Daily Archives: November 21, 2013


How Can Fed Policy Help Main Street?

The Real News Network has the video interview How Can Fed Policy Help Main Street?

I do have a couple of complaints.  In light of my previous posts Janet Yellen on Problems Controlling Bank Excess Reserves and Janet Yellen On Problems of Fiscal Drag and in light of  what Pollin has to say in this interview, it is just ridiculous for the video to start off with “Man In The Street” interviews. 

It is silly to have interviews with people on the street who couldn’t possibly know what Pollin knows about the Fed, how it works, and how the monetary system works. Please, The Real News Network, do not fall into the lamestream media habit of asking people for opinions on things they are unlikely to have an informed opinion about. Would you ask people what they thought about the way surgeons are doing heart transplants in their local hospital? What you asked of the people on the street is just about as ridiculous.

The other complaint is that it would have been good to ask Pollin how his suggestions for taxing the excess reserves might impact the concern of the Fed explained by Janet Yellen.


POLLIN: … All that said–and the Fed is operating by historic standards an extremely aggressive policy by keeping the interest rates for banks so low. But that policy is only a stimulus for the banks so far. The banks have piled up $2 trillion in cash reserves–nothing like that has ever happened, 12 percent of U.S. GDP, while the small business sector overall is still starved for credit. In fact, overall they have not gotten a dime of net new create credit since 2008–again, also unprecedented.

So the problem is not stimulus/no stimulus. The problem is Yellen and Bernanke are practicing a stimulus program that is not well designed to accomplish what needs to get accomplished, which is to deliver affordable credit to small businesses and to expand opportunities for working people, not just for the banks.
.
.
.
POLLIN: Well, I think they could do two simple things. One, tax the banks for holding so much cash in reserve. The banks are getting this money for free. It’s a zero interest rate policy that the Fed is practicing, and the banks have piled up $2 trillion in cash reserves. So the banks are sitting on a cash hoard. That should be taxed–not all the way down so that it would owe nothing. They do need to have cash reserves to get through any future crises as a cushion, as a safety net, but $2 trillion is wildly excessive. I mean, we could pump in $1 trillion–that’s about 6 percent of GDP–and they would still have $1 trillion in reserve. So that’s number one.



Janet Yellen on Problems Controlling Bank Excess Reserves

In Janet Yellen’s testimony at her confirmation hearings, Senator Warner asked about the issue of banks having excess reserves on deposit with the Fed. He proposes lowering the interest that the Fed pays the banks on the $2.4 trillion of excess reserves. Yellen talks about his suggestion, and also provides a caution on the problems of implementing his suggestion.


Janet Yellen’s testimony could have been so educational if only more of the public could have heard it. Too bad the press doesn’t understand these issues well enough to realize the need to provide a forum for the public to learn about these topics.


Janet Yellen On Problems of Fiscal Drag

At Janet Yellen’s confirmation hearings, Senator Warner asked a question about the impact of fiscal drag on the economy.  The question is a good one, and Yellen’s answer is also very good.


Yellen explains a little bit about the size of the fiscal drag, the need for the Fed to try to offset it. She does mention that the Fed’s tools for offsetting fiscal drag are not the most effective.


Don Berwick: My health care platform for our Commonwealth

Don Berwick is running for Governor of Massachusetts. I just received an email from him directing me to his web site about His Health Care Platform For Our Commonwealth.

Health Plan logo

The Triple Aim is absolutely achievable. The current health care payment system pays most hospitals and doctors for volume (how much they do) rather than for results (how well patients do). And, it is not sufficiently focused on the upstream prevention of disease. The result is very high cost without sufficiently high value. Those high costs come right out of the wages of workers – in taxes, deductions, and out-of-pocket payments – and rob both government and families of opportunities to use their hard earned income for other important purposes.

Here is one answer: move our state away from fee-for-service payment and from fragmented delivery into coordinated, team-based, integrated care. For patients and families, this will lead to care that is much more responsive, helpful, and respectful. Outcomes will be better and costs will fall significantly. And, in addition, we need to focus much more on prevention.

This plan is something we ought to consider when deciding who should be our next Governor.