Baum's View on Money
Good morning, all, and welcome to Wednesday's edition of what I'm reading.
When former Bank of Canada Governor Mark Carney migrated to the Bank of England last month, he brought "forward guidance" with him. Based on its Aug. 7 debut -- the FTSE fell, gilts fell and sterling rose -- Benn Steil of the Council of Foreign Relations dubbed it "forward garble." The problem wasn't so much all the escape clauses, Steil writes on the CFR blog, as the substance of the guidance: a pledge to keep interest rates super-low at least until unemployment falls to 7 percent. That's almost two percentage points above full employment, so of course the bank wouldn't raise rates before then. Tell us something we don't already know.
Breaking it down into bite-sized morsels.
Everyone wants to close tax loopholes. Just don't touch the one that benefits me! The Committee for a Responsible Budget is producing a series of articles that examine the biggest tax expenditures, or government spending masquerading as tax cuts; how much they cost; and who benefits. There's lots of information, data and additional resources on the website. The $1.3 trillion of annual tax expenditures is a pot of gold for lawmakers looking to reduce the deficit. And given that each tax loophole is backed by a well-financed constituency, it ain't gonna happen.
There's something about Janet…
The Washington Post reported last month that Larry Summers was the front runner to succeed Ben Bernanke as Federal Reserve chairman. Now the Post's Neil Irwin explains why. President Barack Obama's "inner circle of economic advisers" is uncomfortable with Janet Yellen, the current vice chairman. She's "more of her own person" than her predecessors in the deputy role. Imagine that, daring to think for herself. There's more. She is "always meticulously prepared." She's "methodical, not manic." Exactly what you'd want in a Fed chairman, no? In the end, Irwin has to punt. "The reservations among Obama advisers over Yellen have more to do with what sort of Fed chair they want," he says, "than any particular weaknesses that the current vice chairman may have."
Bad ideas never die.
They just come back to haunt us. Take the notion that the Fed should target higher inflation of 4 percent, even 6 percent. The Fed can't hit a target on the side of a barn unless it shoots first and draws the target afterward. (Sorry, I couldn't resist paraphrasing an old joke.) It can't hit its 2 percent inflation target from below. And look how hard it's trying. According to one blogger on the subject, the only downside of higher inflation is that changing prices can be "a nuisance." No comment.
Old news gets a second look.
In the breaking news department, the minutes from the Fed's July 30-31 meeting will be released at 2 p.m. today. What used to be considered a rehash of events has become market-moving news. Traders and investors will be looking for clues as to whether the Fed will or won't start tapering asset purchases next month. That means reading between the lines to determine the quantitative difference between the views of "some members" and "many members."
(Caroline Baum is a Bloomberg View columnist. Follow her on Twitter.)