Austerity And Infinite Amounts Of Money
Readers suggested a topic on the political economy. “Now that Wall Street has shrugged off the sequester as a non-event, and Obama has dialed back the fearmongering rhetoric related to the impact of the sequester, will Obama accept the Republican offer that would allow him to reapportion the cuts as he sees fit, rather than continue to let the cuts continue on a pretty indiscriminate basis?”
“Other than playing politics at the expense of the more deserving programs (and to the benefit of the less deserving programs), what would be his basis for NOT accepting the offer?”
One said, “While I don’t wish this coming denouement on anyone, there’s a part of me that thinks it’s high time America, the country, gets a taste of its own medicine. The United States of America has been inflicting itself on the rest of the planet throughout my entire lifetime, always justifying its uncivilized activities as ‘promoting liberty and freedom’ or ‘making the world safe for democracy’ or some such vague sloganeering to cover its rapacious greed.”
“It has derided the voices of conscience as ‘commies’, ‘peaceniks’, and most recently, ‘liberals’ (as if that were somehow a bad thing), and branded those of us with the temerity to call out our government’s thirty-year economic war on the middle class as ‘unpatriotic’. All while ignoring the philosophical inconsistencies of their professed ideology courtesy of a feckless (if not criminally complicit) mass media.”
“I gave up playing Cassandra decades ago when I realized where Reaganomics was taking us, but there is truly no excuse for the excess wrought by the turn-of-the-millennial cronyism and war-mongering that ruined our nation and looted our treasury while everyone was distracted by rhetoric and ‘reality’ circuses.”
“I tell people who ‘want their country back’, ‘You wanted your war of revenge, you wanted your cheap crap from China, you wanted quick riches and easy credit. You got it. Now you get to pay for it. Not ‘the government’ and not ’someday’. You. Now.’ Welcome to the new austerity.”
A reply, “I’ve been telling everyone since 1980 that handing over half the US auto market to the Japanese, Germans and Koreans free of charge was going to have some very bad consequences. Forget the UAW. I’m talking about all of the engineering, sub contractors, and supplier jobs that have disappeared. Their disappearance has led to higher costs in other industries, like aviation.”
“BMW essentially filled the market spot formerly occupied by Pontiac, Audi and Lexus the spot of Oldsmobile. Part of this was the Big 3s fault. Part of it was currency manipulation. And part of it was a decision by Wall Street and Washington to sacrifice US manufacturing workers to support development of our ‘allies’ (first, then later ‘adversaries’ like the PRC) for geopolitical reasons.”
“Remember ‘offsets’ back in the 70s? When our ‘allies’ demanded that a share of the manufacturing and intellectual property (usually paid for by US taxpayers, either directly by government contracts, or indirectly, by tax deductions/tax breaks to corporations), in exchange for orders?”
One had this, “There is that word ‘austerity’. I’m familiar with frugality. I’m familiar with dearth, lack, shortage, coffee is for closers. But austerity? I think in Govspeak that ‘austerity’ means some nation has to start paying back debts, or at least slow their rate of borrowing, or at very least slow the rate of increase of their borrowing. As long as the Fed is the global lender of last resort, there will be no austerity here. Like we are going to pay our debts?”
And finally, “Did Bloomberg really say this recently? ‘It’s not like your household,’ said Mayor Michael Bloomberg, during his regular Friday appearance on John Gambling’s radio show. ‘In your household, people always say, ‘Oh, well, you can’t spend money you don’t have.’ That is true for your household. Because nobody’s gonna loan you an infinite amount of money. When it comes to the United States federal government, people do seem to be willing to lend us an infinite amount of money.’”
“‘It may not be good policy, but America can get away with it for a long time,’ he went on. ‘And our debt is so big and so many people own it, that it’s preposterous to think that they would stop selling us more.’”
Remarks by Governor Ben S. Bernanke Before the National Economists Club, Washington, D.C. November 21, 2002
‘a principal message of my talk today is that a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition. As I will discuss, a central bank, either alone or in cooperation with other parts of the government, retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is at zero.’
‘But suppose that, despite all precautions, deflation were to take hold in the U.S. economy and, moreover, that the Fed’s policy instrument–the federal funds rate–were to fall to zero. What then?’
‘under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.’
‘U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.’
‘Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys…If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.’
‘The claim that deflation can be ended by sufficiently strong action has no doubt led you to wonder, if that is the case, why has Japan not ended its deflation? The Japanese situation is a complex one that I cannot fully discuss today. I will just make two brief, general points.’
‘First, as you know, Japan’s economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt…Fortunately, the U.S. economy does not share these problems, at least not to anything like the same degree, suggesting that anti-deflationary monetary and fiscal policies would be more potent here than they have been in Japan.’
‘Second, and more important, I believe that, when all is said and done, the failure to end deflation in Japan does not necessarily reflect any technical infeasibility of achieving that goal. Rather, it is a byproduct of a longstanding political debate about how best to address Japan’s overall economic problems.’
‘As the Japanese certainly realize, both restoring banks and corporations to solvency and implementing significant structural change are necessary for Japan’s long-run economic health. But in the short run, comprehensive economic reform will likely impose large costs on many, for example, in the form of unemployment or bankruptcy. As a natural result, politicians, economists, businesspeople, and the general public in Japan have sharply disagreed about competing proposals for reform. In the resulting political deadlock, strong policy actions are discouraged, and cooperation among policymakers is difficult to achieve.’
‘In short, Japan’s deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has. Thus, I do not view the Japanese experience as evidence against the general conclusion that U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States.’
‘In short, Japan’s deflation problem is real and serious; but, in my view, political constraints, rather than a lack of policy instruments, explain why its deflation has persisted for as long as it has. Thus, I do not view the Japanese experience as evidence against the general conclusion that U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States.’
So far, so good.
Seriously, what’s the end game? Isn’t Bernanke essentially printing money and buying houses in the form of mortgage-backed securities, etc.? They never have to sell. There’s no downside since they printed the money to buy those things out of thin air. Can’t they hold them “forever”? They can always print more money. If you can print free money and buy things that have some kind of return and the inflation is exported I’m beginning to think it can go on for a long time.
It ends like it always has ended.
With the destruction of the currency
A break down in the rule of law
Government taking more and leaving the people with less
Less and less freedom and liberty
A lower and lower standard of living
A change of the type of government
and eventually war
Just look to Argentina or Greece or Venezuela or Zimbabwe or etc. to see our future.
“Just look to Argentina or Greece or Venezuela or Zimbabwe or etc. to see our future.”
You paint with a really broad brush!
‘Can’t they hold them “forever”? They can always print more money.’
IMO, that’s not what matters.
‘Governments have a key role in solving Europe’s sovereign debt crisis, and central banks can buy time but not take their place, European Central Bank Executive Board member Benoit Coeure said on Saturday.”
“A huge protest vote by Italians enraged by economic hardship and political corruption this week leaves slim prospects for a durable, reform-minded government in Rome, and election winner Beppe Grillo described Italy as “overwhelmed” by debt.”
