Mt. Vernon Register-News

Opinion

November 15, 2013

Handcuffs for Fed tighten with fiscal profligacy

Every time I see references in academic papers to “fiscal dominance,” I envision a gigantic dominatrix, whip in hand, staring down at the world.

And that isn’t far from the truth. The term, which found renewed application after the 2008 financial crisis, refers to the domination of fiscal policy over monetary policy. It describes the extent to which budget deficits determine central bank actions. Once subjugated, the central bank’s role is to monetize the debt to keep interest rates low and inflate away the debt burden.

It’s hardly the role central bankers envisioned for themselves. After spending the last three decades delivering on their pledge of stable prices, the last thing they want to do is sacrifice their credibility, which has costs. Yet some economists think we may be getting near that point.

If interest rates rise and the Federal Reserve, in the normal conduct of monetary policy, has to sell securities from its huge portfolio, it could incur a loss. Too many losses mean less or no money to turn over to the Treasury Department. (The Fed earns interest on its securities and remits the balance, after paying operating expenses and interest on reserves, to the Treasury; in essence, to the taxpayer.)

Last year, the Fed remitted a record $88.4 billion to the Treasury after a $75.4 billion payment in 2011. Financing the U.S. government isn’t part of the Fed’s job description. Why should it be an issue if those remittances dwindle?

Because a bookkeeping issue will quickly turn into a political issue, according to Al Broaddus, former president of the Richmond Fed. Some lawmakers will forget about all the years of generous remittances and use a one-year loss as an excuse to curtail the Fed’s independence.

“At the end of the day, it looks like quantitative easing was the right thing to do,” Broaddus said. Would politicians have wanted the Fed to roll the dice and do nothing to avoid a potential bookkeeping loss? Probably not, he said.

Text Only
Opinion
  • Pensions need to be addressed I will have to admit that I am slightly overwhelmed today with the receipt of articles and suggestions for a column. One of my Fitness Mafia colleagues constantly tells me the columns are too long and trying to address different subjects just dilutes

    July 22, 2014

  • VA still failing our vets Jymm’s preferred attire is a skin-tight Minnie Mouse T-shirt with bright pink windbreaker pants. Even when not sporting his choice outfit, he dons short shorts and shirts with holes in them, because that’s what he finds most comfortable. His Santa Mo

    July 22, 2014

  • Feed your home piggy bank with a 15-year mortgage This summer, we finally decided to take the plunge we’d been contemplating for a while: converting our 30-year mortgage to one with a 15-year payoff. It’s a big step. Our payments will go up somewhat (the PITI — principal, interest, tax, and insuranc

    July 19, 2014

  • Under the dumb There is a TV series about an entire town trapped under a giant, mysterious crystal-clear dome that appears out of the blue one day. The dome is impenetrable; no one can get in, no one can get out. Who made the dome? Aliens? God? A super-secret branc

    July 19, 2014

  • Widening the loopholes This week, two more U.S. companies moved to reestablish themselves overseas, allowing them to pursue lower corporate tax rates. They will join dozens of others who have chased lower tax bills abroad while maintaining operations in the United States,

    July 19, 2014

  • Patriotism not questioned Editor:I am responding to Mayor Mary Jane Chesley’s Reader’s View article in the Thursday, June 19, 2014, Register-News “Patriotism is strong.”The mayor has missed the point of my Reader’s View/opinion article in the local newspapers regarding Flag D

    July 19, 2014

  • Who's telling a story now? For this administration, failure is always the result of a “communications” problem. Otherwise, failure might be taken as evidence of misguided ideology and incompetent execution, right? It’s a weird excuse for the president who fancies himself to be

    July 18, 2014

  • Why cutting corporate taxes won't help the middle class WASHINGTON — Earlier this week, I testified in front of the Joint Economic Committee on the topic of assessing the recovery after five years.As you can imagine, congressional testimony can be pretty frustrating these days for members of the fact-base

    July 18, 2014

  • Heart of darkness in buffer zone BOSTON — “Be careful. This is a dangerous corner.”It’s not until you visit the Boston Planned Parenthood clinic at the heart of the recent Supreme Court buffer-zone case that you realize the unnecessary danger it created. And I’m not even inside.On t

    July 18, 2014

  • When should U.S. use force? Was the Iraq war the greatest strategic error in recent decades, as some pundits have suggested recently? The simple answer is no. That honor belongs to the failure to take action against al-Qaida and Osama bin Laden before the attacks that killed ne

    July 17, 2014

Twitter Updates
Facebook
Stocks