Quantitative Easing and the size of the Fed’s balance sheet has completely changed the way monetary policy is managed. It used to be that the Fed changed the size of its balance sheet to move interest rates. If it wanted rates to fall, it would buy bonds (increase the size of its balance sheet) by printing new money. That money would boost bank reserves and force the federal funds rate lower. If it wanted rates to rise, it would sell bonds, shrinking the amount of reserves, driving up rates as banks competed for a smaller pool. Click here for more details.
But Obamacare isn’t a smartphone. It isn’t magic, making better health care descend from heaven. It’s just redistribution. Through a politically-complicated transfer scheme of taxes, fines, subsidies, and support to insurance companies, it taxes one group of people to pay for another group of people. Click her for more details.
Remember how a few decades ago ATMs were supposed to destroy teller jobs at banks? Instead, what actually happened is that ATMs cut the cost of opening branches and commercial banks have more employees today and provide wider and less expensive services than they did 25 years ago. Click here for more details.
Next week’s Fed meeting (March 15th) is going to be major news one way or another. Most analysts lean our way and now think the Fed will raise short-term interest rates by a quarter percentage point (25 basis points). We laid out the case two weeks ago (Time for a Rate Hike). If the Fed does raise rates, it will be just the third rate hike in over a decade, but the second since December, signaling new urgency to normalize.
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