‘Coeure said, however, that there is no alternative for governments to reform and restoring sustainable public finances, and added that delaying reforms had costs attached to it.’
‘A central bank can help to mitigate the impact of the crisis, but the steps it takes cannot be a permanent substitute for resolute action by governments,” Coeure said in a speech at Harvard University.”The central bank can buy time for political bodies to act, but it cannot buy enough time for them not to act.”
http://finance.yahoo.com/news/ecbs-coeure-says-central-banks-190902856.html
Think about it; what has the US government done since this started to blow up? Bail out banks, automakers, put the GSEs into receivership. Offer a dozen programs to loan money to FBs. And run up a few trillion more in debt.
Has anything been done to address the structural problems in our jobs market? It’s pretty hard for the private sector to overcome the World Trade Organization or NAFTA. Now even WalMart is having problems. You can only keep warm by burning your furniture for so long.
It’s weird; Bernanke comes out every few weeks, says something, and we all go back to arguing over taxes like the Fed is fixing what’s broken.
You might be right that it’s not important and it doesn’t fix the endemic issues, but imagine this: there’s a very rich uncle with a lot of nephews and nieces, etc. These nephews and nieces get into all kinds of debt with loan sharks, etc. The rich uncle then pays off all their loans to save them. Everything is okay for a while, but then 1/2 of the nieces and nephews didn’t learn their lesson and they get into debt again. And again the rich uncle bails them out. Soon a 1/4 go into debt…Rinse and repeat, but eventually the number of people getting into debt reverts to historical norms. Now your rich old uncle owns lots of things and can bleed them out into the market at whatever he wants because he doesn’t need the money. While all this is going on, the inflation is negligible because all of the inflation gets exported. It’s non-negligible in lots of foreign countries and they have unrest. They have civil wars and may even spark national wars. All of that is “good” for the US.
So I think it can go on for a long, long time before the wheels fall off. On the other hand, since I’m about to get back into stocks on this theory, this is a darn good indicator that it’s time to sell!
First, as you know, Japan’s economy faces some significant barriers to growth besides deflation, including massive financial problems in the banking and corporate sectors and a large overhang of government debt…
A: He was not talking about growth he was talking about generating inflation. When I see authors change the argument I think of politicians during interviews shifting the topic. If anything these problems should cause a rise in the interest rate Japan pays on it’s debt. This does not happen because people don’t see anything that looks as good and I would assume central bank purchases. Clearly the population is a big holder of Japanese debt.
‘Second, and more important, I believe that, when all is said and done, the failure to end deflation in Japan does not necessarily reflect any technical infeasibility of achieving that goal. Rather, it is a byproduct of a longstanding political debate about how best to address Japan’s overall economic problems.’
A: Again he had two chances to explain why Japan has suffered from deflation and this nebulous statement is his most important point? This tells me doesn’t really have an argument.
The reason Japan has deflation rising productivity due to automation globalization and massive over investment in productive capacity and rising income inequality across the globe.
Translation:
Housing always goes up.
If you’re referring to the Bernanke speech, there’s a lot to consider:
‘With inflation rates now quite low in the United States, however, some have expressed concern that we may soon face a new problem–the danger of deflation, or falling prices. That this concern is not purely hypothetical is brought home to us whenever we read newspaper reports about Japan, where what seems to be a relatively moderate deflation–a decline in consumer prices of about 1 percent per year–has been associated with years of painfully slow growth, rising joblessness, and apparently intractable financial problems in the banking and corporate sectors.’
I remember the fall of 2002 very well. The central bank was getting freaked out by deflation. Remember that by 2003, prime lending fell steeply and subprime housing loans exploded. They needed new borrowers.
OK so now let’s look at what else he said:
’suppose that…deflation were to take hold in the U.S. economy and, moreover, that the Fed’s policy instrument–the federal funds rate–were to fall to zero. What then?…under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero.’
We’ve had very low or zero rates since 2008. The answer to “what then” is asset purchases. We’ve had a few years of that. Still in recession, really. Meanwhile, similar policies are being used by 14 central banks.
This speech is useful, because it lays out what Bernanke said he would do before it happened. But it hasn’t worked. IMO, he’s got a rigid belief in this. Now this:
‘comprehensive economic reform will likely impose large costs on many, for example, in the form of unemployment or bankruptcy. As a natural result, politicians, economists, businesspeople, and the general public in Japan have sharply disagreed about competing proposals for reform. In the resulting political deadlock, strong policy actions are discouraged, and cooperation among policymakers is difficult to achieve.’
Sound familiar?
“But it hasn’t worked. IMO, he’s got a rigid belief in this.”
One hallmark of rigid religious beliefs is a steadfast will to ignore any evidence that might challenge them.
‘The answer to “what then” is asset purchases. We’ve had a few years of that. Still in recession, really. Meanwhile, similar policies are being used by 14 central banks.’
One of the drawbacks to asset purchases as a central banking tool to prevent a bubble from collapsing is that eventually the positions will have to be unwound.
Or will they?
Bernanke-Savant Syndrome
By Joel Bowman | 02/28/13
Stocks are on the rise. Gold is on the rise. Bitcoin is on the rise. Everything is up…up…and, away!
The Dow has been on a tear this week, up 300+ points since Tuesday’s low. What’s causing the rally? Is the economy fixed? Have Bernanke’s magic money elixirs finally done their job? Or is collective delusion on the march once again?
Hmm…it’s hard for us mere mortals to tell. Of course, that’s a qualification that doesn’t apply to the world’s most powerful central banker. Ben Shalom Bernanke has been in the press all week, telling the world that the “benefits” of his policies outweigh the “costs and risks”…at least as they are “measured” at this exact moment.
Of course, we’ll never know the real costs or risks of the Fed Head’s ceaseless Bernaniggans. On the face of it, however, Reckoners are well aware that the Fed has been anything but shy when it comes to intervening in the markets. And what an intervention story it has been! Along the way, we’ve learned terms like “quantitative easing,” “ZIRP” and “Operation Twist,” all parts of the Fed’s open-ended, try-anything-once effort to “support the capital markets.”
Boy oh boy. It must really be something to be that smart. Mr. Bernanke says he knows exactly how much “additional liquidity” the market needs, and exactly how and when to deliver it. He knew last September, for example, that the market needed to be relieved of precisely $40 billion worth of mortgage debt per month. And in December, he knew that the asset purchasing program needed to be expanded to $85 billion per month. Exactly $85 billion.
Most of us don’t have the time, nor inclination, to even count to 85 billion, much less realize that’s the precise number of dollars’ worth of “assets” the Fed ought to buy every month. But Mr. Bernanke has it all figured out. It’s not $79 billion…nor is it $85 billion and ten cents.
Amazingly, Bernanke also knows exactly when to begin unwinding his various programs: when the unemployment rate falls below 6.5% (not 6.6% or 6.4%) and inflation projections remain no more than half a percentage point above 2% two years out.
