A trope of current writing about the BoJ is that it is coming under increasing political pressure from the Democratic party government to ease monetary policy. Pressure, maybe, but it’s an arm around the shoulders rather than a cattle prod in the back.
Public government pressure takes the form of regular comments by finance minister Naoto Kan. Here is a sample, via Reuters:
“They are holding a policy board meeting today and the BoJ has reiterated it would keep very easy monetary conditions … To be honest, I feel they could do more, but we are following the same policy direction by communicating with each other.”
It’s not very scary stuff. There are also other reasons why the BoJ feels nothing like the political pressure to act on deflation that it did back in 2001. Read more
Unless you’re in Ireland.
An economic letter put out by the Federal Reserve Bank of San Francisco today put the US housing run-up in perspective. In a cross-country comparison they found that home prices in the US rose less than those in a whole swath of European countries.
It’s worth noting that the graph seems to be consistent with data from the Federal Housing Finance Agency (formerly Ofheo), rather than the more commonly used Case-Shiller 20-city index, which would have shown US home prices more in line with Spanish ones. Each index has its advantages. The FHFA’s tracks the same home over time across the US, but only looks at homes worth below a certain amount, likely skewing the increases downward. The Case-Shiller index includes the higher value homes, but only includes 20 of the US’s cities, likely skewing upward). Read more
William C Dudley, president of the NY Federal Reserve, today spoke at length about the dangers of allowing a financial institution become “too-big-to-fail.”
Though he said there is “no one silver bullet” to prevent financial crisis (and, indeed, his speech highlighted the importance of effective macroprudential supervision and increasing the robustness of the financial system), he said that it was “critical that we ensure that no firm is too big to fail.”
The moral hazards with giant institutions were two-fold, he said. First, too-big-to-fail institutions would be able to get cheaper credit, since they’d effectively have an implicit government guarantee. Second, institutions would have an incentive to become large, simply so they could get the government backstop, reguardless of their financial health.
Notably, though, his solutions to the too-big-to-fail problem did not mention actually limiting firms’ size. Read more
The Federal Reserve board members have argued that asset bubbles are hard to identify when they’re growing. In retrospect, though, St. Louis Fed president James Bullard is calling a bubble a bubble.
Asked by Fox Business News about the housing market recovery, Mr Bullard made clear he wasn’t holding his breath waiting for the market to pick back up.
We have too many houses, so I wouldn’t expect that to really boom on us.
Housing prices have “by and large” stabilised, he said. And even there, he hedged. Read more