GPS Presents Professor William Winecoff (Indiana University)- "The Politics of the Federal Reserve's International Crisis Lending"

March 18, 2022 - 12:00pm to 1:30pm

 

Since the global financial crisis that began in 2007, and continuing into the present, the United States Federal Reserve has engaged in a wide range of “unconventional” monetary policies at both the domestic and international levels. While the Fed has insisted that it has acted within its mandate to stabilize the domestic macroeconomy, monetary policies that influence the supply of the American dollar also have profound global effects due to the dollar’s extensive use internationally. As a consequence, the Fed’s role as a geopolitical actor has grown in importance over the past 15 years, a role recently illustrated by the unprecedented sanctions effort in response to Russia’s invasion of Ukraine. This presentation demonstrates the structural power of the Federal Reserve, but also the downsides to the use of that power. First, it shows how the Fed defended the international role of the dollar during the subprime crisis in ways that strengthened American power in the global economy. Second, it shows that the Fed’s crisis lending inadvertently fueled price inflation in global commodities markets, particularly the prices of staple foods, which culminated in a rise of contentious politics episodes in developing countries. Lastly, it applies these lessons to the period of Covid-19 and the ongoing Russia sanctions program, which have reinforced the prior pattern: ongoing (and even enhanced) American structural power in ways that were largely not predicted ex ante, but with renewed commodity price volatility that may well contribute to another surge in contentious politics episodes in the coming years. These events show that the disjuncture between the Federal Reserve’s domestic policy mandate and its international role is only growing as the international political economy becomes more deeply interconnected in complex ways, and as the linkages between the politics of the global economy and security system become increasingly impossible to ignore.

Location and Address

4500 WW Posvar Hall