Answering the bunnies

A cartoon has been making the rounds (e.g., Forbes, Zero Hedge, and Real Clear Politics) in which cartoon characters (bunnies maybe? or perhaps some other life form) ask questions about quantitative easing. I would have provided slightly different answers than did the didactic character in the cartoon, so I thought it might be fun to interject myself as a third character in the bunnies’ conversation.

The cartoon begins with a discussion of quantitative easing.

Bunny: What does that mean?

JDH: It means that the Fed is going to buy some more long-term Treasury securities. The idea is that by buying a large amount, the effect will be to increase the price of those bonds, which would make the interest rates on those and other bonds lower. Lower interest rates might help make more loans available to small businesses and create better opportunities for households to refinance. By depreciating the dollar, the move may also encourage U.S. exports and discourage U.S. imports.

Bunny: Why do they call it the quantitative easing? Why don’t they just call it printing money?

JDH: Actually no money is going to be printed. The Fed will pay for these purchases by crediting accounts that banks have with the Fed. Although it is true that banks could ask to withdraw these funds in the form of green currency, they currently are showing no interest in doing so. And before banks did start to want to withdraw these funds as money, the Fed plans to sell the assets off to bring the reserves back in. There is no plan now or in the future to “print a ton of money”.

The bunnies then go on to note correctly that one of the goals of quantitative easing is to prevent deflation.

Bunny: Isn’t [deflation] good? Doesn’t that mean people can buy more of the stuff?

JDH: It would if your nominal income stayed the same. But that’s exactly the problem. In episodes of deflation, people’s wages go down, and many lose their jobs and can’t find new ones. A decrease in the price of what we buy sounds good to us, but a decrease in the price of what we sell (namely, a decrease in our salary) does not. The experience of countries in which wages and prices are falling has been very painful, and the Fed wants to avoid this.

Bunny: But aren’t food, gas, health care, and tuition prices higher than a year ago?

JDH: Yes, though items such as clothes and furniture are lower. But if we wait until deflation is established more broadly before acting, measures like the ones the Fed just announced would likely be less effective.

Bunny: Aren’t bond prices higher than a year ago?

JDH: Bond prices don’t enter into consumer’s budgets. In fact, the higher bond prices are one indicator that deflation is a greater risk today than it was a year ago.

Bunny: Has the Fed ever been right about anything?

JDH: A study by Christina and David Romer published in the American Economic Review in 2000 found that Federal Reserve forecasts of inflation were significantly better than those generated by the Blue Chip survey of economic forecasters, the Survey of Professional Forecasters, or Data Resources, Inc. A study by Jon Faust and Jonathan Wright published in the Journal of Business and Economic Statistics in 2009 found the Fed’s forecasts of inflation were significantly better than those generated by a battery of state-of-the-art time-series forecasting techniques.

The bunnies then get into a discussion of the mechanics of bond purchases by the Fed.

Bunny: If the Ben Bernank wants to buy the Treasury bonds with the American people’s money, he does not buy them from the Treasury, he buys them from the Goldman Sachs?

JDH: Goldman Sachs is one of 16 different dealers from which the Federal Reserve Bank of New York solicits competitive bids. That’s the way it’s been done for a century, and it would be illegal for the Fed to do as the bunnies propose. From U.S. Monetary Policy and Financial Markets, 1998, Chapter 7:

The Federal Reserve makes all additions to its portfolio through purchases of securities that are already outstanding. The Federal Reserve Act [of 1913] does not give the [Federal Reserve] System the authority to purchase new Treasury issues for cash. Over the years, a variety of provisions had permitted the Treasury to borrow limited amounts directly from the Federal Reserve. Options for such loans existed until 1935. Temporary provisions for direct loans were reintroduced in 1942 and renewed with varying restrictions a number of times thereafter. Authority for any kind of direct loans to the Treasury lapsed in 1981 and has not been renewed.

The reason that the Fed has always been required to buy bonds from private dealers rather than the U.S. Treasury is that the process of money creation needs to be institutionally separated from the process of financing the public debt. In fact, the potential blurring of those boundaries is one of the most important legitimate criticisms of quantitative easing.

And here is the original cartoon, in which you’ll see that the bunnies’ own answers are much funnier than mine.

UPDATE: Econreader puts me into the cartoon directly.

73 thoughts on “Answering the bunnies

  1. spry

    Nice post professor.
    I think a lot of people hear that quantitative easing means printing/creating money and think its a bad idea. They don’t seem to realize that even in regular times when the fed buys bonds it is printing/creating money.

  2. David

    Could anyone explain what the difference is between crediting the banking institutions accounts electronically as opposed to sending them fiat currency is? Isn’t it all the same in a fractional reserve banking system?

  3. Matt Young

    The Fed is making a bet the the new Tea Party Congress, or the private sector can find about $400 billion in real value over the next six months, I give a margin of error and assume the economy has already found $200 billion in value.
    Win or lose, the Fed gets a decision in two quarters, so at least it is playing the game. If the Fed loses, we are stimulated by its losses and the Fed is weaker. If the Fed wins, we get virtuous deflationary growth. Is that right?

  4. Carl Lumma

    You cite the interest rate transmission mechanism but I think only the inflationary transmission mechanism is significant given current conditions.

    Here is my rebuttal of the video.

    Warren Buffett recently said he is worried about inflation and that “the government will monetize debt”. Of course all money is monetized government debt. The only question is, What’s the right amount?

  5. joe

    “Wrong on the .com stock bubble”
    Actually FOMC minutes show they identified both the dot com bubble and the housing bubble (in 2004) but didn’t speak up about it because of the influence Ayn Rand had on govt regulation.

  6. Raskolnikov

    You say—“Actually no money is going to be printed. (and, you add) There is no plan now or in the future to “print a ton of money”.
    But have you read Felix Salmon’s interview with the “Economist” editor Greg Ip. Here’s what Ip says.
    Felix Salmon: Does the Fed print money? If so, how?
    GI: Yes, and I’m surprised to see Pragmatic Capitalist dispute this.
    It’s true that the Fed is not literally printing the $20 bills that end up in your wallet. As a commenter on your own blog has noted, that’s the job of the Bureau of Printing and Engraving. But money includes both currency in circulation and the reserves that commercial banks keep on deposit at the Fed. By that definition, the Fed is indeed printing it.
    Here’s how QE works. The Fed buys a $100 bond from Bank of America. The bond gets added to the Fed’s assets. Bank of America has an account at the Fed. The Fed, with a keystroke, puts a $100 into B of A’s account. Where did the money come from? Thin air. Bank of America can visit its friendly neighborhood Fed branch and withdraw that $100 in the form of bills and coins. So for practical purposes the distinction between currency and reserves is meaningless; the monetary base includes both.”
    Is there a difference between what Ip is saying and what you are saying professor?