Really, what could possible go wrong?
If Bernanke is right — and he’s pretty sure he is — he has outwitted the greatest minds of history. He has understood, in some kind of zen-like moment of clarity, no doubt, what no other man has ever been able to comprehend. Was it an epiphany, we wonder? Did he have some line of communication with the gods? Was he visited late one night, perhaps while toiling studiously over his modern economics theory books, by an archangel?
Whence came The Bernank’s omnipotence? When did this one man become, by way of some heavenly transfer of knowledge, Mr. Market incarnate?
…
‘when the unemployment rate falls below 6.5%’
This never made any sense. Buy mortgage backed securities until employment falls. Where will the jobs come from, building houses? Didn’t anyone tell Bernanke we have plenty of houses?
Here’s what I’ll add to the article; this decision implies that he felt house prices had gone as low as they could, all across the country, at one point in time. And if that wasn’t the case, it’s even worse; that he didn’t care if people were going to be paying too much for a house as long as he got the economic boost he wanted. But he got no boost and millions more borrowers under the bus.
Now he’s running around telling everybody stocks deserve to be at all time highs. There’s no bubble in housing. Don’t mind the colossal bubble in junk bonds.
“Didn’t anyone tell Bernanke we have plenty of houses?”
I’d be willing to bet he never bothered to tour the vast vacant swaths of tract home developments many of us have seen spring up across the Southwest sand states in recent years. It’s pretty hard to ignore if you drive much in the SoCal to Las Vegas corridor.
“…that he didn’t care if people were going to be paying too much for a house as long as he got the economic boost he wanted.”
If he has moved on from the Fed chair position before the next major leg down in housing, would that constitute a policy success?
My guess is the elite know exactly what they are doing, it’s called consolidation of wealth and power. I do believe the FED has reached the limit of what it can do to fight deflation. The solution is to change gov spending and tax policy to increase demand because the problem is falling demand. Printing money that no one can or will borrow is not going to fix the problem.
‘comprehensive economic reform will likely impose large costs on many, for example, in the form of unemployment or bankruptcy. As a natural result, politicians, economists, businesspeople, and the general public in Japan have sharply disagreed about competing proposals for reform. In the resulting political deadlock, strong policy actions are discouraged, and cooperation among policymakers is difficult to achieve.’
SOUND FAMILIAR?
Ben +1
We’ll make sure that housing always goes up.
I know my comment seems flip, but what the Bernank was telling us there is precisely that. Both the intended policy and the implicit lie.
“a government … should always be able to generate increased nominal spending and inflation….”
Then dismissing the idea of Japan as cautionary, he concludes:
“U.S. policymakers have the tools they need to prevent, and, if necessary, to cure a deflationary recession in the United States.’”
And yes. You predicted PRECISELY the outcome we’re dealing with today. The man may have been the deer in the headlights, but at least he was easy to read — unlike his bloviating predecessor.
I don’t know if I predicted it, or was just worried about it. On this: ‘a government … should always be able to generate increased nominal spending and inflation’.
Unless the money thrown about goes into bubbles. Bubbles aren’t inflation, because the prices go back down.
“Bubbles aren’t inflation, because the prices go back down.”
Multi-trillion dollar question: Is that always the case, even if policies specifically designed to prevent bubble price deflation are steadfastly executed?
If it doesn’t fall back, it wasn’t a bubble. Look at Japan. Until recently, it was still the most expensive real estate in the world. (Since overtaken by Hong Kong). Prices in Japan have declined for decades.
Do you think it’s not going to fall back, Ben?
A conundrum:
The more convinced everyone is that “real estate always goes up,” the more willing speculators become to push prices up to unsustainable bubble levels from which a correction is inevitable.
Perhaps if the next leg down in the U.S. real estate price collapse lands on foreign investors, the effects won’t seem so bad here?
Bank of China Makes Larger Push Into U.S. Commercial Real Estate
Published February 28, 2013
Dow Jones Newswires
Bank of China Ltd. (601988.SH, 3988.HK, BACHY) has emerged as one of the largest foreign lenders to commercial real estate in the U.S.
Now the state-owned Chinese bank is looking for ways to make even more loans in a quintessential American way: packaging its loans into securities that are in turn sold in a market where demand is red hot.
Bank of China’s interest in securitization coincides with an unprecedented start for the commercial-mortgage-bond market in 2013. The Federal Reserve’s low interest-rate policies have pushed more investors from relatively safer investments to those with higher yields and greater risks.
…
“Note in the (Wilshire 5000 Stock Market Index) graph above that the index reached its peak of 15,244 in December 2007, then went crashing to its trough of 6,800 by March 2009. By January 2013 the Fed’s inflationary policies drove it past its previous peak, reflating the index by 2,000 points in 2012 alone. But perhaps the most telling graph is the ratio of household net worth to GDP.”
From the looks of that graph, we are due for another great big stock market crash any day now. This should be great for the volatility traders on Wall Street who make money whether stocks go up or down; not so great for buy-and-hold Mom and Pop investors on Main Street, who have an uncanny tendency to jump on board stock market rallies just before a big selloff.
‘Do you think it’s not going to fall back’
I’m not even sure it ever stopped falling. With the exception of a few coastal markets,whats happened the past year or so could be statistical hype. I read the other day (I should have saved it) that the price of foreclosures has never stopped declining since the market peak. It could be that fewer foreclosures are being sold and the median rises. I could give a lot of examples, but here’s one:
‘Political action groups, which along with RealtyTrac pinned the state’s 39 percent drop in January foreclosure activity to California’s Homeowner Bill of Rights, says the rapid descent in filings is proof the landmark legislation is showing immediate results.’
‘California, bumped off the No. 1 spot as the nation’s leader in foreclosure activity for the first time since January 2007, saw profound drops in foreclosure activity in hard-hit regions, like: San Bernardino and Riverside counties where total foreclosure filings fell 40 to 41 percent from December and 64 percent from January 2012.’
‘New filings, measured by notices of default, dropped 80 percent in Riverside County from 1,000 in December to 330 in January and by the same percent in San Bernardino County from 980 in December to 297 in January.’
‘Some of the foreclosures delayed by the law will wind up being loan modifications and short-sales,” Blomquist observed. “But the pattern we’ve seen in other states is there is still that group of inevitable foreclosures that will come down the road.”
‘Blomquist based the view on what he saw play out in states like Nevada which enacted legislation to hold lenders to a higher standard. New filings in Nevada fell dramatically out of the gate. In the last two months, new filings are up 87 percent from a year ago; a 16 month high.
“That’s the type of pattern we expect to see in California over the next year or so,” Blomquist said.’
We should be purging bad debts and corporations, but the government is doing just the opposite. IMO the bust will be considerably deeper and more prolonged as a result.
“‘Blomquist based the view on what he saw play out in states like Nevada which enacted legislation to hold lenders to a higher standard. New filings in Nevada fell dramatically out of the gate. In the last two months, new filings are up 87 percent from a year ago; a 16 month high.
