Author: Warren Coats

I specialize in advising central banks on monetary policy and the development of the capacity to formulate and implement monetary policy.  I joined the International Monetary Fund in 1975 from which I retired in 2003 as Assistant Director of the Monetary and Financial Systems Department. While at the IMF I led or participated in missions to the central banks of over twenty countries (including Afghanistan, Bosnia, Croatia, Egypt, Iraq, Israel, Kazakhstan, Kenya, Kosovo, Kyrgystan, Moldova, Serbia, Turkey, West Bank and Gaza Strip, and Zimbabwe) and was seconded as a visiting economist to the Board of Governors of the Federal Reserve System (1979-80), and to the World Bank's World Development Report team in 1989.  After retirement from the IMF I was a member of the Board of the Cayman Islands Monetary Authority from 2003-10 and of the editorial board of the Cayman Financial Review from 2010-2017.  Prior to joining the IMF I was Assistant Prof of Economics at UVa from 1970-75.  I am currently a fellow of Johns Hopkins Krieger School of Arts and Sciences, Institute for Applied Economics, Global Health, and the Study of Business Enterprise.  In March 2019 Central Banking Journal awarded me for my “Outstanding Contribution for Capacity Building.”  My recent books are One Currency for Bosnia: Creating the Central Bank of Bosnia and Herzegovina; My Travels in the Former Soviet Union; My Travels to Afghanistan; My Travels to Jerusalem; and My Travels to Baghdad. I have a BA in Economics from the UC Berkeley and a PhD in Economics from the University of Chicago. My dissertation committee was chaired by Milton Friedman and included Robert J. Gordon. I live in National Landing Va 22202

How to be Safe

Much can be said about how and why almost everyone on earth has risen from poverty to affluence. Two of the most important are free markets that allow entrepreneurs to invent and build, and peace and security that allow our work to build consumer goods and services rather than weapons of war.

Taking the second of these, the safety of our persons and our property allows us to specialize and trade – an absolutely critical condition for flourishing. The more broadly we can trade the greater is the wealth producing potential of our efforts. So a key question and the focus of this blog is how we maximize our safety in order to maximize trade the production of consumer goods and services rather than weapons of war.

Since 9/11 almost one million people have been killed in wars and when including indirect deaths from wars the number rises to around 4.5 million. The U.S. alone has spent over $21 trillion dollars on defense since 9/11.  This is 5.25% of the U.S.’s cumulative GDP over that period of $400 trillion.

If we could trust every country in the world, we could get rid of our military complex and add that amount to our incomes. Obviously that would be unrealistic thus some defense spending will always be necessary. However, with the deployment of skillful diplomacy it can be greatly reduced and the losses from actual wars could potentially be eliminated.

We must live among other people. If we are good neighbors, we will be safer from attacks (verbal or worse) by those around us. Being a good neighbor requires being trustworthy (honest) and behaving in ways that take into account and respect the interests of our neighbors. What is true on the block and village is true globally as well. The adoption of mutually agreed rules/norms for our interactions with others is an important aspect of our safety and productivity.

Within each country, at least, agreement has been reached on which side of the road to drive, what frequency we can broadcast on, and what voltage our electricity will be. Across boarders we have agreed on setting dates and time (the calendar), airline overflight rules, and the orbits our satellites will occupy. After WWII, in addition to the UN and its many agencies, NATO, the World Bank, the IMF, and World Trade Organization, countries established the International Organization for Standardization (ISO), International Telecommunication Union (ITU), and the International Electrotechnical Commission (IEC). Moreover, the US and most every other country have established embassies in each other’s countries in order to serve the needs of their own citizens abroad and to maintain dialog and informed relations with each other’s governments.

An important part of soft power diplomacy are the supportive relationships with “allies” who contribute to mutual defense, thus lowering its cost. But good (cooperative) relationships in general are an important contributor to our safety and commercial interaction with other countries. To a large extent formal rules of war and treatment of others have promoted peace in the world.