  7. JP Koning

    JDH: “The reason that the Fed has always been required to buy bonds from private dealers rather than the U.S. Treasury is that the process of money creation needs to be institutionally separated from the process of financing the public debt. In fact, the potential blurring of those boundaries is one of the most important legitimate criticisms of quantitative easing.”
    Why do you say that is this a legitimate criticism of (the) QE? Because (the) QE results in the indirect financing of the US Treasury via the open market and primary dealers rather than direct financing of the Treasury? In that case, not just QE but every Fed open market transaction conducted with government debt as the underlying asset deserves to be criticized. Which is about 95% of the Fed’s history.

  8. JDH

    Raskolnikov: The question is whether the reserves the Fed is creating today will ever end up as currency in your wallet. If they do not, then Ip is quite wrong in claiming that the distinction between currency and reserves is meaningless.

    There can be huge fluctuations in the quantity of reserves held in the current environment with little effects on other variables. There could not be similarly huge fluctuations in the quantity of currency held by the public without significant effects on other variables. I do not understand how anyone could look at those facts and assert that the distinction between reserves and currency is meaningless.

  9. fresno dan

    “The question is whether the reserves the Fed is creating today will ever end up as currency in your wallet. If they do not, then Ip is quite wrong in claiming that the distinction between currency and reserves is meaningless.”
    Well, if they don’t end up in your wallet, whose wallet do they end up in? If the money doesn’t end up in anyone’s wallet, what is the point? If all this “money” goes back and forth between treasury, the Fed, and banks, exactly how is that suppose to increase “aggregate demand” (a 10$ word to help increase the money supply – assuming our problems are caused by lack of demand. I have plenty of demand, I just don’t have much money).
    As far as interest rates go, I get offered loans at pretty much the same rate I was offered on home equity loans years ago. If I can borrow at 0.1 percent less, I am not buying a vacation house because of that, neither am I buying a new car because of that – I will buy a new car when I need a new car, and another house when I feel I can afford it.

  10. JDH

    fresno dan: The reserves don’t end up in anybody’s wallet. The point is not to create reserves, it is to affect interest rates. I agree completely that this won’t lead to any dramatic changes, and that we should not expect too much from the policy. But I think it may help a little, and that is reason enough to try it.

  11. Anonymous

    Fresno Dan: To answer your question “Well, if they don’t end up in your wallet, whose wallet do they end up in, what is the point??”

    Right now they are just sitting on the banks balance sheet as excess reserves. Under normal circumstances, these excess reserves are quickly turned into a new loans and promptly end up in individual’s checking account. This would have the effect of increasing the money supply and lowering inter-bank interest rates, with the hopes that lower inter-bank rates would lower other interest rates like t-bill rates. But since these reserves are just sitting on bank’s balance sheets this is not happening and the Fed is trying a more direct approach buy buying enough bonds to have an appreciable effect on their price. Whether or not this will happen, or what kind of effect it will have remains to be seen.

  12. Raskolnikov

    Thanks alot for the answer, professor.
    There is so much confusion about QE, that I think it is seriously hurting the Fed’s credibility. For example, this is how Bernanke explained it in his speech on Friday:
    Bernanke: In my view, the use of the term “quantitative easing” to refer to the Federal Reserve’s policies is inappropriate. Quantitative easing typically refers to policies that seek to have effects by changing the quantity of bank reserves, a channel which seems relatively weak, at least in the U.S. context. In contrast, securities purchases work by affecting the yields on the acquired securities and, via substitution effects in investors’ portfolios, on a wider range of assets.”
    Now, you tell me, how is a layman supposed to understand that explanation?
    Most people think this policy will affect them quite dramatically, so they want to know what’s going on. But when they research QE, they get two different explanations–“printing money” vs. “exchanging reserves for Treasuries.” Even experts like Ip seem to be confused.
    Bernanke needs to make a better effort to explain the policy. His inability to communicate is undermining public confidence. (which is already weak)

  13. Anonymous

    “Right now they are just sitting on the banks balance sheet as excess reserves”
    I don’t believe this is the case. Multiples of these reserves are being dumped in to emerging markets, creating huge asset bubbles and in a globally linked economy this means inflation. Simon Johnson is pretty clear about this. If China, Brazil or India goes, so goes our banks.

  14. don

    I wonder how helpful the inflationary impact will be. If the only prices Ben can raise are food, gas and other imported commodities, then real wages will decline, along with the ability of wage earners to finance their debt. Would this be worth the possible positive effect on bank lending? (Inflation of this type, just like any other type, would discourage banks from sitting on idle excess reserves by reducing the real return to this activity (perhaps even making it negative.)
    It seems the Fed should have an unfair advantage in predicting inflation, as they are instrumental in creating it. (Let’s see, though, how good they are at preventing deflation going forward.)
    How about Ben’s statement (in testimony to Congress) about the size of the gains from international trade (so wildly improbable as to lead international economists to doubt either his judgement or his veracity)? How about his assessment of the probability that the housing collapse would transfer to the rest of the economy? How about his ruminations (before the current malaise) that monetary policy by itself could prevent another substantial downturn (and could have averted GD1)?
    Then, of course, we have Alan’s judgements …

  15. JDH

    Anonymous: At the close of each business day, these balances by definition are either held in accounts with the Fed or they have been converted into cash. Which happens is not a matter for disagreement or controversy, but instead is exactly the number reported on the Fed’s H41 release.

    It is possible that the changes in interest rates and exchange rates in the U.S. also cause some changes in asset valuation in China, Brazil, or India, and perhaps this is the point you are raising. But the fact that U.S. banks are sitting at the end of each day with huge quantities of excess reserves is not a proposition with which any intelligent person should disagree.

  16. Qingdao

    If JDH is correct and the only change will be in bank reserves, which are already large, why all the fear of ” a tsunami of dollars flooding into emerging markets”, fall of the dollar, etc?

