Tuesday, August 12, 2014

A Major Warning from Feldstein and Rubin on Potential Risks in the Financial System

Martin Feldstein, chairman of the Council of Economic Advisers under President Reagan and currently a professor at Harvard, and Robert Rubin, a former U.S. Treasury secretary and currently co-chairman of the Council on Foreign Relation, have an op-ed out at WSJ.

Measured in tone, it's clear these seasoned financial observers correctly fear that the Fed is nowhere near a stage where they have constructed an environment that has eliminated financial risk in the system. There is a somewhat Keynesian tone to their perspective, but they clearly understand that vulnerabilities in the financial system.

They write:
The Federal Reserve Board of Governors recently warned of the possibility of excesses in asset markets but concluded that, at least for now, if there is a need to act it will not be done by raising interest rates but by relying on "macroprudential" policy tools to reduce systemic risk.

We are not expressing a view on whether there are current financial excesses that are potentially destabilizing—that is always hard to judge—or whether the Fed should raise rates now to deal with such possible risks. But we do think it imperative that Fed policy makers have a realistic view of the breadth of the possible systemic risks and of the tools that are available to deal with such risks.

The macroprudential tools that the Fed has discussed relate primarily to making banks more resilient, and that is obviously very important. But the possible systemic risks extend to a vast number of other institutions and asset markets, and there the issues around macroprudential regulation become much more complicated...

[T]he Fed should also take into consideration the possibility of excesses brought on by low interest rates that could create financial crises. In making interest-rate decisions, the Fed should have a realistic view of the broad range of the existing systemic risks and of the limits of the government's currently extant macroprudential tools.

The stress in these interest-rate decisions is heightened by the political system's failure to act on our nation's broader policy challenges, increasing the pressure on monetary policy, despite the limits on what it can do and the risks its expanded use can pose.

Folks, consider this the closest thing you are going to get in terms of a  major warning from serious insiders. As I am reporting at the EPJ Daily Alert,  money supply growth  using the method I use to calculate it (SEE; The Fed Flunks) is falling rapidly. In other words, the Fed manipulated economy is on the edge of collapsing again and we may learn sooner rather than later why Feldstein and Rubin are so concerned at present.



  1. Feldstein and Rubin~2 serious Grifters,....need help from them like I need cancer....how people still listen to them is beyond comprehension.....

    Matt Taibbi: Griftopia (audiobook)

    "The important thing to remember about the Alan Greenspan era is that despite all the numbers and the inside-baseball jargon about rates and loans and forecasts, his is not a story about economics. The Greenspan era instead is a crime story. Like drug dealing and gambling and Ponzi schemes, bubbles of the sort he oversaw are rigged games with preordained losers and inherently corrupting psychological consequences. You play, you get beat, in more ways than one.

    Greenspan staked the scam, printing trillions upon trillions of dollars to goad Americans into playing a series of games they were doomed from the start to lose to the dealer. In the end the printed wealth all disappeared and only the debts remained. He probably did this just because he wanted to see his face on magazine covers and be popular at certain Upper East Side cocktail parties. His private hang-ups in this way shaped the entire scam of modern American politics: a pure free market for the suckers, golden parachutes for the Atlases...

    There are really two Americas, one for the grifter class, and one for everybody else. In everybody-else land, the world of small businesses and wage-earning employees, the government is something to be avoided, an overwhelming, all-powerful entity whose attentions usually presage some kind of financial setback, if not complete ruin. In the grifter world, however, government is a slavish lapdog that the financial companies that will be the major players in this book use as a tool for making money. The grifter class depends on these two positions getting confused in the minds of everybody else. They want the average American to believe that what government is to him, it is also to JPMorgan Chase and Goldman Sachs.


    1. Taibbi infuriates me. He sees the problem, but cannot let go of his fervent belief in the redemptive power of The State, and thus see the inherent corrupting nature of fiat money and government power centers. It renders his POV useless since all he can argue for is MORE government power.

    2. Well, Rubin et al as saviors of system they helped destroy for personal gain sickens me.

      Bob Rubin Has a Fuzzy Critique of Janet Yellen's Fed
      Robert Rubin contributed to systemic risk as a deregulatory Treasury secretary and later as a top Citigroup (C) executive. Now he has warned the Federal Reserve about it. In an op-ed article (paywall) written with Harvard economist Martin Feldstein (President Ronald Reagan’s chief economic adviser) and published on Tuesday in the Wall Street Journal, Rubin said it’s “imperative” that the Fed have “a realistic view of the breadth of the possible systemic risks and of the tools that are available to deal with such risks.”

      they're mutts....where would they all be without the bailout?...