Federal Reserve and Monetary Policy: Is there a conflict of interest at the Fed?

There has been a deluge of Fed speakers lately. I've look at the text of these speakers and one thing has jumped out; their speeches are full of qualifiers. Matching the qualifiers with the other parts of the speech either negates the speech or makes it useless to glean any useful information. Greenspan is citing papers that are not applicable to the new economic reality or are in fact, work in progress. A horrifying thought is now emerging. Has Greenspan's taking on political subjects made the Fed ripe for controversy. In other words,has the Fed moved in the direction of the FDA? Is there a conflict of interest at the Fed?

This is why I've started this blog. It is my attempt to balance what major news media releases. The majors have been the direct beneficiaries of the policies of this Republican administration. One needs to look at the recent tax break, often called GE's Tax Break, to get a sense that there is no “free” press and that the “liberal” media has been replaced by blogers.


I've read both Greenspan's and Bernanke's speeches.

See links: Bernanke's Speech on The Global Saving Glut and the U.S. Current Account Deficit
and
Greenspan's Speech on Globalization

Bernanke's speech can be summed up as the following:

The Global Community to the US; “Thanks for liberating Iraq's oil field and for your protection of the Kuwaiti's and Sandia's oil fields. Also, thanks for the free gift of your currency to help our “poor” people. Here's our bill. We want to be paid in full and on time. Have a nice day”.

Greenspan comment on if there is going to be a disruption because of the current account can be traced to footnote 8.

See link: Financial Market Developments and Economic Activity during Current Account Adjustments in Industrial Economies

I've sent the following to one of the authors since they were kind enough to add the following to this paper: “NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulate discussion and critical comment.”

Ive read your paper “Financial Market Developments and Economic Activity during Current Account Adjustments in Industrial Economies”. I have 2 questions pertaining to this paper.

Question #1; Did you take into account the fact that China has pegged the Yuan to the dollar?

I notice that you reference the US in 1987 and 1989. Have you noticed the import and export trade weights (See link: Currency Weights )

Import and Export Trade Weights

Year	Export	Import
1987	1.582	1.697
1989	1.812	2.871
2005	4.382	14.490

Despite China's quality problem, manufactures are still willing to to take the plunge. See link: Sourcing in China not a sure bet

Question #2: Did you take into account the fact that people are using their homes as “Bank”?

Greenspan has made note of this several times. It seems to me that this “Bank” adds a new term to the money velocity equation. This term is a measure as to how fast home equity can be converted to cash through something like a home equity line of credit, a higher credit limit or higher resell value. I also think this new term adds a new constraint on how any given interest rate environment is distributed. The flatting of the yield curve is an illustration of the applied interest rates constraints.

I personal do not think household debt ratio is a good measure for future economic activities. The aggregate income part relies on the home's value which in turn relies on the local economic state. I think the important measure is disposable income.
See link:
US Economy and Financial Markets

Disposable income is going to indicate if price shocks from other parts of the economy like oil prices and health care cost are going to impact consumers' spending. Looking at the household debt burden indicates that consumers are at their credit limit. No big upside movement of GDP in the future once we end the “tax refund season”. What this means is that a small movement in interest rates can have a large impact on the US economy.

I might get an answer.