  17. Anonymous

    Point taken. I’m not disputing that the banks have tremendous reserves or that they don’t stay on the feds balance sheet at the end of the day. What I’m disputing is implication that the reserves have no effect on the money that can be lent by the bank on a carry trade or the assertion that these reserves are somehow benign.

  18. Anonymous

    Let us assume that expansion in the money stock is desired by the Federal Reserve to achieve its policy objectives. One way the central bank can initiate such an expansion is through purchases of securities in the open market. Payment for the securities adds to bank reserves. Such purchases (and sales) are called “open market operations.”
    How do open market purchases add to bank reserves and deposits? Suppose the Federal Reserve System, through its trading desk at the Federal Reserve Bank of New York, buys $10,000 of Treasury bills from a dealer in U. S. government securities.3 In today’s world of computerized financial transactions, the Federal Reserve Bank pays for the securities with an “electronic” check drawn on itself.4 Via its “Fedwire” transfer network, the Federal Reserve notifies the dealer’s designated bank (Bank A) that payment for the securities should be credited to (deposited in) the dealer’s account at Bank A. At the same time, Bank A’s reserve account at the Federal Reserve is credited for the amount of the securities purchase. The Federal Reserve System has added $10,000 of securities to its assets, which it has paid for, in effect, by creating a liability on itself in the form of bank reserve balances. These reserves on Bank A’s books are matched by $10,000 of the dealer’s deposits that did not exist before- Modern Money Mechanics,
    Federal Reserve Bank Chicago

  19. Anonymous

    If the process ended here, there would be no “multiple” expansion, i.e., deposits and bank reserves would have changed by the same amount. However, banks are required to maintain reserves equal to only a fraction of their deposits. Reserves in excess of this amount may be used to increase earning assets — loans and investments. Unused or excess reserves earn no interest. Under current regulations, the reserve requirement against most transaction accounts is 10 percent.5 Assuming, for simplicity, a uniform 10 percent reserve requirement against all transaction deposits, and further assuming that all banks attempt to remain fully invested, we can now trace the process of expansion in deposits which can take place on the basis of the additional reserves provided by the Federal Reserve System’s purchase of U. S. government securities.
    The expansion process may or may not begin with Bank A, depending on what the dealer does with the money received from the sale of securities. If the dealer immediately writes checks for $10,000 and all of them are deposited in other banks, Bank A loses both deposits and reserves and shows no net change as a result of the System’s open market purchase. However, other banks have received them. Most likely, a part of the initial deposit will remain with Bank A, and a part will be shifted to other banks as the dealer’s checks clear.
    It does not really matter where this money is at any given time. The important fact is that these deposits do not disappear. They are in some deposit accounts at all times. All banks together have $10,000 of deposits and reserves that they did not have before. However, they are not required to keep $10,000 of reserves against the $10,000 of deposits. All they need to retain, under a 10 percent reserve requirement, is $1000. The remaining $9,000 is “excess reserves.” This amount can be loaned or invested. See illustration 2.
    If business is active, the banks with excess reserves probably will have opportunities to loan the $9,000. Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers’ transaction accounts. Loans (assets) and deposits (liabilities) both rise by $9,000. Reserves are unchanged by the loan transactions. But the deposit credits constitute new additions to the total deposits of the banking system

  20. JDH

    Anonymous: I’m not sure who here you think doesn’t know this elementary stuff. A better description of the details relevant for understanding how this all works out in the present environment can be found here.

  21. JP Koning

    JDH, you say QE blurs the boundaries between money creation and financing the public debt, but why doesn’t that same criticism apply to every open market operation conducted by the Fed since the dawn of Fed-time? Sure, QE does it quicker and in larger quantities, but arguably the slow and steady POMOs from 1946-2008 still blurred that same boundary, albeit at a less drastic rate.

  22. JDH

    JP Koning: For one thing, there’s the question of size. Usual open market operations were of a few billion dollars; here we’re talking about half a trillion. This is related to the focus of the operation. In normal FOMC operations, the intention is to effect a small change in the supply of reserves. With QE, the goal is to change the supply of Treasury debt held by the public.

  23. JP Koning

    Ok, I see where you’re coming from. Thanks.
    The way I see it, as long as the Fed’s open market operations are conducted with treasuries (versus, say, corporate paper), the line between money creation and financing of the Treasury will always be blurred, no matter if these operations be QE-style or tiny OMOs.
    Forcing the Fed to conduct these purchases in the open market rather than directly through the Fed only slightly “unblurs” the distinction; instead of directly financing the Treasury, the Fed can route such financing through the primary dealers.
    So all I see is blurry boundaries… which could also mean I need my eyes checked.

  24. Bryce

    ” Bunny: Isn’t [deflation] good? Doesn’t that mean people can buy more of the stuff?
    JDH: It would if your nominal income stayed the same. But that’s exactly the problem. In episodes of deflation, people’s wages go down, and many lose their jobs and can’t find new ones. A decrease in the price of what we buy sounds good to us, but a decrease in the price of what we sell (namely, a decrease in our salary) does not. The experience of countries in which wages and prices are falling has been very painful, and the Fed wants to avoid this.”
    This captures the shallowness of macro-economic thought. A microeconomist can recognize that prices are communicating valuable information. A macroeconomist thinks “Oh if the Japanese had just printed more Yen, they would have been fine.” Can they not realize that the problem was massive amounts of bad debt invested in bad investments.
    At the beginning of 1990 [their bubble having burst], Japan’s CPI was 92.5. Japan continued to experience gentle inflation for 8 years, with the CPI peaking at 104 in 1998. 12 years later, Japan’s CPI is currently 99.8. From 2001 to the present the range has been between 101.4 & 99.4. Deflating CPI is not nor ever has been the crux of THE JAPANESE problem. 20 years of Keynesian therapy in Japan to avoid dealing with reality have merely extended their misery.
    And that is what the Bernanke & the JDH seem to want for us. The Bunny makes more sense.