“That’s the type of pattern we expect to see in California over the next year or so,” Blomquist said.’”
Isn’t it arguably different here in California?
“We should be purging bad debts and corporations, but the government is doing just the opposite. IMO the bust will be considerably deeper and more prolonged as a result.”
Bernanke is the figurehead for the banks in general. The banks make their living from lending, not from gifting. The Fed isn’t buying assets, it is the master bank buying loans from the member banks, to facilitate lending. The Fed is not giving us money, they are giving us loans.
We borrow to profit. It’s a delusion. The lender profits from lending. Delusion has its limits, though unknown to us.
“…unlike his bloviating predecessor.”
Was the predecessor really THAT hard to read?
OPINION
February 6, 2013, 6:47 p.m. ET
The Fed’s Asset-Inflation Machine
Stock-market winners should remember what happened to those who cashed in gains for more debt before 2008.
By GEORGE MELLOAN
In a 1996 speech to the American Enterprise Institute, Federal Reserve Chairman Alan Greenspan famously warned about the dangers when “irrational exuberance” fueled asset inflation. By that he meant that rising values of stocks and real estate might reflect only a cheapened dollar, not an increase in their real worth. Since he was the man in charge of the dollar, his remark caused quite a stir.
We’ve learned a lot about asset inflation since that speech, but maybe not enough. The nearly 2,000-point rise in the Dow Jones Industrial Average since last June no doubt at least partly reflects asset inflation, since there has been very little in the economic or political outlook to justify it.
Midwest farmland prices were rising at a 13% annual rate last fall even after a summer of crippling drought. How could drought-stricken farms be gaining value so rapidly, other than through inflation generated by cheap credit? House prices also are climbing again in many areas, much as they were during the asset inflation of the 2000s. Those are the same houses that were on the down escalator not long ago. Call it “asset reflation.”
Asset inflation often produces something called “wealth illusion,” the belief that pricier asset holdings necessarily make one permanently richer. Illusions are dangerous. Eventually, painful reality intervenes.
We’ve been down this road before. Mr. Greenspan was cautioning himself as well as Wall Street in his AEI speech when he said, “we should not underestimate, or become complacent about the complexity of interactions of asset markets and the economy.” After nearly a decade on the job, he knew the uncertainties of managing a fiat currency. He also knew that tightening the money spigots in boom times required the courage to face the political outrage that invariably results.
Seven years later, Mr. Greenspan would fail to heed his own warning. Urged on by his soon-to-be successor, Ben Bernanke, Mr. Greenspan would hold interest rates down too long, setting off a mid-2000s credit binge that sent assets soaring, home prices in particular. Congress developed a blasé attitude toward huge budget deficits, simply because Fed policy made them easy to finance. State and local governments overleveraged themselves. This was “irrational exuberance” indeed.
When the Fed finally tightened credit, the bubble burst, with a resulting stock-market crash, a vast wave of home foreclosures, public-sector pension funds in distress, and many state and municipal governments technically bankrupt. As Mr. Greenspan had feared, a crash in asset values did profound damage to the real economy. We are still living with it.
At least Chairman Greenspan understood the risks. It is not clear that Chairman Bernanke is aware that he has now set the Fed’s asset-inflation machine on automatic pilot by promising near-zero interest rates well out into the future. The longer the policy continues, the greater the difficulty in climbing down from the debt mountain it is creating, particularly the rapidly rising national debt.
…
What’s the story with the economy?
Carolyn Kaster/AP - Federal Reserve Chairman Ben S. Bernanke’s economic crew is divided on its outlook. Some economists say slow growth is a hard-luck tale. Others say it’s just the new normal.
By Jim Tankersley, Published: March 1
Good economists are great storytellers. They sculpt narratives with squiggly graphs and crowded charts. Like a novel, a good economic forecast has action and characters and, in the end, helps you make a little better sense of the world.
Unless it turns out to be wrong.
Consider the dominant story that economic forecasters have been telling you for years now: The U.S. economy just can’t catch a break. It has been poised time and again to rocket back to a growth rate that would recapture all the ground lost in the Great Recession, while delivering big job gains. But every time, some outside event scuttles things. The euro crisis flares up. A Japanese tsunami scrambles global supply chains. Lawmakers play chicken with the federal debt limit.
Most recently, “fiscal cliff” tax hikes and sequestration budget cuts are playing the culprit. And the bad-luck economy, like a fireball pitching prospect dogged by freak arm injuries, never reaches its full potential.
Now consider the possibility that the can’t-catch-a-break story gets it backward. What if the economy isn’t particularly unlucky? What if it’s basically doing what we should expect it to? What if something has changed, thanks to fallout from the recession, or a string of bad policy choices, or both, and growth has shifted into a lower gear? What if this slow and fragile expansion is as good as we’re likely to get for a while?
This is an alternative story that economists across the ideological spectrum have begun to explore. If it’s correct, the implications for economic policy are big.
…
I remember after the long 80s recession, when things started to improve no one seemed to know it. Slowly people stopped talking about The Economy, and the media got real quiet. Not a story anymore. No one wanted to say things had improved until pretty late in the game, like 1999. For a lot of people like my brothers, it never did get better.
Hiding inconvenient truths is a great way to win an economic debate.
Published On: Wed, Feb 20th, 2013
Dispatch Blogs / Krugman in Wonderland | By Dr. William Anderson
Paul Krugman and His Zombie History
Murray Rothbard liked to say that economists often tended to specialize in the area where their knowledge was the worst, and given Paul Krugman’s butchery of the historical record, I’d say Rothbard had a good point. Regular readers of Krugman’s columns and blog posts and other public statements would believe, for example, that World War II ended the Great Depression, that Jimmy Carter and Ted Kennedy were conservative Republicans, and that the only thing better than war to bring prosperity would be the nationwide preparation to fight an invasion of imaginary space aliens.
As always, whenever Krugman goes on a partisan political screed, truth is left behind, and his recent column is no exception. While I have no problem with his criticizing Republicans, nonetheless I actually would want for him to get his criticisms correct, especially his points that the Republican Party is dedicated to laissez-faire economics and actually cutting the size and scope of government.
Unfortunately, he decides to make essentially this set of claims:
* The financial meltdown was purely the fault of private enterprise except for one governmental error: it did not regulate enough;
* The GSEs, Freddie and Fannie, had absolutely nothing to do with the meltdown.
…
Economist Russ Roberts also investigated and found that Freddie and Fannie were more like silent partners in the crisis, contra Krugman:
We are not speaking of insignificant numbers. Furthermore, as de Rugy points out, Congress and the administration were not exactly non-players in setting the table for a housing crisis:
What Krugman would have us believe is that the government, along with its Frankenstein financial creatures, only wanted banks to make sound mortgages with the usual minimum of 20 percent down, good credit scores, and the like. That clearly is nonsense. As Thomas DiLorenzo notes, the only way that banks on their own would have made such risky loans was the fact that federal policies demanded they do so.
