finance
Hosted by David Beckworth of the Mercatus Center, Macro Musings pulls back the curtain on the important macroeconomic issues of the past, present, and future.
Patrick Harker discusses how the Bank of Bird-in-Hand successfully navigated regulatory hurdles to serve the Amish community by using meticulous family tree records in place of credit scores and mobile branch GELT buses.
Former Philadelphia Fed President Patrick Harker argues that introducing a brief delay, such as 16 seconds to reduce fraud or 30 seconds to allow for payment netting, can improve the operational architecture of real-time payment systems.
Reflecting on his decade on the FOMC, Patrick Harker argues that the Fed's dual mandate can lead down a difficult path and suggests a hierarchical approach where inflation is treated as job one before addressing unemployment.
Patrick Harker shares his personal use of AI, explaining how he uploaded all his published articles and speeches into Claude to train the model on his voice and help him iterate on essays and thoughts.
Christina Skinner discusses her work at the U.S. Department of Treasury and notes that the department is not skeptical of stablecoins, highlighting the Genius Act as a crucial anchor for financial stability and innovation.
Christina Skinner explains that under Secretary Besant, the Financial Stability Oversight Council (FSOC) underwent a major realignment to treat the designation power as a tool of last resort and embrace the economic insight that growth supports resilience.
Skinner details the creation of new FSOC priority work streams, including market and household resilience groups, an artificial intelligence group, and crisis preparedness tabletop exercises for cyber and geopolitical risks.
Christina Skinner discusses her upcoming book titled Central Bank Independence 2.0, which reexamines the legal and economic justifications for central bank powers and accountability, aiming for publication next spring.
Governor Erik Thedin discusses the Swedish Riksbank, the world's oldest central bank, founded in 1668. He highlights its unique structure as an institution owned by the parliament, a rarity compared to most central banks which are under the government. The Riksbank was also an early adopter of a price level target in the 1930s.
Governor Erik Thedin elaborates on the operational framework of the Swedish Riksbank, detailing its executive board of five members who share equal power and vote on interest rates. The governor chairs the board, analogous to the Federal Reserve's chair. Board members are selected by a political council appointed by the parliament, ensuring representation of the parliamentary situation.
The Swedish Riksbank, founded in 1668, has a rich history, including being the first to issue notes and experimenting with price level targeting. Governor Erik Thedin also notes that the Riksbank set aside funds in 1968 to establish the prize in memory of Alfred Nobel, commonly known as the Nobel Prize in Economics.
Governor Erik Thedin shared details about his career trajectory, starting at the Riksbank's dealing room in 1989 and progressing through various roles including deputy head of the debt office, a hedge fund macro strategist, head of the Stockholm Stock Exchange, and state secretary to the minister of finance. He returned to the Riksbank as governor three and a half years ago, seeing it as a full circle in his career.
Nellie Liang discusses the significant impact of the Genius Act on the regulatory landscape for stablecoins, noting it has provided clarity for issuers and banks. She highlights that the act has spurred innovation in both stablecoin issuers and fintech companies, and also within traditional banking systems.
Nellie Liang notes the substantial growth of the stablecoin market from approximately $25-30 billion in November 2021 to $275-300 billion currently. She recalls that an early Treasury report in 2021 raised concerns about the quality of reserve assets, operational risks, redemption risks, and the potential for non-financial companies, including big tech, to create 'walled gardens'.
Nellie Liang shared details of her extensive career, beginning with over 30 years at the Federal Reserve Board, where she directed the Division of Financial Stability. She then moved to the Treasury Department as Undersecretary for Domestic Finance under Secretary Janet Yellen, and currently holds positions at Brookings, the Financial Stability Advisory Council, and the Federal Reserve Bank of Chicago.
Nellie Liang explained that her paper on stablecoins was written for an Aspen Economic Strategy Group conference focusing on the dollar, deficit, private debt, and digital assets. The paper aims to provide background on the potential role of stablecoins as private money, their impact on treasury financing, and the broader role of the dollar.
Stephen Miran described his role as CEA chair as providing economic analysis and advice to the president and administration. He noted the wide variety of subjects covered, from tax policy to regulations. Miran contrasted the CEA's advisory function with the National Economic Council's (NEC) implementation and coordination role.
Stephen Miran explained that while governor's offices at the Federal Reserve's Martin building were adjacent, regular scheduled meetings were more common for policy discussions due to busy schedules and travel. He also highlighted the Sunshine Act's impact, limiting informal gatherings to prevent quorum issues and the need for public notice.
Stephen Miran stated his interest in the Federal Reserve's balance sheet stemmed from extensive discussions during FOMC meetings and a perceived rut regarding the large balance sheet. He also mentioned the influence of his speeches and accompanying research paper on the topic, which provided a menu of options for balance sheet reduction.
