MONETARY POLICY: EFFECTIVENESS, EFFICIENCY, RISK, AND PERSPECTIVES
Authors:
Dr. Ioannis N. Kallianiotis
Abstract:
In this paper it is discussed the latest monetary policy and the new instruments and innovations that the Fed introduced after 2008 and 2020 and we examine their effectiveness, efficiency, and prospective risk. The first major Fed’s changes were on December 20, 2008 by altering the fed funds market in a number of different ways: (1) zero fed funds rate (FF = 0.00%), (2) the Fed started paying interest on reserves (IOR) held by or on behalf of depository institutions at Reserve Banks, subject to regulations of the Board of Governors, effective October 1, 2011 and interest on the overnight reverse repurchase agreement (ON RRP) in 2014, and (3) the Fed abolished the required reserves by making them since March 26, 2020 zero. The effectiveness of this policy is unspecified, due to the global financial crisis and the recent suspicious COVID-19 pandemic. The social cost is very high with these “innovated” policies. It seems that the central bank is working for the banks and satisfies only their objectives, which are profitability and liquidity. This monetary policy is against depositors (bail in cost) and against taxpayers (bail out cost); so, it is an unfair public policy, an anti-social monetary policy and at the same time it has created enormous bubbles in the stock market, which can lead us to a new global financial crisis, after the global health crisis, and to a high true inflation. The social benefits are relatively small on consumption, investment, financial markets, trade, growth, employment, and consequently, on social welfare because the economy is in a lockdown for almost two years and in an ineffective (prejudiced) fiscal stimulus, which preserves unemployment and increases public and private debts by discouraging work and production. Thus, this monetary policy is not effective and not efficient; and it may be proved to be very risky, too. These last two crises in 2008 and in 2020 need a combination of public policies and cooperation among the different policy makers and a strong impartial government. The latest monetary policy combined with the loss of self-sufficiency, the outsourcing, the unfair international trade, the unlawful competition from Asia, and the current divisions (unorthodox liberalism, cancel culture, control over information, invasion of privacy, critical race theory, students indoctrination, “domestic terrorism”, etc.) inside the country are generating many challenges and risks for the future, which reduce the social perspective of the citizens of country.