…
And speaking of risky mortgage purchases…
Fed’s Fisher sees “overkill” risk in mortgage-bond buys
Richard Fisher, president and CEO of the Federal Reserve Bank of Dallas, speaks during a conference before the Committee for the Republic Salon at the National Press Club in Washington January 16, 2013. REUTERS/Jose Luis Magana
By Jonathan Spicer
NEW YORK | Wed Feb 27, 2013 4:58pm EST
(Reuters) - The Federal Reserve risks “overkill” if it continues buying mortgage bonds at the current clip because the U.S. housing market is on sounder footing, a top Fed official said on Wednesday.
In a speech, Federal Reserve Bank of Dallas President Richard Fisher repeated his preference for the U.S. central bank to taper its $40 billion in purchases of monthly mortgage-backed securities.
The Fed is also buying $45 billion in Treasury bonds per month as part of its unprecedented drive to spur investing and hiring, and to help along the slow and erratic U.S. recovery from the 2007-09 recession.
Fisher, an outspoken inflation hawk whose views are in the minority among his fellow 18 Fed policymakers, pointed to a “reinvigorated housing market” as a source of concern over the extraordinary measures employed by the central bank, including its quantitative easing program.
“The fact that the housing-market gears have now begun to mesh is why I believe we are running the risk of overkill by continuing our mortgage-backed securities purchase program at the current pace, and would suggest tapering off those purchases,” Fisher told students and faculty at Columbia University.
He added, however, that U.S. unemployment remains “annoyingly high” at 7.9 percent last month, and that private-sector job-creation has been less enthusiastic than desired.
Chairman Ben Bernanke and most other Fed policymakers are eager to act given the high jobless rate and the fact that inflation is below their 2 percent target, and they do not want to derail a recovery that has faltered in each of the last three years. A weak global economy, higher U.S. taxes, and possibly sharp government spending cuts that could kick in starting next week all pose risks.
MARKET DISTORTIONS
Still, the central bank is increasingly worried that the ultra-easy policies are setting the stage for a run-up in inflation or balance-sheet losses down the road.
…
s Thomas DiLorenzo notes, the only way that banks on their own would have made such risky loans was the fact that federal policies demanded they do so.
PURE BS Why would banks make these loans
1. CEO profits depended on it.
2. Securitization allowed them to off load the risk.
3. GSE’s allowed them to off load the risk. In general the GSE’s didn’t purchase the true garbage, but the garbage created a bubble making even better secured loans garbage.
Seriously it’s really that simple.
Exactly.
…and they lobbied to change the law, regulations and rules to allow them to do so.
Wasn’t Mr. Potter a character in “It’s a Wonderful Life”?
NY Fed Official: Fed Bond Buying Not Distorting Markets
By Dow Jones Business News, March 01, 2013, 05:14:00 PM EDT
By Michael S. Derby
NEW YORK–The Federal Reserve’s massive purchases of Treasury and mortgage securities are not distorting the functioning of financial markets, a key official from the Federal Reserve Bank of New York said Friday.
“Purchases have gone smoothly so far, and market liquidity seems to be holding up well,” said Simon Potter, who heads up the markets desk for the New York Fed.
Mr. Potter is responsible for implementing the monetary policy objectives laid out by the Federal Open Market Committee. While Mr. Potter is not responsible for setting those policies, his efforts to achieve what the central bank wants makes him the Fed’s point man with financial markets.
…
Of course that is what he is going to say, even if it isn’t true. You ask the head of NAR if now is a good time to buy a house he will always say “yes”. The head of the DEA is always going to say the drug war is beneficial. Bringing out someone who can only say one thing and then having them say that thing is completely useless non-information. And I see it all the time in the news. Bring out someone who does not have self-interest in saying only one side of things, please. And on a similar note, quit asking people who just won a sporting event or an award how do they feel! If it was me my reply would be “I feel like that may be the stupidest question anyone has ever asked in all of human history”.
There seems to be a very large elephant in the room which never, ever gets discussed, which is whether economic policy based on endless lies, deceptions and fooling games works better than reality-based economic policy.
I tend to inherently distrust policies which depend on lies and deceptions to sustain them, taking the 1989 collapse of the Soviet Union as a primary example of where they can lead, but I am open to other opinions.
Both China and Russia saw serious social turmoil because of the lies.
We came close this time.
Thousand year history shows the end game is always the same when your economy (and your society) is based on widespread deception.
Our turn will come. I’m rather surprised it hasn’t already and thought this time might be it, but you CAN bank on it within (some of) our lifetimes.
February 20, 2013, 3:10 PM
Several Officials Say Fed Should Be Ready to Vary Pace of Asset Purchases
By Victoria McGrane
Federal Reserve officials expressed growing unease with the central bank’s easy-money policies at its latest policy meeting and some suggested the Fed might need to pull them back before the job market is fully back to normal.
Minutes released Wednesday of the Fed’s Jan. 29-30 policy meeting showed that officials worried the central bank’s easy-money policies could lead to instability in financial markets and might be hard to pull back in the future. The Fed plans to evaluate how the programs are doing at its next meeting March 19 and 20.
Several officials said that the Fed should be prepared to vary the pace of its asset purchases, depending on how the economy performs and its analysis of the costs and benefits of the program, according to the minutes. Some Fed officials suggested the Fed may need to alter its stated course to continue the bond-buying programs until the job market improves “substantially,” a threshold it hasn’t defined.
“A number of participants stated that an ongoing evaluation of the efficacy, costs, and risks of asset purchases might well lead the Committee to taper or end its purchases before it judged that a substantial improvement in the outlook for the labor market had occurred,” the minutes stated.
…
Does it seem to others like our taxation policy amounts to stealth Fed-engineered wealth transfers from one group to another?
How To Fight Bernanke’s War On Retirees
Mar 1 2013, 11:24 | includes: GLD
Disclosure: I am long GLD. (More…)
My great uncle recently passed away, leaving my 90-year old great aunt a widow. They both worked hard their whole lives living within their means, and built a comfortable nest egg. My Great Aunt still lives in the same 1-bedroom apartment in Brooklyn they bought for $550 in 1950.
Uncle Mort always handled their finances, so I have been helping her get everything in order. We were surprised to learn she had enough savings to ensure she should never have to worry about money again, even if she moves to the expensive assisted living home we are trying (unsuccessfully) to persuade her to try out.
Most of her savings are in CDs and bank accounts, with some in stocks and mutual funds. At 90 there is no reason to expose her to the risk of a stock sell-off or a bear market that could last years. And with bond yields at historic lows, it is not worth taking on interest rate risk.
So she is forced to settle for less than 1 percent rates in checking accounts and CDs with no indication they will rise. She has no protection from inflation other than the adjustments on her social security checks.
Hedge funds, pension funds, endowments look for relative performance. A 90-year woman needs absolute performance. She doesn’t care about beating an index. She needs to make sure what she has lasts. That it keeps up with inflation. That she doesn’t lose what she has worked for her whole life.