  25. ppcm

    May be worth reading the hereunder documents, speeches made by Mr M King governor of the Bank of England.
    They are showing insights,of the pitfalls of QE,.One may assume that by now they will be told to the public of England through Garry Potter !
    Do not miss this one either, Monetary policy strategies a central Bank panel M King
    QE has benefits as well and been covered through (Econbrowser posts More than one tool for the Fed.)
    QE should bear the mention “Watch your IQ before use”

  26. aj

    Anonymous says: Point taken. I’m not disputing that the banks have tremendous reserves or that they don’t stay on the feds balance sheet at the end of the day. What I’m disputing is implication that the reserves have no effect on the money that can be lent by the bank on a carry trade or the assertion that these reserves are somehow benign.”
    Why dispute what the Fed and BIS tell you, amongst others. You appear to be looking at this from the wrong angle. Banks don’t need reserves ex ante in order to lend. What they need is someone who is willing and able to borrow, who is creditworthy, and assets the bank thinks will maintain or increase in value (not depreciate as has been the experience in recent years). Reserve maintenance comes after (and that’s in the countries that actually have a reserve requirement). There is no relation between reserves and lending, unless of course you can explain to eveybody how $43bn-odd of bank reserves led to the debt based binge of such proportions that it took down the global economy, and would’ve probably finished it off if governments didn’t stop the rot (given Buffett seems to agree with this, I take it that it also is not controversial). And then explain how $1tn in reserves is unable to achieve even a fraction of this…all that can be really said about current reserves in this context is that when the banks decide to lend to (or can find enough) creditworthy customers, they will already have their reserves covered.

  27. carmelo

    The limit to buy new treasuries issues is useless, its like which is first the egg or the chicken. Government finances its expenditures through taxes and loans that sooner o later can be converted by banks in bonds (swap). Monetizing older o new bonds pursues the same target, to monetize debt in order to avoid crowding out private spending. Right now there is no such a thing(people is saving more ), simply the government is financing its deficit which is foreseen to be around 10% in the following years reaching dangerous levels. The FED’s balance sheet quality is dubious as those securities bought in the first QE were mainly mortgages, but as long as Fannie and Freddy keep being capitalized you will be never realized that the FED is really bankrupt and we were stolen in the name of financial stability. Banks are bankrupt and keep paying generous bonuses thanks to the oblivion of FED, Geitner , Congress and regulators.

  28. o.jeff

    Thankfully, in a few years, we won’t be having discussions like this any more because there will not be a Federal Reserve–or a central central bank of any kind in the United States.

    We will have sound money and sound banking and sound economic growth. We’ll stop having these illusory and cruel economic “booms” which must inevitably be followed by crashes like we are experiencing today. We will have a true, moral, and honest economy that grows slowly, but consistently based on actual underlying factors and not bogus credit/monetary expansion that ultimately fails.

  29. 2slugbaits

    Sorry, but you badly misunderstand the problem. Your excessive fondness for microeconomics is not well served when you start delving into macroeconomics. Unlike the textbook micro problem, in macro it is possible to have multiple equilibria positions, and that’s really the central problem we’re facing today. And that’s the problem that Japan has been facing over the last two decades. The problem with mild deflation or even simply disinflation isn’t that it will somehow accelerate into hyperdeflation. The macro models do not predict that near zero inflation or modest deflation will increase into strong deflation. In order for that to happen the models also have to assume an increasing real interest rate. What the models actually predict is that near zero inflation or moderate deflation under adaptive learning result in a low output equilibrium. In other words, the effects of deflation get transferred to output levels rather than price levels. And that describes Japan’s position quite nicely. If you want to criticize the macro models, that’s fine; but before you launch into criticisms it would be helpful if you first understood what the macro models were actually predicting.
    But here’s where it gets scary. If the Fed actually followed policies recommended by many of the knownothings in the GOP (Eric Cantor & Mike Pence come to mind), then we could actually move away from a low output equilibrium to a low output/deflationary spiral, and that’s because the low output equilibrium is really a saddle point in which movement away from the point is unstable. The Japanese were at least smart enough to adopt policies that maintained the saddle point. I’m not so sure that clueless Tea Party voters are as smart as the Japanese. I’m pretty sure that Eric Cantor and Mike “Dumb as a Bag of Hammers” Pence are not.

  30. Anonymous

    If you look closely you can see that these are not bunnies. They are pit bulls. Pit bulls are actually cute lovable pets until one day when they unexpectedly rip your throat out.

  31. flow5

    “There is no relation between reserves and lending”
    Understand why & what you said – but it is technically not true.
    “There is general agreement that, for almost all banks throughout the world, statutory reserve requirements are not binding. Banks need central bank deposits for clearing checks and making other interbank payments, which gives the central bank leverage over money and bond markets.” Richard Anderson, V.P. St. Louis FED.
    I.e., why indeed do the banks need daylight credit?

  32. aaron

    I think QE is causing disinflation via giffen behavior, low expectations of future income and higher relative prices of consumables creating uncertainty and increasing the demand for savings and liquidity, and inflated equity and assets prices making investment unattractive to the broader population.
    I think it’s safe to assume that food and energy prices have similar consumption effects to this:
    Savings as a percentage of disposable income has fallen from 6% in May to 5.3% in Sept. Disposable income has increased .3%, that’s much less than inflation. But I think prices are likely cutting into savings rather than people purchasing more.
    The food price rise is higher than inflation. The current short term rfr for less than 1 year are between .13% and .22%. At 7-10 times the rfr, 1.4% inflation is hardly insignificant.
    You need to consider the price rise relative to inflation, income, and expenditures.
    Monthly Personal Income
    Monthly Personal Consumption Expenditures
    And percentage change from previous period of personal consumption expenditures
    Using BEA Table 2.6. Personal Income and Its Disposition, Monthly and Table 2.4.5U. Personal Consumption Expenditures by Type of Product, Monthly, I classified as non-discretionary expenditures:
    Food and Beverage
    Financial Services and Insurance
    Housing and Utilities
    Over the past decade, Food and beverage has floated between ~7% and 8% of Disposable Income, generally just above 7%. It is essential flat for the year, Starting at 7.06% fluctuating and dipping to 6.9% and finishing Sep. just over 7.1%. As a percentage of disposable income after non-discretionary expenditure excluding Food and Beverage, it is between 12% and 13%. Fairly constant for the decade.
    Non-discretionary expenses as a percentage of disposable income is fairly constant at about 50% , between 49% and 50.5% for the 90s. This is also the case through about mid 2004. After spring 2005, non-discretionary expenditures become about 52% of disposable income. After Oct 2008, it drops back down to about 51%. It gets close to 50 for April and May 2009 and climbs again to about 51.5%. 2010 starts at about 51.7% drops to 51.1% in June and is just below 51.5% in Sep.
    Looking at the past 10 years, the stressors clearly are Healthcare, rising from 25.5% of DIaNDE to 30.8% in Sep., Gasoline starting at 4.2% dropping to 3.2% in 2002 and peaking at 8.4% in July 2008 and finishing Sep. at 5.6%, last is housing climbing from 32% to 35.4%, finishing Sep at 34.5% (housing costs include utilities).

