FOMC Continues Taper by Unanimous Vote

Excerpt form FOMC Minutes:

Voting for this action: Ben Bernanke, William C. Dudley, Richard W. Fisher, Narayana Kocherlakota, Sandra Pianalto, Charles I. Plosser, Jerome H. Powell, Jeremy C. Stein, Daniel K. Tarullo, and Janet L. Yellen.

Voting against this action: None.

The vote encompassed approval of the statement below to be released at 2:00 p.m.:

“Information received since the Federal Open Market Committee met in December indicates that growth in economic activity picked up in recent quarters. Labor market indicators were mixed but on balance showed further improvement. The unemployment rate declined but remains elevated. Household spending and business fixed investment advanced more quickly in recent months, while the recovery in the housing sector slowed somewhat. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has been running below the Committee’s longer-run objective, but longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and the unemployment rate will gradually decline toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as having become more nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term.

Taking into account the extent of federal fiscal retrenchment since the inception of its current asset purchase program, the Committee continues to see the improvement in economic activity and labor market conditions over that period as consistent with growing underlying strength in the broader economy. In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the Committee decided to make a further measured reduction in the pace of its asset purchases. Beginning in February, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month, and will add to its holdings of longer-term Treasury securities at a pace of $35 billion per month rather than $40 billion per month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. The Committee’s sizable and still-increasing holdings of longer-term securities should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative, which in turn should promote a stronger economic recovery and help to ensure that inflation, over time, is at the rate most consistent with the Committee’s dual mandate.

The Committee will closely monitor incoming information on economic and financial developments in coming months and will continue its purchases of Treasury and agency mortgage-backed securities, and employ its other policy tools as appropriate, until the outlook for the labor market has improved substantially in a context of price stability. If incoming information broadly supports the Committee’s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. However, asset purchases are not on a preset course, and the Committee’s decisions about their pace will remain contingent on the Committee’s outlook for the labor market and inflation as well as its assessment of the likely efficacy and costs of such purchases.

To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens. The Committee also reaffirmed its expectation that the current exceptionally low target range for the federal funds rate of 0 to ¼ percent will be appropriate at least as long as the unemployment rate remains above 6-1/2 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee’s 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored. In determining how long to maintain a highly accommodative stance of monetary policy, the Committee will also consider other information, including additional measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate well past the time that the unemployment rate declines below 6-1/2 percent, especially if projected inflation continues to run below the Committee’s 2 percent longer-run goal. When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent.

It was agreed that the next meeting of the Committee would be held on Tuesday-Wednesday, March 18-19, 2014. The meeting adjourned at 10:55 a.m. on January 29, 2014.

IRR Warning: Property Rights Under Threat?

DA/ANC support for the Restitution Bill risks disaster on a par with Britain’s scorched earth policy during the Boer War

Two pieces of pending legislation could together result in the expropriation of commercial farming operations with zero compensation.

The first is the Restitution of Land Rights Amendment Bill of 2013 (the Restitution Bill), which will open up a new five-year window for the lodging of land claims. Some 379,000 new land claims are likely to be submitted and could cost the State about R179bn to settle, according to the Government’s regulatory impact analysis. Yet in the 2013/14 financial year, the restitution budget was roughly R3bn. How, then, is the State to find the money to settle all these claims?

The answer could lie in the so-called Promotion and Protection of Investment Bill of 2013. This suggests that expropriated property owners will be entitled to ‘just and equitable’ compensation, but the Bill also contains a weasel clause stating that it is not ‘an act of expropriation’ if the State takes property, not as owner, but as custodian for others.

Where the State takes as ‘custodian’ – as the Constitutional Court has already ruled in a case involving mining rights – the deprivation of property from an existing owner is not matched by the acquisition of that property by the State. This means that there is no expropriation – and no right to any compensation.

Under the Investment Bill, the Government could thus pass legislation (modelled on mining law) providing that all agricultural land, farm equipment, and livestock vest in the State as the custodian of the nation’s land resources – and inviting black South Africans, in particular, to apply to the relevant department for the right to use a portion of these assets for a specified period.

In these circumstances, commercial farmers would be deprived of their property, but the State would acquire it as custodian rather than as owner. Hence, there would be no ‘act of expropriation’ under the Investment Bill and no compensation would be payable.

Once the Restitution Bill is enacted and hundreds of thousands of new land claims are lodged, the Government could argue that it is obliged to honour these claims but lacks the money to pay compensation. Under the Investment Bill, it could then take the claimed land as custodian for land claimants – and without having to pay any compensation at all.

Says the IRR’s Frans Cronje: “Together, these two pieces of legislation could spell the end of private property rights in South Africa – not just in agriculture but across the economy. We suggest that the Government and the African National Congress (ANC) may be preparing the ground to confiscate private property and distribute it to poor communities if and when they feel the need to do so. That time will come when the political pressure on the ANC is so great that it fears losing a future election.

“The Bill could also spell the end of commercial agriculture, so bringing about the collapse of the rural economy. Rural poverty and unemployment levels would then soar. In urban areas, rapidly rising food prices and the inflow of rural job seekers would add to desperation among the poor and unemployed.

“A myth is being peddled that accelerated land reform will boost rural economies and promote social cohesion. This is not so. South Africa requires large-scale commercial farming to meet its food needs and drive its rural economy. This in turn requires strong property rights. By contrast, taken to their end point, the two Bills could devastate the rural economy on a scale comparable to Britain’s scorched earth policy during the Boer War.

“Both the Government and the Democratic Alliance, which says it will support the ANC in re-opening land claims, seem careless of this outcome, prompting the IRR to sound this warning. We do not do so lightly but because we can see where policy is headed.”

“Established in 1929, the South African Institute of Race Relations (SAIRR) is a research and policy organisation in South Africa. The Institute is “one of the oldest liberal institutions in the country,” and tries to be independent of government and all political parties; it sees its role as serving its members and the country at large to make South Africa the political and economic success of the continent by promoting liberal democratic values. The Institute investigates facts surrounding social and economic conditions in South Africa and disseminating its findings as widely as possible. It aims to address issues such as poverty and inequality, and to promote economic growth. The SAIRR tracks trends in every area of South Africa’s development ranging from business and the economy to crime, living conditions, and politics.” – Wikipedia