Violating these rules (e.g. Russia’s invasion of Ukraine and U.S. invasion of Venezuela) raises the cost of our security. It makes us less safe and less wealthy. https://wcoats.blog/2026/01/03/war-2/

President Trump has angered our friends and allies with his tariff and other threats and a generally bullying approach to our relations with other countries. He has created enemies where we didn’t have them before. After bombing Venezuela and kidnaping its President, he is now threatening the same for Cuba, Panama, Columbia, Iran, and Greenland. Denmark’s government, which controls Greenland’s foreign affairs and defense, has told the White House to “stop the threats.”

Protests of US lawlessness is growing. As but one example:

JOINT DECLARATION BY THE GOVENMENTS OF

BRAZIL, CHILE, COLOMBIA, MEXICO, SPAIN, AND URUGUAY

“The governments of Brazil, Chile, Colombia, Mexico, Spain, and Uruguay, in light of the gravity of the events that have occurred in Venezuela and reaffirming their commitment to the principles enshrined in the United Nations Charter, make the following joint declaration:

“We are deeply concerned and reject the military actions unilaterally carried out on Venezuelan territory, which infringe fundamental principles of international law, in particular the prohibition of the use and threat of force, and respect for the sovereignty and territorial integrity of States, as enshrined in the United Nations Charter. These actions set an extremely dangerous precedent for peace and security in the region and endanger civilian populations.”

Trump has isolated the U.S. by breaking the rules and angering our friends and alias. We are much less secure than in the past.  WP: “Venezuela-Trump-Global Law and Order”

War

Only the US Congress can authorize war. President Trump, who pays little attention to the law, has ordered an attack on Venezuela anyway. The US has kidnapped Venezuela’s President and his wife, who Trump says are on a US Navy ship on its way to New York. This hardly looks like the promised end of “forever wars.” At Trump’s press conference today, he bragged of a number of other illegal US bombings around the world during his “rule”. In addition, he told so many lies, that it is surely a record. The greatest lier of all times, as he might say.

Trump announced that the US will continue to remain and run the country for a while. As our occupation of Afghanistan and Iraq has clearly demonstrated, we are bad at running other countries’ we occupy. I have put my own experience in Iraq in a book I urge you to read: “Iraq: An American Tragedy-My Travels to Baghdad”

The list of Trump’s disregards for the law continues to grow as does the price America will pay. “The rule of law” The constitution provides only one remedy for such a lawless President. It’s time to apply it.

The Rule of Law

The U.S. bombed seven countries under President Trump’s orders. Congress has not authorized or approved any of them. “US bombed seven countries in 2025 as trump dramatically expanded airstrikes”  This is perhaps the most serious end of Trump’s disregard for law. At the almost trivial end I have received more than half a dozen emails from “Trump” daily for many months. I carefully unsubscribe from each of them (over a hundred times) but they keep coming.

Trump has removed the established guard rails against executive abuse (e.g. all Inspector Generals have been removed). He has put an incompetent sycophant in charge of the Defense Department (appropriately renamed the War Department) who has fired senior military generals and admirals and replaced them with his loyalists. “Trump pushes out top US general-nominates retired three star-2025-02-22”  And the Attorney General’s office regularly takes his orders etc. After illegally sending National Guard troops into LA, Portland OR, and Chicago he is finally removing them in response to the Supreme Courts confirmation of lower court rules of their illegality. “Trump national guard in Chicago Los Angeles Portland”

Trump’s disregard for the law in his effort to deport all illegal residents has become particularly ugly and damaging to the US economy https://wcoats.blog/2025/12/28/ice/

As each violation of law and norms becomes “normal,” Trump pushes further. Is anyone left to stop him? Is Congress slowly waking up to do its job?

ICE

When I complained about the masked ICE bandits, I noted that they cover their faces and grab innocent people, including American citizens, off the street. A few people pushed back on my comment

“Why do you think ICE are bandits. They are there to protect Americans. All those who came here illegally must be sent back home.”

