Is This The Worst Thing The WSJ Has Ever Published?

Well, I thought that 2018 had to be peak stupidity for humanity, but we are not off to a good start in 2019. I opened the Wall Street Journal this morning to find this article which has a falsehood in every single paragraph. 10 for 10. Let’s review this impressive mess. [TM Ed. note: it is an opinion piece authored by Phil Gramm]

First, the title, “The Fed’s Obama-Era Hangover” is just catchy politics. The Fed is an independent entity and President Obama had nothing to do with the policies enacted by the Fed, but the entire article disparages President Obama for the Fed’s actions. Look, I didn’t love a lot of what Obama did. I criticized him regularly for shrinking the Federal workforce, cash for clunkers, the healthcare plan, etc. He made some mistakes in my opinion. But the implication that he’s somehow responsible for Fed policy is underhanded politics and just wrong. Let’s move on to specifics.

Paragraph 1 starts with an outright falsehood saying “the Trump economic revival doubled economic-growth rates over the last two years”. Real GDP was 2.9% in Q3 2018, up from 1.9% in Q1 2017 when Trump took office. RGDP has averaged 2.5% in Trump’s first two years, a relatively weak historical figure by any metric since RGDP has averaged 3.2% since 1948.

Paragraph 2  states “[QE] started to pay interest on reserves, in essence paying banks not to lend.” This is not how QE works. The Fed had to pay Interest on Reserves (IOR) in case they wanted to raise rates. Remember, excess reserves put downward pressure on overnight rates because the banks try to lend them out to other banks. Since the reserve system is a closed system for the banks this drives rates to 0%. So if the Fed wants to raise rates they have to incentivize banks not to lend reserves TO ONE ANOTHER. They do this by paying IOR. This, however, does not mean banks won’t lend to non-banks. In fact, banks CANNOT lend reserves to non-banks so the argument is a non-starter.

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Kate Monroe 1 year ago Member's comment

Newspapers can't win these days...this is not a WSJ article, by which I mean, written by journalists who work for the newspaper. This is an opinion piece whose primary author is Phil Gramm. To say it's on the 'editorial page' also implies it is the work of WSJ editors - again, newspapers provide opinion space, usually on their editorial page, for contradictory viewpoints. The same caliber of people who accuse newspapers of running 'fake news' dare those papers to run their ideas of the truth - and then when the newspaper complies, this is the reaction they get. Can't win for losing.

Shareholders Unite 1 year ago Contributor's comment

The WSJ editorial page is a joke. They waffeled in the post-financial crisis years that QE was going to bring hyperinflation and the stimulus was turning the US into Greece, now that someone else is in the white house, suddenly monetary policy is too tight (despite all the claims about the booming economy) and deficits and debts suddenly don't matter anymore..

Bill Johnson 1 year ago Member's comment

WSJ is still better than the New York Times!

Kate Monroe 1 year ago Member's comment

Who do you mean by 'they'? Do you mean editorials? Or do you mean opinion articles on the page that are NOT written by anyone affiliated with the paper? Unlike you, journalists are careful about their details

Gary Anderson 1 year ago Contributor's comment

In fairness, the Fed said IOR was a stimulus but it wasn't. George Selgin is pretty pro Fed, but when he caught the Fed red handed trying to seal history on how IOR was a stimulus, when it wasn't, he went ballistic. The Fed fooled people and tried to sign off on the deception after the fact.

Derek Snyder 1 year ago Member's comment

Good point.

Gary Anderson 1 year ago Contributor's comment

Nice article. But banks may have made more loans without IOR giving them free interest. And IOR was contractionary, while the Fed touted it as expansionary according to George Selgin and Scott Sumner.