  33. Anonymous

    “Excess Reserves”? Balderdash! The credits the FED throws into the banking system are there for two reasons:

    1. 1. Provide REAL RESERVES for the accounting fraud that allows encumbered RE securities to be valued higher than their real market value.
    2. 2. Provide credits for the support of the dollar as an international reserve currency – (in other words, free money that multinational corporations can use to buy commodities and the companies that produce them on the world market).

    All the rest is misdirection…

  34. Steven Kopits

    So the accounting entries go:
    Fed: credit cash, debit nothing (equity, I guess)
    Fed: debit cash, credit Treasury security
    Bank: debit Treasury, credit cash
    Bank: debit cash, credit loan
    Which is supposed to decrease interest rates.
    To close the position:
    Fed: debit Treasury, credit cash
    Fed: debit cash, credit nothing (equity decrease)
    Which increases interest rates.
    In theory, it could work, but is the economy interest-rate constrained? Or does this just cause asset bubbles? Right now, it looks like we have an asset bubble already formed in private equity and corporate acquisitions.
    And does QEII create uncertainty in the housing market? Do prospective homebuyers worry that all this going to lead to inflation? And if it does, won’t housing prices take another leg down as long-term interest rates rise? Or is it encouraging sellers to resist marking to market? Is it creating confidence or uncertainty?
    But I have to say, the bunnies are hilarious.

  35. Bob_in_MA

    Professor Hamilton,
    Your answer to, “Has the Fed ever been right about anything?”, seems either disingenuous or profoundly naive. Is the purpose of the Fed to make accurate inflation forecasts? The Fed just sat by and watched a massive bubble build up and explode, partly due to its own lax monetary and regulatory policies, and you are comforted by the accuracy of their inflation forecasts?
    That would be like patting a losing football team on the back for correctly predicting the number of field goals their opponents scored.
    Likewise the Goldman Sachs question. Yes, there is a logical reason to buy the bonds through dealers. No, there is no reason people making decisions which decidedly effect the profitability, and even survivability, should be connected to those firms. It should be a scandal.
    The Fed is getting a lot of unwarranted abuse from self-interested foreign authorities and political opportunists here. But that doesn’t excuse the utter failure of their asymmetric policy of dealing with bubbles, nor the apparent collusion with Wall St.

  36. SqueekyFromm

    Sooo, like for a bank is this the same thing as taking money out of its piggy bank and putting it into their wallet??? From where they were saving it to where they can spend it???
    Plus, what if a bank doesn’t want to sell the bonds???
    Squeeky Fromm
    Girl Reporter

  37. aj

    ….”Provide REAL RESERVES for the accounting fraud that allows encumbered RE securities to be valued higher than their real market value.”….
    can’t really disagree with that one. What sort of Empire exists, or continues to exist, when it comes down to accounting trickery and falsehoods? And has for a long time… this has been the gestation for this crisis, which won’t be over anytime soon.I was just thinking about the U-Rate in the US on the way into work today….wow, what a hurdle! Anyway, it seems to me that additional to my (and others) views on reserves, banks have a real reason to keep them on hand as you note.
    flow5 – I’ll look into your note, but I still don’t think that addesses any link between a bank’s ability to make a loan (it can do so whenever it chooses, subject to capital, leverage restrictions etc), and the reserves it holds. It can make you a loan whether it has the bare minimum of reserves, or a trillion of ’em.

  38. steve from virginia

    Bunnies, eh? Space aliens, maybe? Bankers from Mars bearing bags of money?
    Lots of discussion about the fact of the Fed buying securities, but what exactly is the Fed buying? There are only so many Treasuries in play @ any given time and QE1 was directed toward RMBS.
    Now, the munis are under a great deal of stress and Fannie, Freddy and FHA need recapitalization. Ditto the ECB by way of various swap facilities. Will Bernanke buy Irish and Portuguese bonds? Why not?
    As far as adding reserves, it really doesn’t matter as these never go into circulation — if reserves were circulating there would be no need for QE as money supply/velocity would be expanding. Under such conditions adding reserves would indeed be inflationary.
    The fact of QE as a rationalization for an existing condition matters rather than the stated reasons for it.
    Also, bank reserves are a form of currency trap. Insolvency is structured into the recipients acceptance of excess reserves which is again the fact of QE. In other words, if banks were not insolvent there would be no such thing as ‘excess reserves’.
    When off- balance sheet non- collectible loans are recognized the reserves will be liquidated instantaneously, the banks will collapse and the Fed itself will become insolvent as its balance sheet will be impaired identically as its clients. This is simple accounting entity bookkeeping. Under this set of circumstances even Treasury debt will turn sour.
    This is Bernanke’s real risk, that the Fed becomes irrelevant.