The dialog that followed on Facebook prompts me to provide a fuller treatment here.

Those who commit what for a legal resident would be a crime, should be deported, but this applies to a minority of those apprehended by ICE. And we must distinguish between those seeking refugee status from others here illegally. Refugee applicants claim that they would not be safe remaining in their home country (some of my Afghan friends come to mind). Thus, we cannot properly return them to their home country.

Those non refugees here illegally, about half are illegal because they overstayed their (student, tourist, work) visa and about half entered the US without a proper visa. Less than a third of those deported in recent years have been convicted of a crime (many of them traffic violations). Actual crimes (stealing, battery, etc.) are over whelmingly committed by legal residents.

There are currently almost 15 million illegal residents about 10 million of whom have jobs. A proper immigration regime, one that serves the best interests of the U.S., would better enforce legal status and deport those without legal status or provide a legal path to legal status. This is easier said than done. https://wcoats.blog/2025/08/29/immigration/

In 2013, a bipartisan group of eight senators (the “Gang of Eight”) drafted S.744, a comprehensive immigration reform bill that included a multi‑step path to legal status and eventual citizenship for most undocumented immigrants, alongside major expansions of border security and enforcement.​

The bill passed the Senate with a strong bipartisan vote of 68–32, including support from 14 Republicans, reflecting unusually broad elite consensus for an earned legalization and citizenship framework. Then‑Speaker John Boehner refused to bring the bill to the House floor because it lacked support from a majority of House Republicans, even though it likely had the votes to pass with a coalition of Democrats and some Republicans. Thus it sadly died.

Simply deporting these “illegal” (undocumented) workers would cripple the economy which is already fully employed. But I want to focus on the approach taken by ICE that I have been complaining about as contrary to America’s tradition of the rule of law. While I could cite a number of examples of ICE grabbing legal US citizens off the street for deportation, I want to focus on the most famous of them Kilmar Abrego Garcia, a resident of Maryland. He entered the U.S. illegally 14 or so years ago and is married to a U.S. citizen and is the father of three children born here. He has not been convicted of any crimes in the U.S. but U.S. officials have repeatedly accused him of being a member of the MS-13 gang. These claims were largely based on a 2019 police report citing a confidential informant and Garcia’s choice of clothing (specifically a Chicago Bulls hat). He has never been charged with a gang-related crime.

In 2019 he was granted “withholding of removal”, a form of protection that explicitly prohibited the U.S. government from deporting him to El Salvador because of the risk of persecution and violence he would face there.​ Despite this protected status, Immigration and Customs Enforcement (ICE) detained him in March 2025 on alleged gang‑related grounds that a federal judge later described as ambiguous and unsupported.

On March 15, 2025, he was placed on one of three planes of alleged gang members sent under a Trump administration operation to El Salvador, where he was delivered to the CECOT mega‑prison, a facility widely described as one of the most dangerous in the Western Hemisphere.​ The U.S. Supreme Court eventually intervened, and he was returned to the U.S. in June 2025 to face the current pending charges. Bari Weiss has been sharply criticized for cancelling a CBS 60 minutes report on the conditions in that prison. “cbs news Bari Weiss intervention”

The administration has acknowledged to courts and the press that his deportation occurred despite the prior legal bar and has variously characterized it as an “administrative error.”  After being returned to the U.S., Abrego Garcia was indicted in Tennessee on two federal counts: conspiracy to transport illegal aliens and unlawful transportation of undocumented aliens. The government alleges he played a role in a smuggling ring, a claim he vehemently denies.

On December 11, 2025, a federal judge ordered his release from ICE custody, ruling that his detention was unlawful, and he returned to his home in Maryland. A judge extended an order in December 2025 preventing his return to immigration detention while awaiting further details on his case from the government. His trial is set to begin in January 2026, though he is attempting to have the charges dropped.

