1. Monetary Policy: Contemporary Issues - II
ECO Dr. Dennis Foster
W.A. Franke College of Business

2. Monetary Policy: Contemporary Issues
Heading into crisis II
The bank failures
III
Fed inaction & action IV
What has the Fed accomplished? V
The problem with policy VI
The Austrians & rethinking policy

3. What did the Fed do? Quantitative Easing. Raise the money supply
Buy Treasuries.
Buy MBS.
Boost short term lending.
Raise the money supply
Lower interest rates.

4. 5.25% 2.2% Federal Funds rate of interest, 2006 to 2018
11/2018
2.2%
IV. What has the Fed accomplished?

5. The Fed Charts New Territory – 2008 to 11/2018
$4.1 tr
Assets
$2.25 tr
$1.65 tr

6. The Fed Charts New Territory – 2008 to 11/2018
$4.1 tr
Liabilities
$1.78 tr
$1.66 tr

7. Housing Revisited
Home sales, 1999 to 2015
October 2018
5.22 mill.

8. Housing Revisited $255,400 Median home prices, 1999 to 2015
October 2018
$255,400

9. The Case of the Missing Inflation

10. V. The problem with policy
What has the Fed done?
Has it maintained the value of the dollar?
Has it stabilized the economy?
Has it reduced moral hazard?
Has it lessened distributional problems?
Is the risk of inflation gone?
V. The problem with policy

11. What is the exit strategy?
The FED will have two choices:
Continue policy  hyperinflation
Halt policy  recession
Or Wage/Price controls?

12. VI. The Austrians & rethinking policy
The Austrian School of Thought
Recessions are the solution, not the problem!
Keynesian policy -  interest to spending.
Leads to misallocation of resources.
Leads to an unsustainable boom.
Leads to eventual conflict (C vs. I).
What should we do? Wait!!
VI. The Austrians & rethinking policy

13. Rothbard - A Return to Sound Money
Get back on the gold standard.
Define $ in terms of gold.
No more suspensions of payment in gold.
Abolish the Federal Reserve.
Redeem every $ of M1 in gold…
Get government out of money.
Bank notes will replace FRN.
100% reserve ratio
Or, let banks fail.
Abolish FDIC, US Mint.

14. The Results of Sound Money
No bank panics.
No convoluted regulation.
No inflation.
No discretionary monetary policy.
No monetizing of federal gov’t. debt.
An end to the business cycle!!

15. A Tale of Four Recoveries

16. The New Normal?

17. What if … ? GDP (2015) = $23.5 tr. vs. $16.4 tr.
3.8%
GDP (2015) = $23.5 tr. vs. $16.4 tr.
net gain = $59 tr.

18. Let bad firms/banks go bankrupt. Abolish Fannie & Freddie.
We don’t lose real resources!!!!!
Abolish Fannie & Freddie.
End the Fed.
End the government monopoly on money.

19. Get on the mailing list for Spring 2019 – dennis.foster@nau.edu

20. ECO 481: Public Choice Theory
The W.A. Franke College of Business Northern Arizona University Spring 2019
ECO 481:
Public Choice Theory
Why Government Fails
Dr. Dennis Foster
FCB #308

21. Monetary Policy: Contemporary Issues - II
ECO Dr. Dennis Foster
W.A. Franke College of Business