Fed’s mandate is to ensure stable prices

Published in the Financial Times.

Sir, Michael Brownrigg (Letters, Oct. 4) makes a common, but fundamental, mistake in claiming that the Federal Reserve’s mandate includes “low inflation”. To the contrary, in the governing statute, Congress instructs the Fed to pursue “stable prices” not low inflation. Public confusion is understandable, since the Fed endlessly recites the oxymoron that “stable prices” means perpetual inflation (at the rate of 2 percent).

Mr Brownrigg is correct that there is no statutory instruction to the Fed to treat everybody equally. This does not change the egregious fact that the Fed has engineered a massive wealth transfer from savers to borrowers and leveraged speculators. To take a lot of money from some people and give it to others is a quintessentially political act. To whom is the Fed accountable for it?

Iron Chancellor was a good actuary too

Published in the Financial Times.

Sir, “Retirement age for young Germans will have to rise to 69, central bank warns” (Aug. 16). That is a quite reasonable, even generous, retirement age if you are going to live to 85 or 90 or more.

Moreover, it would not be the highest retirement age Germany has had. When Otto von Bismarck introduced the first state pension scheme in the German Empire of 1889, the retirement age was set at 70! Needless to say, on average you were going to live many fewer years after 70 then than now. The Iron Chancellor knew what he was doing, actuarially speaking

Mismatch has led us into trouble many times before

Published in the Financial Times.

Financial events cycle and financial ideas cycle. Here the United Kingdom is again, with real estate generating financial stress. As Patrick Jenkins rightly points out (“Open-ended property funds are accidents waiting to happen,” July 6), this vividly displays “the fundamental mismatch between a highly illiquid asset class and a promise of instant access to your money.”

This same mismatch has led us into trouble many times before. It is why the original U.S. National Banking Act of 1864 prohibited the national banks, as issuers of deposits and currency payable on demand, from making any real estate loans at all. “The property market is already too volatile,” says Mr. Jenkins. Yes, and it always has been.