More than government’s abuse of Abrego Garcia’s rights, we read ugly and often mistaken “arrests” of residents from the streets and from their jobs. Earlier this month, multiple reports described immigrants being turned away or “plucked out of line” at U.S. citizenship oath ceremonies, especially in Boston’s Faneuil Hall and other locations, after new Trump administration directives targeting applicants from 19 so‑called “high‑risk” countries.

These individuals had already completed interviews and been approved, but USCIS officials stopped them at the final step, cancelling or pausing their naturalization, which advocates have described as “unspeakable cruelty.”

There are approximately 2.3 million to 2.4 million individuals with pending asylum cases in the U.S. immigration court system. These individuals are technically part of the unauthorized population but have “procedural protection” from deportation while they wait for a judge to rule on their status.  Because of a massive backlog, the average wait time for an asylum case to be resolved in court is currently about 4.3 years.

So I stand by my characterization of the masked ICE agents as bandits. Our immigration policy and its enforcement have real problems but they need a more thoughtful and serious approach.

But I want to leave you with a last very disturbing comments. One of my Facebook readers ask: “what are your thoughts on ICE government agents required to follow rules and regulations supporting people who do not follow the rules and regulations. I’ve always thought it Odd that law-enforcement has to enforce the law following the rules, detaining those who do not follow rules. Seems a little hypocritical.” Believe it or not he is actually saying that since the police (ICE) are apprehending people who are thought by them to be breaking the law, why can’t the police break it as well. No comment. https://wcoats.blog/2025/06/12/police-state/

Econ 101: Insurance

Insurance pools the costs of unpredictable events (illness, car accidents, etc.) so that the members of the pool share the costs of the events that fall on individual members of the group. Insurance that covers the costs of medical expenses incurred by a few members of the group (the insurance pool) is share among the group. Thus, most members of the group pay a “modest” amount for medical costs they do not incur in order to help pay the costs of care actually incurred by a few.

Your medical costs depend on many things. If you are paying for it, what you receive (and its cost) is agreed between you and your care giver (doctor). If someone else is paying for it, such as your insurance company, they will determine what is provided and its cost. An insurer can specify the doctors you must use with whom they will have agreements on cost and extent of treatment. Or you might choose your own doctor outside the insurers network, but the insurer will set the cost they will pay and potentially the extent of treatment they will pay for.

The fact that medical care is insured does not mean that the cost of providing it does not exist. The details of what the insurance covers can significantly influence the care given and its cost. As insurance is the sharing of the actual or covered costs with a group, the determination of who is in the group (pool) that will share whatever insured costs are incurred is critical.

When health insurance is provided by companies to their employees, the pool consists of those employees.  This has some advantages and disadvantages. It avoids packing the pool with sick people (e.g. those with preexisting health conditions) and thus increasing the cost to be shared (covered by the insurance). But it will generally result in the loss of insurance coverage if you want to change jobs. Forming insurance pools other than via an employer is an interesting challenge. An insurance pool of bird watchers might expect different premiums than a pool of mountain climbers.

Insurance providers attempt to keep the overall cost to be shared, and hence the cost of the insurance premiums, as low as possible by requiring the members of the pool to pay some amount (copay) of the medical bill thus providing them with some incentive to only get care that they really need. Price transparency is also important in this regard. A medical doctor friend complained to me that he doesn’t even know what his patients are being changed for his services. The approach that maximizes your incentive to economize on your medical expenses is to limit insurance to major medical expenses. Once again, the insurance company rather than the patient will negotiate the charges involved (hospital stay, medications, procedures, etc.).

Clearly what medical services are provided, and how that service is organized and its cost, will be significantly influenced by who pays for them. The policy challenge is to enable everyone to receive the essential medical care they need, while keeping its cost as low as possible overall and to each of us individually.

