Monday, August 17, 2020

Former Fed Chiefs Discuss the Policy Response to the COVID Pandemic

Recently, the Yale University Program on Financial Stability hosted a panel discussion that included former Federal Reserve Chiefs Ben Bernanke and Janet Yellen along with Agustin Carstens (current head of the Bank for International Settlements) and Tharman Shanmugaratnam.(Senior Minister of Singapore). The panel was asked to talk about the overall policy response around the world (and especially at the Federal Reserve) to the economic disruption created by the  COVID-19 pandemic.

These are worthwhile discussions to listen to because you have both current officials and former officials talking openly about the problems and issues they face trying to maintain financial stability. In a discussion like this, former officials may be able to speak more openly than they could while in their official positions. In this discussion, I felt like that did happen and especially in the Q&A session near the end. You can watch the full discussion here and below as well. Further below I have featured a key question that was asked and a summary of the replies from both Janet Yellen and Ben Bernanke to illustrate the kinds of concerns they have about the sustainability of our present system. That is of course something we try to monitor here.


My added commments: I would call your attention to a specific question raised at the 1:10 and 36 second mark of this video. Here is the question that was asked by a former employee at the Fed who worked for both Janet Yellen and Ben Benanke:

I would be interested to hear Ben and Janet's views on whether these higher US debt to GDP ratios are a problem. With low interest rates, it is not obvious (that it will be a problem). I am interested in a loss of confidence, but is that an issue for countries that borrow in their own currency and with their own central bank (like the US with the Fed)?

The replies to this question from Ben Bernanke and Janet Yellen are worth your time to hear. This question is right at the heart of the issues we cover here and talk about all the time. I would note that this question comes directly from a former Fed employee. Let that sink in. The question is about the potential for a loss of confidence in our present system due to excessively high debt to GDP ratios. I doubt he asked the question thinking there is no such potential

I will let you listen to the replies rather than try to summarize them; but I can say that both former Fed chiefs agreed that there are major challenges facing our present system and that even a best case scenario in the US might look like how things have been in Japan for many years (stagnation with long term suppressed interest rates). I don't think either of these former Fed officials would even address a question like this while they were in their official positions, but were willing to talk honestly and openly here about their concerns about the risks to our current system in this discussion. 

This is why we try on this blog to encourage as many people as we can reach to understand that these issues are very important to all of us and will absolutely impact all our daily lives. 

How these problems are identified and resolved will impact us and we need to understand the issues as best we can to be able to be more informed voters and to prepare for any potential future adverse conditions that come our way if proposed solutions to our problems don't work as intended or if problems arise unexpectedly that were not foreseen.
Added note for readers (8-21-2020): I will have two articles coming up in the next couple of weeks. The first will allow readers to take an in depth look at the pros and cons of central bank digital currencies (CBDC's). Later in early September, I will offer up an article that asks if we are headed into a wild 60 day ride heading into the Novermber US elections? Nothing should surprise us during that 60 day interval of time.

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