Thursday, June 20, 2013

Jeremy Stein's Work Initiated
Tapering Movement
"It is Stein’s work that I believe unnerved Bernanke and began the issue of TAPERING in a way to put some fear into the credit markets. Governor Stein noted that monetary policy was not an effective tool to deal with financial stability because “it gets into all the cracks.” The issue gets put before us, again. The FED does not have to invoke monetary policy in an effort to curtail the negative effects of QUANTITATIVE EASING. As Jeremy Stein asks, “What are the respective roles of traditional supervisory and regulatory tools versus monetary policy?” This is a very critical issue and speaks to possible FED actions that will curtail the impact of the FED‘s four years of aggressive easing. The FED may be more willing to squeeze the TOO BIG TO FAIL through regulatory moves than to raise interest rates. Again, back to Stein: “One of the most difficult jobs that central banks face is in dealing with episodes of credit market overheating that pose a potential threat to financial stability.” Thus, to focus on monetary policy does not alleviate Chairman Bernanke’s greatest fear: FINANCIAL INSTABILITY. The FED can certainly defeat Jamie Dimon’s screaming by saying: We bailed your sorry asses out so shut the hell up as we struggle to unwind the flotsam and jetsam left over from the systemic bailout."
- Yra Harris

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