The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
In May 1953, an article from Kiplinger’s Changing Times titled “No, All
Banks Are Not Alike” advised, “You want a bank that is safe,
convenient, pleasant to visit; one that offers all the regular banking services
and makes reasonable charges for them; one that is well managed and competently
staffed, and whose officers and tellers are friendly and willing to advise you
on your major financial problems.” It also recommends considering whether the officers of the bank participate in civic affairs and whether the bank provides tours for children.
What do banks do? Ask an economist and you’ll get a variety of answers. Banks play
a vital role in allocating capital by linking savers and borrowers; they
produce information by screening and monitoring borrowers; they create liquidity;
they share and distribute risk; they engage in maturity transformation by
borrowing short and lending long. What you won’t usually hear is that banks may
help people stick to an optimal savings plan that they might not be able to stick
to if they invested their money themselves. In other words, banks may serve as piggy banks by preventing people from
consuming assets when the return to investing is high, even when the temptation
to consume is strong.
In November 1965, the northeastern United States experienced
a thirteen-hour blackout—the biggest in history to that date. Life magazine did a
spread (p. 36) with some surreal and gloomy pictures of stranded, dazed, well-dressed
passengers sleeping every which way all over New York City’s Grand Central
Terminal. A book was written that same year by the staff of the New York Times, When the Lights Went Out, which describes in detail how people and various
agencies in New York had to cope and make emergency adjustments.
As we did last year around this time, we’re presenting the New York Fed staff outlook for the U.S. economy to the Bank’s Economic Advisory Panel at today’s meeting. It provides an opportunity to get valuable feedback from leading economists in academia and the private sector on the staff forecast; such feedback helps us evaluate the assumptions and reasoning underlying our forecast and the risks to it. It’s important to open the staff forecast to periodic evaluation to inform the staff’s discussions with New York Fed President Bill Dudley about economic conditions. In the same spirit of inviting feedback, we’re sharing a short summary of our forecast; for more, see the material from the Panel’s meeting.
deficits in euro area periphery countries have now largely disappeared. This
represents a substantial adjustment. Only two years ago, deficits stood at nearly
10 percent of GDP in Greece and Portugal and 5 percent in Spain and Italy (see
chart below). This sharp narrowing means that spending has been brought in line
with income, largely righting an imbalance that had left these countries
dependent on heavy foreign borrowing. However, adjustment has come at a sizable
cost to growth, with lower domestic spending only partly offset by higher
export sales. Downward pressure on domestic spending should abate now that the
periphery countries have been weaned from foreign borrowing. The risk, though,
is that foreign creditors might demand that the countries pay down (rather than
merely service) accumulated external debts, forcing them to reduce spending
the unemployment rate of workers with a college degree has remained well
below average since the Great Recession, there is
growing concern that college graduates are increasingly underemployed—that
is, working in a job that does not require a college degree or the skills
acquired through their chosen field of study. Our recent New
York Fed staff report indicates that one important factor affecting
the ability of workers to find jobs that match their skills is where they look for a job. In
particular, we show that looking for a job in big cities, which have larger and
thicker local labor markets (that is, bigger markets with many buyers and
sellers), can give workers a better chance to find a job that fits their skills.
In 1720, the very same year that England was experiencing
the “South Sea Bubble” (see our post),
France was experiencing a bubble as well—the “Mississippi Bubble.” France’s
bubble was brought on by government debt and the advice of the head of the
country’s finance ministry, John
Law (Scottish mathematician, convicted murderer [a duel], gambler, and financial
genius), to create paper money and a bank and to invest in his Mississippi
Company. (Indeed, at the height of the trading frenzy for shares of stock in
Law’s company, a hunchbacked man rented his back out as a desk in the “Street of Speculators”
and earned a considerable sum.) Over a three-year period (1718-20), things went
very wrong and too much money was printed (the regent’s decision, not Law’s). The
text accompanying this portrait of Law describes
him as an:
18th century Scotsman, credited by
some historians as being “the father of inflation.” Law turned gambling IOUs
into “gold counters,” then state debts into paper money, and finally sold all
France down the river on the “Mississippi Bubble.”
Basit Zafar, Max Livingston, and Wilbert van der Klaauw
The payroll tax cut, which was in place during all of 2011 and 2012, reduced Social Security and Medicare taxes withheld from workers’ paychecks by 2 percent. This tax cut affected nearly 155 million workers in the United States, and put an additional $1,000 a year in the pocket of an average household earning $50,000. As part of the “fiscal cliff” negotiations, Congress allowed the 2011-12 payroll tax cut to expire at the end of 2012, and the higher income that workers had grown accustomed to was gone. In this post, we explore the implications of the payroll tax increase for U.S. workers.
Andrew Haughwout, Donghoon Lee, Wilbert
van der Klaauw, and Joelle Scally
This morning, the New York Fed released its Quarterly
Report on Household Debt and Credit for 2013 Q1.
The report uses the FRBNY Consumer Credit Panel to show that outstanding
household debt declined approximately $110 billion (about 1 percent) from the
previous quarter. The drop was due in large part to a reduction in
housing-related debt and credit card balances. Meanwhile, delinquency rates for
each form of consumer debt declined, with the overall ninety-plus day
delinquency rate dropping from 6.3 percent to 6.0 percent.
debate over whether there’s a case for limiting capital flows has intensified
recently—both in media and academic forums. The traditional view has generally
been that the voluntary exchange of funds across borders makes everyone better
off: Borrowers have access to cheaper credit while lenders enjoy higher returns
on their investments. But, as a recent article in The Economist
highlights, this view has been revisited. In this post, we review arguments on
this issue and discuss how our recent research contributes to the debate.
Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.
The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.
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The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
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