America First

What does America First really mean and how can we best achieve it? It should mean pursuing a foreign policy—our relations with other countries—that best serves our national interest. That requires that our relations with other countries maximize our security and our ability to profitably trade with them including traveling and vacationing in them. In short, our own interest is best served by having friendly relations with our neighbors. It serves our interest for others to trust us and to interact with us on the bases of known and shared rules. Tourism in the US is one of our best exports both in terms of revenue and its contribution to mutual understanding. Sadly, these goals have been seriously damaged over this year leaving us less safe and poorer than we could have been.

I am reminded of the debate over whether companies should strive to maximize profits (shareholder value). As John Mackey, a co-founder of Whole Food, has insightfully argued, a firm’s profits are maximized (assuming the government is not protecting its monopoly) when its workers, neighborhood, and customers are treated well and kept happy with the most efficient cost possible of supplying whatever the firm supplies. We might call this the right way to serve Shareholders First. Supporting this or that charity or cause should be left to the individual shareholders, who are likely to choose to give to different causes.

Econ 101: Interest rates

President Trump wants the Federal Reserve to lower interest rates thinking that that would reduce the interest the Federal Government pays in interest on its debt, which this last year was $1.13 trillion (yes trillion). Prior to 2008, the Fed’s policy interest rate—the so called Fed funds rate—was the overnight rate on overnight (i.e. one day) loans between banks. I will skip how the Fed determines (brings about in the market) that rate. Since 2008, when the Fed started to pay interest on bank reserves (deposits at Federal Reserve Banks), the Fed’s policy rate has been the rate paid on bank reserves.

The interest rates paid on longer (than overnight) loans (e.g., one, two, ten-year bonds) are related to the overnight rate because rolling over overnight loans for ten years is an alternative to a ten-year bond. This note explains that relationship.

The interest rate on, say, a one-year bond reflects what the market (lenders and borrowers) expects the one-day rate to be each day over that period. That, in turn, depends on what the market expects the “real” rate to be plus the rate of inflation. Market rates reflect the real rate plus the inflation rate. If inflation increase, other things equal, market interest rates increase.

So, the interest rate on a ten-year bond will reflect what the market expects the overnight rate to be over the next ten years, which reflects the expected real rate and the expected inflation rate over that period. So what happens to interest rates (say the ten-year bond rate) when the Fed lowers its policy rate as President Trump wants? It depends primarily on what that does to the market’s expectation of inflation over the relevant future period.

On Wednesday Dec 10 the Fed reduced its policy rate .25% to 3.50 to 3.75%. On that day the ten-year bond rate fell from 4.19% the day before to 4.15% but by Friday (two days later) had returned to 4.18% In short the ten year Treasury bond rate is essentially unchanged by the quarter percent drop in the Fed’s policy rate. Why? Because the market expects the drop in the overnight rate to be largely offset by a slight increase in inflation over the next ten years.

If the Fed is correct that lowering its policy rate is appropriate for continuing the reduction of inflation to its 2% target, then the ten-year rate will fall as well. Clearly an excessive cut in the policy rate (one that increases the expected rate of inflation) will increase longer term interest rates rather than lower them. Class dismissed.

Kill

On Friday President Trump announced that: “Any document signed by Sleepy Joe Biden with the Autopen, which was approximately 92% of them, is hereby terminated, and of no further force or effect….” https://truthsocial.com/@realDonaldTrump/posts/115629010097815862

Rather than evaluating each Presidential order and rescinding those that are inconsistent with Trump’s policy objectives (whatever those might be), Trump rescinds them all if not signed personally by former President Biden.

This reflects Trumps use of his position to attack anyone who disagrees with him—his enemies. Rather than explaining why a policy is bad, Trump simply condemns the work of his “enemies.”

