Revive Lincoln’s Monetary Policy – An Open Letter to President Obama

Dear President Obama:

The world was transfixed on that remarkable day in January when, to poetry, song, and dance, you gazed upon Abraham Lincoln’s likeness at the Lincoln Memorial and searched for wisdom to navigate these difficult times. Indeed, you have so many things in common with that venerable President that one might imagine you were his reincarnation in different dress. You are both thin and wiry, brilliant speakers, appearing on the national stage at pivotal times. Fertile imaginations could envision you coming back dressed in that African heritage you freed, to help heal the great scar of slavery and prove once and for all the proposition that all men are created equal and can achieve great things if given a fighting chance.

As Wordsworth said, however, our birth is but a sleep and a forgetting; and if that is true, you may have forgotten a more subtle form of slavery from which Lincoln tried less successfully to free his countrymen. You may have forgotten it because it has been omitted from our popular history books, leaving Americans ill-equipped to interpret the lessons of our own past. This letter is therefore meant to remind you.

» Read more: Revive Lincoln’s Monetary Policy – An Open Letter to President Obama

Related posts

Does monetary policy have asymmetric effects on stock returns

IT HAS BEEN OF GREAT interest to both macroeconomists and financial economists of whether monetary policy affects stock returns. A number of studies have empirically investigated the effects of monetary policy on stock returns. Using money aggregate data as a measure of money supply, some empirical studies agree that stock returns lag behind changes in monetary policy; for instance, see Keran (1971), Homa and Jaffee (1971), and Hamburner and Kochin (1972). In contrast, Cooper (1974), Pesando (1974), Rozeff (1974), and Rogalski and Vinso (1977) show that there is no significant forecasting power of past changes in money. Ever since the seminal paper by Bernanke and Blinder (1992), the Federal funds rate has been the most widely used measure of monetary policy. As such, the relationship between monetary policy and stock returns has been reexamined by using the interest rate instrument in the financial literature. Thorbecke (1997) and Patelis (1997) demonstrate that shifts in monetary policy help to explain U.S. stock returns. Conover, Jensen, and Johnson (1999) show that foreign stock returns generally react both to local and U.S. monetary policy.

Two important contributions to the literature on the effects of monetary policy on the stock market have been made. The first one emphasizes the roles of financial markets’ expectations about the future course of monetary policy. Bernanke and Kuttner (2003) extract unanticipated monetary policy from Federal funds futures and find that monetary policy surprises appear to have a significant effect on equity prices through changes in the equity premium. The second focus is on the prospect of endogeneity. Rigobon and Sack (2003) show that the causality between interest rates and stock prices may run in both directions. After accounting for this endogeneity, they find a significant monetary policy response to the stock market.

» Read more: Does monetary policy have asymmetric effects on stock returns

Related posts

A Sustainable National Monetary Policy – I Want to Invest in America

Faced with the dilemma of financing WWII President Franklin D. Roosevelt received adamant advice to raise taxes and introduce a forced savings program.  Instead, FDR wisely followed the advice of Secretary of the Treasury Henry Morgentthau, JR., who working with Peter Odegard, a political scientist specialized in motivating masses (read propaganda) created the War Advertising Council.

The result was a whopping $187.5 Billion ($2.5%2B Trillion dollars adjusted for inflation into 2009 dollars) to fund the war effort.  Just as important as the money, the War Bonds became a rallying cry for the public to express its patriotism, follow its iconic leaders’ calls for action, and allowed for 85 million Americans to actively participate in the War effort.

» Read more: A Sustainable National Monetary Policy – I Want to Invest in America

Related posts