape public expectations about the future course of interest rates; (2) increasing the size of the central bank’s balance sheet, or “quantitative easing”; and (3) changing the composition of the central bank’s balance sheet through, for example, the targeted purchases of long-term bonds as a means of reducing the long-term interest rate. We describe how these policies might work and discuss relevant existing evidence.

It goes to show that the Federal Reserve has been considering the implications of the debt bubble and a "Japan scenario" for some time now. As Paul Krugman points out in his blog (Non-Standard Ben), they exercised the "quantitative easing" policy almost as soon as the credit crunch began while changing the composition of the Fed's balance sheet is now being considered (as PK explains, this would mean buying assets other than Treasury Bills, in this case probably mortgage-backed securities). When I first read about Bernanke's research work and theories on non-standard policy options, I remember thinking "they couldn't possibly consider that, could they?" but now it is a mere six months into the credit crunch and they're not at the zero-bound yet but they've exercised the full nuclear arsenal (with more to come). That has got to be a worrying sign of how bad policy-makers in the US think this will get.

On the other hand, it is vaguely comforting to know that Ben et al have been scenario-planning this for some time and have at least mapped out some policy options. Alistair Darling, on the other hand, wouldn't know a non-standard policy option if it jumped up and bit him in the face. Mervyn King may be more informed but I've seen no evidence of that so far.

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they're not at the zero-bound yet but they've exercised the full nuclear arsenal (with more to come)

I don't think the Fed has yet "exercised the full nuclear arsenal", they've offered the banks relatively short term loans against the security of AAA mortgage debt.

There's many levels of escalation to go yet, and I guess you and I are reasonably confident that in the fullness of time we will see many more of them. Rolling the loans over until it's clear that it's an indefinite/permanent facility. Accepting lower grades of mortgage debt. Or finally, simply buying all the debt and effectively nationalising the mess.

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I don't think the Fed has yet "exercised the full nuclear arsenal", they've offered the banks relatively short term loans against the security of AAA mortgage debt.

There's many levels of escalation to go yet, and I guess you and I are reasonably confident that in the fullness of time we will see many more of them. Rolling the loans over until it's clear that it's an indefinite/permanent facility. Accepting lower grades of mortgage debt. Or finally, simply buying all the debt and effectively nationalising the mess.

START THE CHOPPERS

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Well found - I can't wait until I'm in front of a pc again to find out what they come up with, so thanks a lot for the pointer. It will be Intersting to see whether they came up with a solution to the specific problems banks are facing now.

Its funny, but Bernanke's past speeches and papers are very useful to see how he is thinking. For example, in 2006 I was able to profit from netting on a June rate rise, because I saw what I knew to be (from a 2004 speech) his favourite measure of inflation expectations rising. What was surprising was that so few other people twigged to it...

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Well found - I can't wait until I'm in front of a pc again to find out what they come up with, so thanks a lot for the pointer. It will be Intersting to see whether they came up with a solution to the specific problems banks are facing now.

Its funny, but Bernanke's past speeches and papers are very useful to see how he is thinking. For example, in 2006 I was able to profit from netting on a June rate rise, because I saw what I knew to be (from a 2004 speech) his favourite measure of inflation expectations rising. What was surprising was that so few other people twigged to it...

This is all old stuff, nothing to see.

The Fed are falling into the Japanese trap, but they're too cocksure to see it.

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When I first started posting on this site, I put up a link to some of Ben Bernanke's research on "non-standard" economic policy options that the Federal Reserve would consider using to manage a crisis i.e. taking measures more extreme than just IR cuts. Paul Krugman has just posted a link on his blog to another interesting research paper from Helicopter Ben that appeared in 2004.

When I first started posting on this site I posted a link to Peter & Lois Griffin indulging in S&M. Alas, Youtube has since removed the video!

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Guest An Bearin Bui
When I first started posting on this site I posted a link to Peter & Lois Griffin indulging in S&M. Alas, Youtube has since removed the video!

OK, so I'm a nerd :blink:<_< - it's just that it's fascinating to see theories in a research paper all become reality at a pace much quicker than anyone could have imagined... we're living in interesting times, I think. If I were personally insulated from all economic turmoil and didn't stand to lose anything from the looming economic crisis, I would feel like all my Christmasses had come at once... economics will never be the same again.

This is pretty much it by the way in terms of their policy options - in another research paper I read, Bernanke suggested that if these three options failed, the only next stage would be the buying up of non-performing assets from bust banks and households, zero interest rates and "helicopter drops" of cash. We got from normal Fed policy to non-standard extreme measures in six months so it's not unrealistic to think that the US could be at zero-bound and bankrupt in another six months... the very Japan scenario Bernanke claims he wants to avoid.

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  • 295 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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