When six democratic congressmen posted a video reminding solders of their legal obligation to refuse to execute illegal orders, Trump exploded.  “The president said lawmakers who appeared in a video committed “seditious behavior” and should be arrested and put on trial for treason.” https://www.washingtonpost.com/politics/2025/11/20/trump-democrats-seditious-behavior/

A prime example of such an illegal order was Secretary Hegseth’s order to bomb boats in the Caribbean he thought were bringing illegal drugs to the US and to kill all aboard. “Hegseth order on first Caribbean boat strike, officials say: Kill them all” https://www.washingtonpost.com/national-security/2025/11/28/hegseth-kill-them-all-survivors-boat-strike/

Hegseth’s order was illegal under both US and international law. SEAL Team 6, which committed these murders, executed an illegal order, thus violating their pledge to uphold the constitution.

President Trump also violated the law by directing the Justice Department to pursue those who criticize him—his enemies. From universities and law firms to former FBI head James Comey, and former national security advisor John Bolton, Trump has threatened to withhold Federal funds from universities that do not bow to his demands or try his enemies for one thing or other. Bolton’s crime is the same as Donald Trump’s – the improper handling of secret government documents. And of course, anything Biden did is condemned as the cause of anything wrong.

Trump’s masked ICE teams arresting and deported supposedly illegal immigrants has been a lawless disaster—occasionally arresting legal American citizen and embarrassing the whole effort to strengthen the enforcement of immigration rules.

Trump’s haphazard announcements of Tariffs, (hopefully) soon to be declared illegal by the Supreme Court, followed none of the rules of the World Trade Organization, which are designed to promote economic efficiency and thus maximize world incomes. They were deployed to bully individual countries to agree to whatever was in Trump’s interest, an interest rarely compatible with American interests.

I am all for downsizing the government, but on the basis of careful reviews of what functions are needed and desirable and the required staff to carry them out efficiently. Elon Musk’s led Department of Government Efficiency (DOGE) took a chainsaw approach that led Trump appointed department heads to object.

This, of course, is not how a mature adult would govern in a constitutional republic. Trump and many of his appointees are not such people. Living together peacefully and productively requires civil discussion of issues and cooperation and compromise—not bullying.

Those breaking the law or issuing illegal orders should be removed from their positions and tried for the crimes they have committed.

The drums of war

The drums of war are beating for Venezuela.  Since the 9/11 attacks on the twin towers in New York and the Pentagon next door, we have bombed Afghanistan, Iraq, Libia, Pakistan, Yemen, Somalia, the Philippines, Niger and Mali, and boats in the Caribbean and Pacific oceans. With the approach of each war, I suspect that most American’s never knew or have forgotten what war is really like. If they did they surely would oppose them and increase our reliance on and capacity for diplomacy. Last evening’s viewing of The Killing Fields provided a good reminder. War inflicts horrors beyond most of our imaginations. It should be ruled out other than for defense when we are actually attacked.

Law and Order

Every evening when we are not hosting or attending a dinner party, attending a play, concert, or conference, we lie down in bed and watch a movie or a few episodes of a TV series. Ito pushes a button and our large TV screen rises just beyond the end of our bed. Over the last few months, we have watched over 200 episodes for the original Law and Order show, starting for some reason with season 5 (1995). I want to explain why we have found this show so interesting.

The first half of each show follows the search by the police (two regulars) for the perpetrator of a crime (usually a murder). The second half presents the trial to convict the accused perpetrator conducted by two regular justice department characters. The stories themselves can be quite intriguing and the crimes and the issues around them explore every conceivable social issue in America today (e.g., affirmative action, gangs, capital punishment, same sex marriage, abortion, race and sexual discrimination, treatment of minors).

The regulars in the show—police and prosecutors –are “real” people, i.e. flawed but honestly trying to do their best. Aside from the acting being superb, what impresses me most is that for each controversial issue the arguments on both sides are strongly presented. To say the episodes are thought provoking would be an understatement. I don’t always understand the bases on which the judge allows or disallows evidence but we do learn a lot about what the law says and how it is applied. The show is still being produced and is now in its 25th season. To last that long, it must be good. We have many episodes to go and will eagerly watch them all.