  39. Nemesis

    Bank charge-offs are at $200 billion, and delinquencies are nearly $600 billion, totaling about 6% of total bank assets, 8% of M2, and 7% of private nominal GDP. This is nearly precisely where Japan was in ’00-’01 when the BOJ embarked upon the Japanese “QE II” after QE I (little discussed, if at all), which occurred during the Asian Crisis in ’98-’99.
    At the banks’ net interest margin versus charge-offs and delinquencies, the monetary base to bank loans ratio, the current average interest on Treasuries and banks’ non-loan assets, and to make up for the loss of income and capital to their balance sheets, banks will need to increase their cash and non-loan assets (Treasuries, mostly likely) by at least another $2-$2.5 trillion in the years ahead; and this will occur on a net basis with loans falling by a similar amount.
    The Fed has already spotted the banks something like $1.2 trillion, and the Fed will likely double their balance sheet from here to credit the banks’ balance sheets with fiat digital credit-money so that banks can buy Treasuries in the secondary market and directly from the Treasury as primary dealers.
    10% of bank loans are being defaulted upon or delinquent (and likely to default) and a larger figure in toxic assets were the banks to be required to mark to market. The yield curve is flattening at low nominal yields and negative real yields rivaling those of Japan since the late ’90s, the 1930s to WW II, and the 1890s. Banks and non-bank financial firms have very little incentive to increase risk to their balance sheets by growing loans when they can buy Treasuries at 0-3%+ and risk nothing, especially when the Fed is the buyer of last and only resort for the paper.
    The Fed’s QuEasy operations are not to “stimulate” the private economy, per se; rather, the Fedsters (and bankster benefactors) are terrified that a perfectly reasonable and prudent deflationary mindset, i.e., deleveraging, liquidity preference, and risk aversion, will take hold among Baby Boomer businesses and households (those with the assets and highest incomes), exacerbating the ongoing liquidity trap conditions at the zero interest bound.
    But this is what is supposed to happen during a debt-deflationary regime following a secular build up of debt beyond the ability of the growth of wages and production to service the debt. However, with a fiat debt-money system requiring debt to increase in perpetuity, and given that compounding interest eventually always grows faster than the growth of the ability of labor product and production to service the debt to infinite term, debt-money and its accompanying interest (what gives the debt-money its value) must be reduced to a level that can be supported by a sustainable rate of labor and production. This implies that private debt must be reduced by at least half of its current level before any organic private sector growth can occur and be sustained.
    But there’s an additional constraint during this debt-deflationary depression that did not exist during the depressions of the 1830s-40s, 1890s, 1930s-40s, and Japan since the ’90s: peak global production of oil.
    Not only is debt twice the level that can be sustained to allow organic private sector growth, the US is now in the 26th year of declining per-capita domestic oil production of ~3.2%/yr. (41st year of 2.4%/yr. decline per capita), with the US requiring 60% of consumption from oil imports. China is now at 50-55% and growing at 8%/yr., whereas the EU and Japan import 100% of consumption with little or no growth.
    The US replaced growth of domestic oil and goods production in the 1970s-80s with oil import growth of 4-5%/yr. and debt-money growth of 7%/yr. The massive debt service burden and oil deficit can no longer be sustained by growing private debt and running public deficits; the bills are coming due in the amount of at least 3-4%/yr. per capita.
    Note that energy costs since ’00 are growing at 50% faster than before ’00. The bottom 80% of US households face a larger share of their flat or falling after-tax real incomes going to food and energy costs. Since ’00, the bottom 80% of households have experienced a net decline in purchasing power of 17% due to rising energy and food costs alone, which is an astonishing 27-28% decline per capita.
    Were the pattern to persist for another decade, the bottom 80% will have lost more than half of purchasing power per capita from ’00 due to Peak Oil, not counting the debilitating effects of onerous debt service costs.
    Add in the mandated increasing costs of medical services likely to occur from Obamacare (rationing and cost reduction to insurers and gov’t is the ultimate objective of the program, as it must be, either from “the market” imposing it via higher costs people cannot afford or via overt rationing by gov’t-sponsored services), and the bottom 80% of households face grim economic and financial prospects in the years ahead. Basic subsistence for a growing majority of the US working class will be at risk.
    Bubble Ben Shalom Zimbabwe cannot print oil, increasing net energy return, and food, and the gov’t cannot borrow and spend these into existence. The US has no choice but to find a way to reduce oil consumption per capita by 50-55%+ over the next 10-20 years and 70-75% by mid-century while somehow sustaining a socially acceptable material well-being for at least a large majority of the population. How we will feed ourselves and another 50-100 million people projected to reside in the US over the next 20-40 years will be challenge Americans have not faced. Such a situation will risk the US becoming so-called Third World society. In this context, China and India, societies with an even higher risk of growing food and energy deficits with hopelessly unsupportable population, face staggering challenges and grim prospects.
    Yet, you will find virtually no influentials, policy makers, corporate or political leaders, or corporate-statist financial media shills and beach baby teleprompter readers telling us the truth about what is required. Who can blame them? The choices are bad, ugly, and uglier, and that does not make for mass-media content to sell advertising.

  40. ivan hall

    As I understand it, the banks act as an agent and a throughput for the Treasury. The banks sell the bonds on behalf of the Treasury. The money gained from sale of bonds is then passed on to the Treasury to finance deficit and pay off maturing bonds. With Q.E. or credit easing as Bernanke prefers, agent banks selling new bond issues for the Treasury are not receiving money (electronic or otherwise) from typical buyers but are instead receiving a credit in their federal reserve reserve account. Seems to me then that the agent banks must pass on the “money” to the Treasury some how, and so must do so from their existing reserves at their respective institutions. Logically to “get their money back” they would withdraw federal reserve electronic funds created for T-bond purchase and put that back into their own respective institutional reserve requirement (separate from their federal reserve reserve account). The money enters the economy through either deficit spending by the government, or payback to maturing bond holders. The Fed cannot mop up this “money” from credit easing, as it can with true Q.E. True Q.E. is the Fed simply crediting or increasing select member banks federal reserve reserve accounts. Later the Fed can mop that action up by debiting or taking back what had previously been given.
    The question i have is how did the Fed buy $1 trillion in mortgage securities? Presumably or logically by crediting the banks who owned the securities federal reserve reserve account. Securities ownership transfers from banks to Fed, with future proceeds from securities (if there are any) now going to the Fed. Fed in turn uses these proceeds to buy more T-bonds, (instead of retiring the money, which would have had the effect of washing out the original purchase) keeping the increase in money supply active.

  41. mana

    Hi. i live in Iran . i check your site everyday and sometime translate for an economic newspaper(although as you see my English is worse).i can say “Answering the bunnies” is one of the most interesting subject i ever read. i graduated in economics (AM) but just today understand lots of things about differences between monetary policy & quantitative easing . l would like to say thank you very much. please keep answering to bunnies.

  42. Bruce Krasting

    Interesting that you feel it necessary to “correct” the bunny. I think it would have been more effective if ‘The” Bernank had done it himself.
    Of those Americans who actually have some awareness that QE even exists the vast majority think it is just bad MoJo.
    QE is an emergency room visit. We are not in the emergency room now. There is no way you and ‘the’ Bernank are going to change that. QE2 is D.O.A., as it should be.

  43. flow5

    aj — The FED continues to enhance its subsidies to its member commercial banks (in an attempt to make them the world’s, most competitive (lowest cost, & inevitably, least regulated), provider of new money & credit). In that regard, liquidity reserves will become increasingly indispensable and more ever more costly to the taxpayers.
    Some prospective: liquidity reserves are a necessary requirement of the prudential reserve EURO-dollar SYSTEM. And all prudential reserve banking systems have heretofore “come a cropper”.

