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Jim Grant: Fiat-fest 2014
(July 25, 2014) The annual summertime monetary hoedown at Jackson Hole, Wyo., won’t be the same this year, Bloomberg reports. The Kansas City Fed, host of the August fiat-fest, is cutting Wall Street dead. Economists from the TBTF banks, longtime schmoozers in Jackson Hole, are this year being invited to stay home.
Maybe that’s a good thing—the crony financiers were especially thick on the ground at the 2006 proceedings, where they collectively seemed no more alert to the looming mortgage-cum-credit-crisis than the government employees did. Then, again, the Fed has a job of work on its hands. Its balance sheet is too big and its interest rates are too low. It may need some help in strategizing.
With money-supply growth ticking higher and the rate of producer-price inflation accelerating, “How to exit?” is one question. “Which rates are relevant in this zero-percent world?” is another.
Before QE, the funds rate was the central bank’s one and only. “However,” colleague Evan Lorenz observes, “with excess reserves measured in the trillions today vs. in the billions pre-crisis, the fed funds market has ceased to function.” On to the next rate, then: The new reverse-repurchase rate, perhaps? Maybe or maybe not, the thinking goes, given the not-so-farfetched risk that the mere existence of the RRP facility might invite a bank run (Grant’s, May 2), or maybe the interest rate on excess reserves, now fixed at 25 basis points? Or a new funds rate that encompasses more than the funds market?
Accompanying the technical debate is the continued growth of the monetary aggregates. M-1 rose by $282 billion in the 12 months ended July 7, paced by an $87 billion increase in currency and a $196 billion jump in deposits. If $100 bills represent 77% of the currency growth (as the Fed reports that they did in 2013), and if $20 bills account for the rest, the green emission would weigh 3.8 million pounds.
Link to Report: Jim Grant: Summer Break Issue 2014