So why should she have to suffer or be forced to take on more risk to maintain a decent standard of living? Her husband fought in the Pacific in World War 2. She worked for the city of New York as a civil servant and earned her pension.
Helping plan her finances, I have to assume she will earn nothing on her savings. Every dollar spent outside of social security and her pension will come out of principal. In the past she could have depended on a 4% to 6% yield from a 5-year treasury, with the principal safe. Now she will earn nothing on her savings, and with the U.S. Gross debt close to 100% of GDP, we cannot even assume the principal is completely safe.
…
This is what is so destructive about Bernanke’s policies. He is absolutely skinning these types of people in order to save the banks. He should hang.
BINGO
What they are doing is not fighting unemployment, they are not fighting deflation (demand is being destroyed due to 0% interest rates, and rising costs of food and fuel) What they are doing is consolidating wealth and power. Lowering rates when most of the people can’t or won’t borrow will not create demand.
Pimco’s Gross: Irrational Exuberance, the Sequel
By Elizabeth MacDonald
Published February 28, 2013
FOXBusiness
Pimco’s Bill Gross says investors who believe double-digit market returns will continue are irrationally exuberant and warns they better lower expectations on all asset classes.
Gross again takes characteristically pointed jabs at the Federal Reserve’s easy money policies in his latest investment letter.
PIMCO’s Gross warns investors that, on a scale of one to ten, markets are now a six for “asset price irrationality,” which is “moving in an upward direction,” as the markets are in shouting distance of record highs set in October 2007.
“Corporate credit and high yield bonds are somewhat exuberantly and irrationally priced,” he wrote: “Spreads are tight, corporate profit margins are at record peaks with room to fall, and the economy is still fragile.” But Gross suggests staying invested while expecting lower, single-digit returns.
In an attempt to rejuvenate a moribund U.S. economy growing at just 2% or less annually, the Federal Reserve has been keeping interest rates at historic lows, with $85 billion in monthly purchases of Treasuries and mortgage-backed securities.
That manipulation has juiced the markets, Gross says. “Investors bought over $100 billion of high yield and levered loan paper last year, a record level even exceeding the ominous levels in 2006 and 2007,” Gross says. At the same time, investors poured $33 billion into junk-bond mutual funds and exchange-traded funds, up 55% versus 2011, says Morningstar Inc.
Gross points out that Fed Governor Jeremy Stein reiterated recently former Federal Reserve Chairman Alan Greenspan’s famous “irrational exuberance” speech made in December 1996 before the dotcom bubble burst. Stein says he now essentially sees irrational exuberance in the high-yield corporate bond market, with a fairly significant pattern spotted of reaching-for-yield.
And Gross points out, using analysis from Bianco Research, that high-yield bonds, stock prices and other risk spreads are moving in relative lockstep with each other—meaning, equity markets are also likely in frothy territory.
Gross asks: “If the Fed’s so smart, why are some of us still poor? Why did our 401(k)s become 201(k)s in 2009 before recovering to near peak levels currently? If they’re so smart, why the roller coaster ride, the 30% decline in home prices since 2006, and our current 7.9% unemployment rate?”
…
““If the Fed’s so smart, why are some of us still poor?”
Some? SOME?! HALF of this nation is now poor.
47 percent clearly is less than half!
No sequestering Bernanke from this me$$
By JOHN CRUDELE
Last Updated: 3:20 AM, February 28, 2013
Posted: 11:36 PM, February 27, 2013
Ben Bernanke’s policies are inflicting nearly as much harm on the economy as the looming mandatory cutbacks due to start tomorrow.
Under the so-called sequestration, $85 billion in costs will be trimmed from the federal budget — unless, of course, the White House and Congress come up with a last-minute alternative.
Don’t hold your breath. They don’t work together well, and there isn’t any alternative they’d consider.
Bernanke clearly doesn’t want the sequester cuts to occur and — in his own way — warned Congress of the consequences on Tuesday.
Prodded by Democrats, Bernanke told members of the Senate Banking Committee that the sequester cuts alone could trim growth in the nation’s gross domestic product this year by 0.6 percent.
Other recent actions, including the rise in Social Security payments and higher taxes on the rich, could bring that reduction in growth to 1.5 percent, Bernanke said.
Since the economy probably isn’t even growing at a 1.5 percent clip now, the sequester and tax hikes could plunge us back into a recession.
Worse, the reduction in economic growth caused by sequester will lower tax revenues. In the end, the federal deficit will be cut by less than $85 billion because of this reduced income to Washington. Bernanke made that last point as well during his testimony.
He also said the economy was being hurt by higher gas prices. What he didn’t say, however, is that he is as much to blame as the White House and Congress for higher costs at the pump.
Since the beginning of this year, gas prices have risen an average of 45 cents a gallon. Americans use 354.4 million gallons of gas a day, so do the math. That means drivers today are paying nearly $160 million more a day to fuel up their cars than they were just last Dec. 31.
So, over the past two months, Americans have taken $9.4 billion out of other parts of the economy and put it into their gas tanks. Over the full year, that works out to $58.2 billion in extra gas costs. And it’ll be worse if gas prices keep rising.
Eighty-five billion is obviously larger than $58.2 billion — but that last number is just gasoline. It doesn’t include home heating oil. And it doesn’t take into account the incalculable, like how much these extra fuel costs are adding to other products, such as food.
Bernanke prides himself in keeping down costs even as he maniacally prints money. But this guy must live in some other universe — and get his car filled at the government trough — since inflation is all around us.
So why blame Bernanke for the rise in gasoline prices?
Weather was perfect at Torry Pines preserve San Diego CA, cool succulents all over the side of the cliff leading down to the sea
I used to work across the freeway in Serento Valley when I lived in Poway
Very nice area but Crowded. Interesting how much manderian I heard on the trail
We have a wonderful cascade of waterfalls here in lowly Watkins Glen. It is my favorite daily exercise to climb the steps. I hear lots of Manderin, also Russian and Hebrew. Not now, of course, they close the gate when the thing is all frozen (only the locals know the unofficial trails). Spring is just “that far”.
Cold and very windy for the last few days, but it warmed up nicely with a slight breeze today.
Working in the garden off and on today.
he Republican offer that would allow him to reapportion the cuts as he sees fit, rather than continue to let the cuts continue on a pretty indiscriminate basis?”
Other than playing politics at the expense of the more deserving programs (and to the benefit of the less deserving programs), what would be his basis for NOT accepting the offer?”
Please
1. So Obama would get the blame for all the cuts. Everyone who lost a paycheck or a customer would blame Obama. The Sequester was the perfect way to make cuts and leave the public with no one they could clearly finger. The GOP voters will blame the Dems and the Dems will blame the GOP. This keeps all the politicians happy.
2. He would loose all his leverage in trying to get the GOP to raise revenue on the rich.
Other than politics why would the GOP offer him this power?
Other than politics why would the GOP offer him this power?
Because cuts need to be made and he’s been crowing that it is a stupid meat axe approach. So here, take the scalpel and make your own cuts. That’s compromise, one side says make the cuts, the other side gets to decide where.