  44. JDH

    Bob_in_MA: The issue at hand is whether the Fed is correctly identifying disinflation as the principal risk at the moment. The Fed’s track record of being right about what’s coming for inflation when others are wrong is most germane for that issue. It is unambiguously an appropriate fact to bring up in response to the question “has the Fed ever been right about anything?”

    Your use of the term “disingenuous” is offensive and inappropriate. Readers be warned: I may adopt a policy of simply deleting any comments using that ugly expression.

  45. Mark Kuperberg

    I vote puppies, not bunnies or bears.
    But more important is the sad fact that the person with the technical skills to produce this video has absolutely no idea what they are talking about. To use an expression that I got from my daughter, the video is “fractal wrong”: wrong at every level of analysis – it’s wrong on the facts, it’s wrong on the theory, it’s wrong on the policy. The video is part and parcel of the anger and disdain that the American public now holds for people who actually know something (but I admit, “the Ben Bernank” is a cute phrase).
    So what is right. QE2 is going to be pretty ineffective (for better or worse). We are in a world-wide liquidity trap, and QE2 will lower long term interest rates epsilon. What we need is expansionary fiscal policy everywhere, but what we are going to get is fiscal contraction everywhere. This is in part because of the “know nothing” orientation of the American public, but at least as important is the failure of the economics profession to stand behind fiscal expansion world-wide. History will record this as the second major failure of the economics profession in modern times – the first being the general failure to see the financial meltdown coming.
    The most fitting quote for everything that is happening to us now, of which this video is a good example, and what will happen to us in the coming years is from Yeat’s poem The Second Coming: “The best lack all conviction, while the worst, Are full of passionate intensity”.

  46. Ricardo

    JDH: A study by Christina and David Romer published in the American Economic Review in 2000 found that Federal Reserve forecasts of inflation were significantly better than those generated by the Blue Chip survey of economic forecasters, the Survey of Professional Forecasters, or Data Resources, Inc. A study by Jon Faust and Jonathan Wright published in the Journal of Business and Economic Statistics in 2009 found the Fed’s forecasts of inflation were significantly better than those generated by a battery of state-of-the-art time-series forecasting techniques.
    Just curious, are any inflation studies as accurate as the stability of prices under a gold standard as observed by Professor Roy Jastram?

  47. Ricardo

    From Professor Jastram’s 1981 paper on the Gold Standard
    “Let me start with some startling statistics.
    From the time the United States went off the gold standard in 1933 the wholesale
    price level has gone up by 760%. Since England abrogated the gold standard in 1931 her
    price index number has risen by over 2000%.
    Before that the two countries had a combined history of 350 years of long-run
    price stability. The price level was the same in the United States in 1930 as it had been in
    1800. In England the price index stood at 100.0 in 1717 (the first year of her gold
    standard) and it was at that figure again in 1930.
    I am here today as an analyst, not as an advocate of a single point of view. I do
    not believe that a return to a gold discipline would be a magic cure for all economic ills.
    Nor do I take the opposite extreme of blaming on a Gold Standard every economic ill that
    humanity was heir to during its tenure. Instead, I would like to take some time to sum up,
    very briefly, the conclusions I have reached based on my years of research leading to two
    books on the precious metals, The Golden Constant and Silver: The Restless Metal
    (John Wiley & Sons, New York).”

  48. Bob_in_MA

    Professor Hamilton,
    I apologize if you found my comment offensive.
    But I stand by the point I made. It really seems that academic economists have a very hard time seeing the forest for the trees.
    The Fed correctly spotted a disinflation in 2002-3. But so what? Their cure was a massive housing bubble which created a situation an order of magnitude worse than what they prevented.
    What was the principal fuel for the balloon in subprime lending? Low rates managed by the Fed forced savers to seek out risk…
    What is one of the stated goals of QE2? To force savers to seek out risk…
    And when the dust settles after the next crash, who will have profited by it? Goldman Sachs, etc.
    Isn’t it clear there’s something absurdly wrong here?

  49. JDH

    Bob_in_MA: Of course you are free to reach a different conclusion from mine. But you are not free to use this forum to groundlessly accuse me or anyone else of lying.

  50. aaron

    Bob, I’m not sure its right to say the fed caused the bubble. It accelerated and probably exacerbated it. Existing social, psychological, and policy dynamics caused the bubble.
    Now there are different, and possibly worse dynamics. Things that need to be fixed before I believe QE will work.

  51. 2slugbaits

    Ricardo You appear to have a very strange understanding of “price stability.” Most people think of stability either in terms of predictability or volatility. By both measures gold is clearly unstable. Look at the quantitative data. Look at Prof. Jastram’s own chart…gold is clearly more volatile than the WPI. Look at gold prices relative to the CPI over the last 35 years. Gold prices are roughly ten times as volatile.

  52. Jeremy

    I suspect many people share BOB_in_MA sentiments – excepting, of course, the disparaging remark about JDH.
    While many must grudgingly agree that FED QE and bailouts were and are absolutely necessary to avoid a depression, why and how did we (as in the public) get hamstrung into this “too big to fail situation”?
    Surely at least some government department or officials ought to be held responsible for allowing this mess?
    Now that the FED Cavalry have ridden in to save the day with Bailouts/QE & now QE2 – what is there to prevent this from all leading to the next market bubble and possibly an even worse crash?

  53. Estragon

    “Fed’s forecasts of inflation were significantly better than those generated by a battery of state-of-the-art time-series forecasting techniques”

    There are a couple of things to keep in mind when considering the efficacy of the fed’s inflation forecasting vs models or other forecasters:

    1. The fed has the tools to affect the predicted outcome; it’s a bit like asking if my predictions of what I’m going to have for dinner are accurate. As I do the cooking, my predictions are generally pretty good.
    2. The fed’s predictions are public. Future inflation is dependent to some extent on public inflation expectations, and those expectations are influenced by fed predictions (the prophesy is somewhat self-fulfilling).

    As the fed appears to be moving to an explicit inflation target, their predictions and these feedback channels seem likely to be even more important.

