What a treat!

Mr Chandler, as almost everyone, is concerned about the “taper”, but there are three paragraphs in his piece that open up infinite possibilities:

There are seven members of Fed’s Board of Governors. It is there where widespread changes are likely in the coming months. Consider, first, that there are two vacancies on the Board at the moment.   As Yellen is most likely to take Bernanke’s seat, Bernanke’s departure opens a third seat.

Another Governor’s term (Powell) term expires at the end of January.  Often a governor will stay on until a replacement is confirmed.  So while Powell may linger a bit, a replacement for him will eventually be made. Governor Stein is under pressure to return to his teaching post at Harvard, where he enjoys tenure. He may resign in the coming months.

Finally, there are reports that suggest that Governor Tarullo and Yellen have a strained relationship. There is some suggestion that Tarullo may also step down. What this means is that of there could be 5-6 new people on the Federal Reserve’s Board of Governors in the period ahead.

Any President´s dream! Will Obama grasp the implications? Given that in the past he took his time to fill three vacancies, maybe not. But who knows, one can always learn from past mistakes.

I´ll be ‘conservative’ and assume only three vacancies opening up. My suggestions for members of the Board of Governors of the Federal Reserve: Paul Krugman, Scott Sumner and Christina Romer.

Wonder why Krugman is included? Easy, he´ll stop talking about fiscal stimulus and liquidity traps and focus like a laser beam on making monetary policy work. It will be a life changing experience for him, and the rest of us will certainly be better off for it.

5 thoughts on “What a treat!

  1. I heard a rumor that Powell might be renominated to help avoid problems with Yellen’s confirmation since he’s a Republican. It was in one of the politics periodicals I read; although I read so many that I can’t remember which one.

  2. I always think Krugman’s 1998 paper on Japan’s liquidity trap is not at all about ineffectiveness of monetary policy and that even he himself has since the Great Recession misinterpreted what he had argued in the paper. “A monetary expansion that the market expects to be sustained will always work, whatever structural problems the economy might have; if monetary expansion does not work it must be because the public does not expect it to be sustained.”(p.142) He goes on to say on fiscal policy: “the end of the Depression, which is the usual, indeed perhaps the sole, motivating example for the view that a one-time fiscal stimulus can produce sustained recovery, does not fit the story too well. Much…of the recovery from that particular liquidity trap seems to have depended on inflation expectations that made real interest rates substantially negative.”(p.160) Wish he would maintain this position…

  3. I agree—I also thought Summers might have been good as Krugman had advised him to do something big. A Krugman might not pussyfoot around…he might vote to blow the doors open…Yellen is okay but she part of a timid regime…

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