Regional President Speech

Usually, in the early months of a new year, it is a time to access where things stand, before trying to look ahead & make plans 4 years ago--just weeks after the tumbling of the Berlin wall; collapse of the so-called IRON CURTAIN -worry over response of the Soviets 3 years ago, January 1991--Iraq in Kuwait, Gulf War -Scuds, biological, chemical -oil shock 2 years ago--Gorbechev taken captive by bumbling thugs in an attempted coup; Yeltsen--new ruler -disintegration of Soviet Union -concerns about civil war, starvation A year ago-- -in U.S., election resulting in change in White House for first time in 12 years Now, an NBA season w/o Michael In the Autumn of 1993 --Michael Jordan retired Post-lt'"routing request pad 7664 ROUTING - REQUEST Please I I READ I I HANDLE □ approve and I I FORWARD I I RETURN I I KEEP OR DISCARD D During the past year-- -several pieces of legislation submitted that would affect the Fed -Check collection -S Sc R -Fed Pres. & FOMC -B.O.D. -disclosure of deliberations & decisions of FOMC meetings What has given rise to this? Inflation bond yields, mortgage rates home affordability existing home sales housing starts domestic auto sales business investment spending capital goods spending/exports productivity in manufacturing sector real output emp1oyment, unemp1oyment Congress--mad & determined to put a stop to it Economically efficient market for goods and services: then--town, vil , city now--the world Seurefts— Wealth of Nations: Beginning of the 2 0th century: tons of things and # of things Natural resources Russia, Brazil, Africa End of the 2 0th century: knowledge/information based technologies ^ Switzerland, Japan, SE Asia W stfiii shod D.fi,c^d6^ ^ 1930s--Dawn of the age of Socialism Depression--massive increase in the intrusion of Govt. ; ^ Mussolini 1980s--Golden Age of Capitalism Economic Regeneration: Three basic components deregulation denationalization/privatization tax reduction/reform MftexQQCQUQinic s tsb i 1 i ty reduced amplitude of fluctuations of: inflation interest rates exchange rates output growth employment/unemployment "narrower corrider" of economic activity - when decisions are based on the expectations of higher inflation than actually occurs --ex post real interest rates are too high; --ex post real tax rates are too high; --ex post real wages are too high - higher taxes, debt-servicing burdens, and wages tend to get built into cost structures that cannot be passed on to consumers, so earning are impaired --lower returns on capital means less savings and investment; --end result is slow.growth and lower standards of living In_.spite of.13 years of a downward trend of inflation -- - surveys - yield curves - refinancing - debt issuance In.1950s and, early 1960s -- - households and businesses made decisions in the expectation that increases in inflation and interest rates were temporary -- they would go back down For past to years -- 20 25 - households and businesses have made decisions based on expectations that declines of inflation and interest rates are temporary -- they are expected to go back up - end linkage of dollar to gold - pure fiat currency --dollar had been "worth" 1/20 oz. of gold --then, 1/35 oz. of gold --now, whatever it will buy - never has been a "phoenix currency" Bretton Woods -- - non-political discipline on monetary authorities --political "cover" for other national leaders --constraint on U.S. -- "policing the policeman" Post-Bretton Woods -- - international competing currencies --judgments of central bankers Stable Standard,, of Value essential to economic development -- - roulette wheel/baby, 18 years - inches in yard - feet in mile - ounces in pound or gallon Expectations about future purchasing power of national currencies affect resource utilization and future standards of living -- - at present, households and businesses appear to be expecting future inflation to be higher than it is the intention of monetary policymakers to produce If.we..could wave a magic wand -- - get people to base decisions on expectation that in the future the purchasing power of the currency will be the same as today, and policymakers will act to ensure that outcome, economic well-being would be maximized Reasons for optimism -- - globalization of goods markets --financial markets --asset markets - stock market crash of October 1987 - pneumonia - financial market vigilantes - dollarization of the world - regional/sectoral booms and busts - bicoastal economy --agric/manufacturing/energy versus --defense/aerospace/commercial real estate/ financial services The challenge is to restore credibility to the idea that the price level will be stable over long periods of time. The ideal is a monetary regime that would have the credibility of the pre-World War I gold standard without the destabilizing elements that led to its demise. A nation's currency is its unit of account or standard of value. Optimal resource allocation overtime -- which will maximize standards of living -- requires minimal distortions arising from unexpected changes in the value of money. Establishment of such an environment requires a clear and credible commitment, backed by incentives and constraints, to maintaining the purchasing power of the dollar - - not simply in the short-term, but over the long horizon.

Jerry L. Jordan (1994, January 17). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19940118_jerry_l_jordan

@misc{wtfs_regional_speeche_19940118_jerry_l_jordan,
  author = {Jerry L. Jordan},
  title = {Regional President Speech},
  year = {1994},
  month = {Jan},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19940118_jerry_l_jordan},
  note = {Retrieved via When the Fed Speaks corpus}
}