  54. don

    My best guess is that QE will have little substantive effect on U.S. consumption or investment, except possibly through the effect on the dollar. Effects on price expectations also come from the effect on the dollar, which are self-reinforcing. As dollar declines increase the prices of commodities and food, banks respond to the adverse returns on excess reserves by engaging in the carry trade (sending the money abroad, not increasing domestic loans), which will further reduce the dollar. The dollar rise further increases gains from the carry trade, until a new stock-equilibrium is reached and former loans start to come back. At this point, the trades start to unwind and the dollar starts to rise, perhaps steeply, as dollar appreciation acts to discourage new outflows, causing the net flows to reverse direction strongly. But this may be a few years away.
    Japan had a backstop to prevent the unwinding of the carry-trade from getting out of hand, resulting in steep currency gains; namely direct intervention in currency markets or the threat of such actions. Also, Japan’s actions came at a time when local conditions were bad but the rest of the global economy was well, and they are smaller relative to the ROW than is the U.S.
    In contrast, the U.S. actions come at a time of general global malaise. Consequently, I think the Fed’s actions are irresponsible and short-sighted, and I must side with the foreign critics, even though behaviour of China and other Asian countries with massive stocks of excess reserves is worse.
    This much seems clear – the biggest, most notable effect of QE so far has been a marked decline in the dollar. The accuracy of the rest of my conjectures remain to be seen. However, I seriously question the judgement of those who argue that QE is an innocent attempt to spur the U.S. domestic AD, rather than, as foreign critics claim, mainly an attempt to export U.S. unemployment.

  55. Bob_in_MA

    Professor Hamilton,
    It certainly wasn’t my intention to accuse you of lying. What I meant was, the problems which many people feel the Fed has gotten horribly wrong have nothing to do with inflation forecasts, but rather their indifference to these asset bubbles and the effects their eventual collapse will have, until it is too late, at which time they pull out the stops, which seem very effective in rescuing Wall Street and various speculators, but less so for the average worker/saver/pensioner, etc.
    The Fed has provided the fuel for speculative bubbles and shown an indifference to them after they’ve begun. And they are about the only institution here that has any power at all to stop them. I didn’t say they caused them, but it’s obvious they enabled and accommodated them. So, yes, they are responsible for them.
    This bubble/bust cycle has not come about because of the alignment of the planets or the use of fluoride in our water.
    And once again they are taking the exact same post-bubble tack:
    1. insulate Wall Street from any ramifications.
    2. support speculative asset prices to minimize fears they will reach market clearing levels.
    A lot of the criticism of the Fed is coming from simple-minded opportunists. But much of the defense sounds narrow and simplistic.
    I understand the theoretical reasoning behind the Fed’s moves. But they aren’t running a graduate seminar at Princeton. Clearly, the Fed is not equipped to engineer the outcomes it intends.
    That could mean they are ill-equipped, or it could mean they try too hard to engineer outcomes.
    But until they recognize there is a problem, there will be increasing numbers of skeptics and a continual rise in cynicism. Some misinformed, but much of it justified.
    The recent confab in Georgia where Bernanke and Greenspan patted themselves on the back didn’t bode well.

  56. Johannes

    Why not let the Fed bail out Irish banks, like with a series of reverse repo swap purchases and reverse repurchases.
    It’s called “Monetary Policy” and it avoids partisan politics. It’s really a science, not politics: you wouldn’t understand. The finest Ivy League professors get paid well to endorse it.
    No one will question it. No one even has access to the books.

  57. aaron

    These high commoditiy prices could spur investment in more production which would ultimately benefit the economy. Anyone know if this is actually happening?
    I suspect oil producing nations are taking a cue from the US and hoarding rather than expanding production.
    More efficient food production could probably be brought to developing countries.
    Can production/extraction of other commodities be accelerated, or are producers already expanding as fast as they can?

  58. aaron

    I’m skeptical, but this post (via Ryan Avent at Free Exchange) which concludes that high food prices a good for the poor in developing countries is very interesting.
    I find it very doubtful that they’re beneficial in developed countries.

  59. Casualreader

    You mentioned the Fed’s “indifference to these asset bubbles”, presumably referring to stock prices and later home prices. I would argue that the Fed was not all indifferent, and a search of their transcripts and press releases would no doubt find many concerned references prior to their collapse.
    But another question. Has there been a bubble in gold prices at any time since 2002? If so, when did it start and at what price? Are there bubbles in other commodities? Or the FX value of the dollar? Or stock prices?
    If so, which commodities are affected and what is the appropriate policy response to get those commodity prices back to fundamentals?

  60. Rich Berger

    “Although it is true that banks could ask to withdraw these funds in the form of green currency, they currently are showing no interest in doing so. And before banks did start to want to withdraw these funds as money, the Fed plans to sell the assets off to bring the reserves back in.” So how is it that the Fed can sell the assets, but the banks can’t? Why is it necessary that the Fed act as a middleman?

  61. GoldenGloves

    “JDH: A study by Christina and David Romer published in the American Economic Review in 2000 found that Federal Reserve forecasts of inflation were significantly better than those generated by the Blue Chip survey of economic forecasters, the Survey of Professional Forecasters, or Data Resources, Inc. A study by Jon Faust and Jonathan Wright published in the Journal of Business and Economic Statistics in 2009 found the Fed’s forecasts of inflation were significantly better than those generated by a battery of state-of-the-art time-series forecasting techniques.”
    Haha. The Fed has been more right than others. That hardly means a thing given that everyone else has been completely wrong.

  62. sonofman1231

    I created a reply to the bunnies (actually, talking dogs I believe) early enough into the spread that I gained 32,000 hits or so. Unfortunately, the original is approaching 3 million. My video is skewed towards the benefits of QE which I probably overstated… but I was working to counter the message of the first video which as you discuss is way off base. Of course, I have been mobbed in the comments by those who want to “abolish the Fed” so it has been a real learning experience. Anyway, check my reply out at you are not alone in your disagreements. I would encourage “EconReader” first poster on this article to publish his xtranormal video to youtube and promote it on my page and the original. It is important to get this opposition out there to more “average joe” types. Great article, thanks.

  63. mana

    hi professor. could you please explain the EQ2 on US bonds which were bought by chines? are they going to sell them?

  64. Satish


    Every time in world financial history that base money has been expanded as fast as “the Ben Bernank” is doing, it killed the currency. Thousands of times, and with ZERO exceptions.
    Now we are to believe that today’s inflators creating the money (ok, the “reserves” if you must, but how could bank reserves be anything but money) have a secret plan to get themselves out of this mess without killing the currency, when all of mankind have never pulled it off before??
    My gold and I howl with laughter!


  65. Andra

    I love this post! It is very disturbing how widely the bunny video is circulating. Thank you for taking the time to try to set the record straight.

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