I guess the principled people putting the good of the country above their own personal interests argument might not hold here.
And wouldn’t other people give him credit to counteract those who gave him the blame. You know, the ones whose good programs were saved rather than being cut.
And wouldn’t other people give him credit to counteract those who gave him the blame. You know, the ones whose good programs were saved rather than being cut.
A: No, politicians never get credit for the status quo
Because cuts need to be made and he’s been crowing that it is a stupid meat axe approach. So here, take the scalpel and make your own cuts.
A: Again, he loses leverage for raising revenue from the top 1% which he also thinks is important.
I think the sequester fits his purposes perfectly.
#1 Many people will see a drop in services and local businesses will see a drop in demand, and of course unemployment will rise. Some of these people will then ask themselves if we should proceed down this road further.
#2 GOP will get the blame for the above, because their base position is to slash government and they refuse the raise taxes on the top 1%.
The top 1% are doing just fine. Don’t ever think otherwise.
Have you seen the stock market lately? Researched BODs pay? Puh-lease, they feel nothing more than a mosquito bite.
http://www.weeklystandard.com/blogs/sperling-admits-obama-misled-debate-president-did-propose-sequester_705015.html
“Misled”?
Also known as lying.
Lied to whom? The Repubs?
Cry me a river.
The end result is all that matters. BOTH sides can take credit for the cuts while blaming each other.
It doesn’t get any more perfectly Machiavellian than that.
It doesn’t get any more perfectly Machiavellian than that.
+1
“Lied to whom?”
The American people.
I’m glad there are cuts. In fact, the sequester might just be what it takes to get both sides to come up with a Simpson/Bowles type solution.
Regarding the concept of infinite amounts of money, here’s why I think it’s different this time: the virtual printing press. Formerly if a government wanted to print away their debts then actual money was printed. That’s physical money that has to go somewhere and its velocity through the system is slow and noticeable. If the Fed were printing actual money to make all their purchases we would already be in deep trouble regarding inflation. Now the money can move through the world in the blink of an eye. The patient’s veins can support infinite and instantaneous blood flow. With a system like that it’s going to take a long time for the blood to reach its end and then back up through the system to the US.
The other issue is the blood is being bled off and put in cold storage by the corporate elite.
It’s not just one line for blood removal it’s many. They are also pumping up markets and food prices and fuel prices draining even more blood from the host.
At some point that blood will be returned or the host will start dieing. It will start with less essential areas of the body finger tips toes but will migrate up until essential organs begin to shut down.
At some point that blood will be returned or the host will start dieing. It will start with less essential areas of the body finger tips toes but will migrate up until essential organs begin to shut down.
I agree, but IMHO the finger tips and toe tips are in bumf##k nowheresville where people would gladly work all day for 25 cents. There are probably billions of people around the world who would work for 25,50 or 75 cents a day. Maybe cheaper, I don’t know. It’ll take a long time for the blood to back that up through the system.
Gangrene can spread rapidly.
Exactly.
Marie Antoinette didn’t get it either.
“Now the money can move through the world in the blink of an eye. The patient’s veins can support infinite and instantaneous blood flow.”
There is no need to ever even put the newly-created money into circulation. All the Fed has to do is announce that it has expanded its balance sheet and write a $40 bn check against the expansion each month to pump directly into MBS purchases, at whatever arbitrarily set price the Fed decides to pay for them.
There is no need to ever even put the newly-created money into circulation.
I think that’s just it. Money that immediately ends up out of circulation doesn’t cause inflation until it does enter circulation. The question I think is: When will that money get spent? It’s like shadow inventory, but in dollars instead of houses. I think we can imagine what is being gained by holding houses off the market forever, but why would anyone want to accumulate cash and hold it off the market forever?
The Fed can hold things off the market forever since it seems to me that they can print what they need. It’s a little naive but I think they’re in cahoots with the government so it’s possible. It’s like burying gold coins in ones back yard. They can be left there forever with no issue. You or I would have to sell at some point, but why do they? They can wait until it suits them.
“Money that immediately ends up out of circulation doesn’t cause inflation until it does enter circulation. The question I think is: When will that money get spent?”
It already got spent, snapping up MBS which otherwise would be on the market depressing prices. This noninflationary nonspending has the effect of propping up MBS prices at levels the private market would not support.
It already got spent, snapping up MBS which otherwise would be on the market depressing prices. This noninflationary nonspending has the effect of propping up MBS prices at levels the private market would not support.
But is that really spending it? Or is that another form of sequestering? If it really is spending, then that would be on maintaining old inflation rather than causing new inflation, right?
“…then that would be on maintaining old inflation rather than causing new inflation, right?”
Bingo — aka deflation prevention.
“It has derided the voices of conscience as ‘commies’, ‘peaceniks’,
The only people who talk like that are aging liberals who seem to think it some kind of devastating spoof of the right.
Or folks who don’t read for context.
What does the Fed have planned to keep the red hot DC housing market afloat in the face of the sequester?
Nation’s capital gripped by ’sequester stress’
JIM WATSON/AFP/Getty Images
President Barack Obama delivers remarks joined by emergency responders to urge action to avoid the automatic budget cuts scheduled to hit next Friday if Congress fails to find a path forward on balanced deficit reduction during an event at the White House in Washington, D.C., Feb. 19, 2013.
by Nancy Marshall-Genzer
Marketplace for Tuesday, February 19, 2013
We’re a strange breed here in Washington, a city of geeks. We follow the lurchings of Congress like normal people follow their favorite baseball team. We kind of have to. Government is the biggest game in town. But now it’s getting ridiculous.
We’re less than two weeks away from the latest fiscal crisis du jour — the so-called “sequester.” It’s a package of billions in automatic, across-the-board spending cuts that were supposed to be so harsh Congress would never let them happen.
Sequester stress is seeping into every corner of my life. My day usually begins with a caffeine fix in the kitchen down the hall from the Marketplace bureau. There’s a cluster of offices around the kitchen. I’ve got a number of kitchen buddies. One of them is Jennifer Lachman. We grab some coffee, then head into her office. Jennifer is executive director of the U.S. branch of a nonprofit called MAG, which stands for Mines Advisory Group. They remove mines and surplus weapons from war-torn countries. Jennifer’s office gets 95 percent of its funding from the State Department. If the sequester hits, the State Department’s budget would be cut by around 5 percent. Jennifer Lachman knows that could filter down to her.
“It is one of the most stress inducing situations that I’ve ever faced at work,” she tells me.
Jennifer says her staff is banding together to fight the stress, going out to more happy hours and maybe throwing an extra cocktail into the mix. Other sequester sufferers have different ways to cope. At lunchtime, I head out to some downtown food trucks. I meet Dionna Collins. She works at a law firm. It depends on government contracts, which could be cut by the sequester, causing a wave of layoffs.
Collins is very worried. She’s smoking more. I ask how much more.
“Before everything started to fall apart, about a pack a week,” she says. “I’m maybe now to a pack every three days.”
