Sources of Uncertainty
Leading up to the latest downturn, the Federal Reserve held interest rates too low for too long, deviating from the rules-based monetary policy that had worked so well in the 1980s and 1990s. Government regulators failed to enforce existing rules on banks and other financial institutions, including Fannie Mae and Freddie Mac. The resulting crisis prompted the Wall Street bailouts, which soon extended beyond their original mission. The auto-company bailouts resulted in arbitrary infringements on creditors’ rights and interventions into business operations. Then came the return of the failed stimulus packages of the 1970s, the Fed’s quantitative easing, and the regulatory uncertainty associated with the 2010 health-care legislation and the Dodd-Frank financial-reform law — which gives government the discretionary authority to take over any failing financial firm and rescue its creditors.
One sign of the increase in policy uncertainty is that over the past 12 years, the number of provisions of the tax code expiring annually has increased tenfold. Another is that the number of federal workers engaged in regulatory activities (excluding those in the Transportation Security Administration) has grown by 25 percent from 2007 to 2012. Most emblematic of the deviation from our basic principles is the self-inflicted fiscal cliff that we face at the end of this year, when virtually the entire tax code will change. And the Fed has effectively replaced the money market with itself, setting a zero-percent interest-rate policy through 2014.
Full piece by John Taylor worth reading.
Biggest cause of uncertainty: a marxist in the White House.
It seems like almost every day I’m hearing something new about Dodd-Frank. Not one piece of it has sounded good.
Taylor’s piece illustrates one of the unintended consequences of the various Budget Control Acts: temporary tax cuts and expiring provisions. Because cuts must be “paid for,” making them temporary reduces the cost. Furthermore, having annual votes on tax provisions allows politicians and interest groups to raise moeny on the never-resolved tax issues. This is why the estate tax was never repealed, even when Republicans were in control of Congress and the White House, according to Edward J. McCaffery
Edward J. McCaffery.
Taylor’s piece illustrates one of the unintended consequences of the various Budget Control Acts: temporary tax cuts and expiring provisions. Because cuts must be “paid for,” making them temporary reduces the cost. Furthermore, having annual votes on tax provisions allows politicians and interest groups to raise moeny on the never-resolved tax issues. This is why the estate tax was never repealed, even when Republicans were in control of Congress and the White House, according to
Edward J. McCaffery.
Leading up to the latest downturn, the Federal Reserve held interest rates too low for too long, deviating from the rules-based monetary policy that had worked so well in the 1980s and 1990s.
It’s politically difficult to slow the economy when everybody is riding the Gravy Train. Can you imagine what would have happened if a Member of Congress had suggested raising interest rates or boosting the down payment on home loans because the housing market was rising too fast? They would have been laughed out of town (or drummed out of office by special interest lobbyists making money off what became the housing bubble.
Maybe, Jeff, but if people knew that the Administration would be in place another four years, they would be *certain* of more regulations to come.
Dramatically simplifying the tax code would be one of the best options at this point.
Dodd-Frank has been one of the worst pieces of financial legislation this country has ever seen.
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