Donald Kohn recounts the Federal Reserve's response to the 1987 stock market crash, highlighting Alan Greenspan's decision to issue a reassuring statement and ensure liquidity. Kohn describes the market as being in total chaos, with uncertainty about payments.
Donald Kohn reflects on Alan Greenspan's tenure, particularly his success in achieving price stability in the 1990s. Kohn notes that Greenspan resisted calls to lower interest rates despite high unemployment in the early 1990s, focusing instead on keeping inflation expectations in check.
Donald Kohn shared anecdotes from his early career at the Kansas City Fed and the Board of Governors. He recalled a colleague, Tom Hanh, and a playful accusation of an elbow injury during a basketball game.
Donald Kohn described his role in mentoring Alan Greenspan when Greenspan first joined the Federal Reserve in 1987. Kohn explained that Greenspan needed guidance on Fed operations and staff interactions, and Kohn provided this institutional knowledge.
Donald Kohn shared a story from the Paul Volcker era when advocacy groups met with the Federal Reserve Board. After facing hostility during a visit to Seattle, Kohn and other Fed staff were awarded 'Purple Hearts' by Volcker.
Barry Eichengreen posits that a nation's international currency status is influenced by both economic prowess and political stability. He highlights that countries with significant economic activity, stable currencies, and liquid financial markets tend to have dominant currencies. Additionally, internal political stability, rule of law, and external geopolitical alliances where partners trust the issuing country are crucial.
Paul Bluestein believes the US dollar will maintain its dominant role for the foreseeable future, despite the US not always acting responsibly with this power. He emphasizes that while dollar dominance provides significant power, particularly in using it as a foreign policy weapon like sanctions, it comes with a responsibility that the US has not always met.
Brendan Greeley argues that monetary sovereignty is not inherent but must be earned over time and is constantly tested. He points to the US adopting Spanish silver coins as its currency at its founding, suggesting that a nation's monetary power is not guaranteed. Greeley emphasizes that the spread of a currency internationally is not solely driven by empire but by the currency's intrinsic utility and how it impacts the empires that adopt it.
Barry Eichengreen outlines the historical economic and political prerequisites for a currency to achieve international dominance. Economically, this includes a country's significant trade, investment, and stable financial markets. Politically, it requires internal stability like separation of powers and control of corruption, as well as external geopolitical alliances where partners trust the issuing nation.
Paul Bluestein asserts that the dollar's dominance will persist despite US complacency and the rise of new financial technologies like crypto. He notes that the dollar's use as a geopolitical weapon, such as through sanctions, has significant consequences and can lead to blowback. Bluestein also touches on innovations like central bank digital currencies and tokenized deposits.
Brendan Greeley traces the origin of the dollar's name to a silver coin from the Spanish Empire, originally a German name ('Taler') that became common in English usage before the founding of the United States. He argues that monetary sovereignty is not a given but something that must be won and continually tested, as evidenced by early American reliance on foreign coinage.
Stefan Luck, an economist at the New York Federal Reserve, explained that his role involves advising on current policy issues and conducting academic research. He emphasized how his work leverages historical microdata to address fundamental questions in macroeconomics and finance, stating that these two aspects of his job inform each other.
Stefan Luck shared how the global financial crisis and the European debt crisis during his undergraduate and early PhD years significantly influenced his interest in macroeconomics and finance. An internship in India in 2008, during which he experienced a period without internet access, coincided with major financial news, solidifying his career focus.
Stefan Luck discussed how advancements in technology, specifically optical character recognition and Python pipelines, have made it feasible to systematically extract data from historical documents. This has enabled his research agenda, which focuses on using historical microdata to answer fundamental questions in macroeconomics and finance.
Stefan Luck argued that to understand contemporary financial phenomena like bank runs, researchers must often turn to historical data, particularly in instances where modern government interventions obscure causal relationships. He noted that studying periods without such interventions provides valuable insights.
Law professors Chris Odene, Andrea De Soto, and Yesha Yadav argue that the key to understanding stablecoins lies not in their backing or technical efficiency, but in their legal and institutional "moneyness." They propose a framework to assess this, asserting that current stablecoins fall short due to uncleared legal hurdles, even after legislation like the "genius Act."
The discussion highlighted that even commodity money, like gold coins, was underpinned by a complex system of public and private rules. These rules governed minting, assays, and how coins interacted, as well as the legal implications of tendering them for debt discharge.
The legal scholars emphasized that to assess stablecoins' "moneyness," a blend of financial regulation and private law analysis is crucial. This interdisciplinary approach is necessary because money itself comprises both public law rules (like legal tender) and private law mechanisms that govern transactions.
Yesha Yadav explains the distinction between public and private money, noting that public money, like government-issued notes and coins, is legal tender and fully default-free. Private money, issued by entities like banks or digital wallet providers, inherently carries some credit risk.