Other people I talked to are trying to tune out the sequester buzz. Shelli Goldzband works for a medical research firm. Some of that research is government-funded. She feels powerless to stop the sequester.
She says, “So, I’ve just sort of given up and sort of just am sitting on the sidelines with a bowl of popcorn, watching everything go down in a flaming ball of death.”
OK then, maybe it’s time to move on. Maybe things will be different once I leave work for the day. My neighbors are having a potluck. Hopefully they’re not on a sequester death watch?
No such luck. There’s the usual talk of real estate, but with a sequester tinge. My neighbor Sterling Mehring is a realtor. He says the Washington market has been red hot lately. He even made a few sales over the holidays. But now, he’s worried about a sequester slump.
“I just know how fragile the market is,” he says. “It can — it can stop on a dime.”
…
“‘It’s not like your household,’ said Mayor Michael Bloomberg, during his regular Friday appearance on John Gambling’s radio show. ‘In your household, people always say, ‘Oh, well, you can’t spend money you don’t have.’ That is true for your household. Because nobody’s gonna loan you an infinite amount of money. When it comes to the United States federal government, people do seem to be willing to lend us an infinite amount of money.’””
…and Wall St….
Bubble Trouble: Is There an End to Endless Quantitative Easing?
By The Daily Reckoning • February 28th, 2013
The publication of the Federal Reserve’s Federal Open Market Committee minutes of Jan. 29-30 seemed to have a similar effect on equity markets as a call from room service to a Las Vegas hotel suite, informing the partying high rollers that the hotel might be running out of Cristal Champagne. Around the world, stocks sold off, and so did gold.
Here are two sentences that caused such consternation:
Loosely translated:
‘Guys, let’s face it: All this money printing is not without costs and risks. Three problems present themselves:
All these points are, of course, valid and excellent reasons for stopping ‘quantitative easing’ right away. You may not be surprised that I would advocate the immediate end to ‘quantitative easing’ and any other central bank measures to artificially ’stimulate’ the economy.
In fact, the whole idea must appear entirely preposterous to any student of capitalism. First, a bunch of bureaucrats in Washington scan an incredible amount of data, plus some anecdotal ‘evidence’, every month (with the help of 200 or so economists) and then they ’set’ interest rates.
Next, they astutely manipulate bank refunding rates and cleverly guide various market prices so that the overall economy comes out creating more new jobs. All the while, the officially sanctioned devaluing of money (meaning your dollar is worth less today than it was just a year ago) unfolds at the regularly scheduled ‘harmless pace’ of 2%.
There should be no monetary policy in a free market, just as there should be no policy of setting food prices or wage rates, or of centrally adjusting the number of hours in a day.
…
Its overcomplicated topic to be at least accurate or try to be close to the truth. It always comes down to feelings people have about it. Should we print money and bring inflation and maybe increase consumption or should we hold on and wait what happens?
My point is influenced by those who think: 1) money is no measured by anything material (e.c. gold)
2) government should care about inflation in a first place. Debts can be paid by printing more money which can be done without bringing inflation when people spend enough
3) its starts and ends with trust certain people have in governmental institutions (for example you can print pesos in Argentina, but people will always demand dollar or other hard currency).
As long as people are still willing to imigrate to your country, situation is not as bad as it can be.
The number of rank-and-file economists questioning the efficacy of quantitative easing seems to be on the rise.
SHOULD THE FED CONTINUE ON ITS CURRENT POLICY OF STIMULATING ECONOMIC GROWTH THROUGH LOW INTEREST RATES?
By Roger Showley
12:01 a.m. March 3, 2013
Updated 8:38 p.m. March 1, 2013
Last week’s question: Will San Diego see any immediate effects March 1 of the sequester of $85 billion in federal funds? (80% YES, 20% NO)
Tell us what you think: Go to utsandiego.com/fed-policy to vote yes or no in our poll
NO: By law, the Federal Reserve conducts monetary policy to achieve maximum employment, stable prices and moderate long-term interest rates. At best, the Fed can and has accomplished one of three. However, when interest rates are held too low too long, the structure of asset prices is distorted (bubbles develop) and investment funds are misdirected (penalizing saves and putting pension plans at greater risk). Clinging to Keynesian aggregate demand management as the miracle cure for a stagnant economy. Fed economists are counting on low interest rates and a jacked-up money supply to provide sufficient economic growth to lower unemployment. Forgotten are the lessons learned during the 1970s stagflation.
Gary London The London Group
NO: The Fed’s attempt to reinflate asset prices and start another consumption boom is leading stock and commodity markets back into financial bubble territory. This artificially created “wealth effect” in order to induce economic growth through a debt-driven consumption spree by the American public is creating another bubble economy that will not end well. In the meantime, the Fed does not acknowledge the existence of much worse than reported inflation that is underreported using current government methodologies to measure the Consumer Price Index (CPI). The precise degree to which the dollar is depreciating is therefore a misleading determinant for all other financials.
YES: In the short run, we have no choice, but we should slowly wean the economy away from the 61 percent U.S.-bought Kool-Aid by buying fewer mortgage-backed securities and treasuries over the next few years. Anyone who understands interest-rate induced price-risk is already shunning our long-term debt. While Bernanke seems to believe he can put the brakes on inflation prior to a runaway train, I am not so certain. If you thought sequestration was bad, if Congress plays dice with our debt limits and takes us to the debt cliff, the stock market could be in for a plunge.
…
Kuroda Pledges to Do Whatever Needed to End Japan Deflation
By Toru Fujioka - Mar 3, 2013 5:59 PM PT
Haruhiko Kuroda said that the Bank of Japan will do whatever is needed to end the 15 years of deflation that have stymied growth should he be confirmed as its next governor.
“I would like to make my stance clear that we will do whatever we can do,” Kuroda, the president of the Asian Development Bank, said at a confirmation hearing in the parliament in Tokyo today, pledging bolder monetary measures. The central bank hasn’t bought enough assets and it would be natural to buy longer-term bonds, he said.
…
Welcome to the real world:
http://www.nytimes.com/2013/03/03/us/politics/virginias-feast-on-us-funds-nears-an-end.html?src=me&ref=general
‘While the rest of the country experienced a corrosive recession, unemployment in Arlington County, home of the Pentagon, never rose above 5 percent. Nearby Fairfax County, with a cyberintelligence industry that took off after the Sept. 11 terrorist attacks, gorged on government contracts to private companies.’
‘No more movies, no more out-to-dinners, no more fun,” Robin Roberts, a civilian budget employee in the Defense Department, said as she waited for the 595 outside the Pentagon for the ride home. She and her husband, who is retired, have canceled their summer vacation. They switched to a cheaper phone plan. “It’s just pay the mortgage, pay the utilities, no more frills.’
I don’t take any joy in job loss anywhere, but when I was out there in 2010, I went past countless office buildings with parking lots full of expensive cars. Here in Arizona, people are really struggling. I see it everyday. Welcome to our world, Mrs. Roberts.