An Embarrassment For Economics
I suggested a topic on the Federal Reserve nominee. “What will the Yellen regime bring?”
A reply, “More of the same. The continued erosion of the American middle class. The continued enrichment of the 1% and especially the 0.1%. More stagflation.”
Another said, “Moar printing. Continued dollar destruction. Negative interest rates. Government takeover of 401ks. National Guard parked outside toilet paper factories.”
And another, “Yellen will bring more hope that the Fed can do what it cannot do. The Fed can lend, but it cannot lend us into prosperity.”
One had this, “One of Yellen’s more famous quotes is, ‘For my own part, I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system… I didn’t see any of that coming until it happened.’”
“I glean a couple of things out of this. First, top leaders are not necessarily deep thinkers, but rather decision makers - people ‘willing to take responsibility,’ something that gives many vertigo. Second, at least there is a belated admission from a top official that there just might be a danger with securitization and conflicts of interest with the credit ratings agencies. Blindingly obvious to most of us, but something to which the financial orthodoxy has blinded itself, because these things are so lucrative for themselves and their associates.”
“On the other hand, she seems to very much believe the ‘Fed Conceit’ that money injections into the economy and asset buying can do much to raise employment. It’s a warm fuzzy belief, but ignores the role of actual wealth creation in employment. And standard of living. If all it took was manipulation of the money supply to reach full employment and a high standard of living, Haiti could do it while producing little or nothing of value and having no useful social institutions.”
“So, she believes in the ‘Fed Conceit,’ while at least theoretically acknowledging the risks of the ‘privatize the profits, socialize the losses’ economic model. Net result: Bernanke II.”
May 15, 2005. “The president of the Federal Reserve Bank in San Francisco, Janet Yellen did an interview with ContraCosta Times. ‘Is it a bubble? Nobody ever knows for sure until one pops. I wouldn’t rule out the possibility that there’s a bubble and we could have house price declines ahead.’”
January 12, 2012, the New York Times, “As the housing bubble entered its waning hours in 2006, top Federal Reserve officials marveled at the desperate antics of home builders seeking to lure buyers. The officials laughed about the cars that builders were offering as signing bonuses. They joked about one builder who said that inventory was ‘rising through the roof.’”
“The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation’s pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with shepherding. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken.”
“‘It’s embarrassing for the Fed,’ said Justin Wolfers, an economics professor at the University of Pennsylvania. ‘You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets. It’s also embarrassing for economics,’ he continued.”
“‘The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us,’ Janet Yellen, then president of the Federal Reserve Bank of San Francisco, said in September. One builder she spoke with, she said, ‘toured some new subdivisions on the outskirts of Boise and discovered that the houses, most of which are unoccupied, are now being dressed up to look occupied — with curtains, things in the driveway, and so forth — so as not to discourage potential buyers.’”
“Ms. Yellen did not believe that the problems in the housing market would have broader consequences. ‘Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting,’ she said.”
“For the Fed 2006 began with the departure of Mr. Greenspan, who presided in January over his final meeting as Fed chairman and was then widely regarded as the epitome of a central banker, a master who had guided the American economy through almost 20 years of remarkably consistent growth. Ms. Yellen said: ‘It’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. The situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot.’”
‘December 14, 2007. For U.S. homeowners, builders, bankers and realtors, the crash of 2007 will only get worse in 2008. The housing market collapse has been anything but the ’soft landing” that Federal Reserve Bank of San Francisco President Janet Yellen and David Lereah, former chief economist at the National Association of Realtors in Chicago, predicted for real estate at the start of 2007.’
Here’s the result of a search on this blog with the name Yellen.
A few quotes:
‘December 3, 2007. Although talk of a serious financial downturn is spreading, there isn’t consensus. University of Central Florida economist Sean Snaith predicts a housing-market recovery next year that would blunt the downturn’s effect on other sectors.”
“‘We are in for a couple quarters where there won’t be much good news for the real-estate industry,’ Snaith said. ‘But I think 2008 will be the year we put the housing situation behind us.’”
“Although housing prices have dropped and the number of unsold houses on the market is at a record high, Snaith says the market will begin to improve by the middle of next year.”
“‘There’s no shortage of Chicken Littles predicting a recession and worse,’ he said.’
snaith- perfect name
inventory from 19 to 29 in last month hear in N VA
40 is par
Yellin’ will do what GS, JPM, etc will tell her to do. No difference than Bernanke…..
Exactly.
Just a different face. Same corrupt organization no different than the oval office.
The plutocracy will protect the plutocracy. Doctorate in Economics from Yale. Husband a Nobel Laureate. Worked for Bill Clinton on Council of Economics advisors. From WaPo: “Yellen and her husband’s net worth? Up to $13 million. Her assets include a stamp collection that’s worth between $15,000 and $50,000.”
Things seem to be going pretty good for her!
The statist couple with assets of $13 million, some of it in movable, hidable wealth such as stamps, can easily flee the country when the lights go out for years, and take enough assets with them to a villa in Argentina. I would not be surprised if they do have an international hideaway. Leftist statist celebrities can escape from the effects of the same policies of the very politicians they promote. The only fools are the few remaining white collar professionals who think being leftist is cool and they will get girlfriends by being a leftist kook.
They could also walk into the economics department in any western nation’s best university as full professors.
Would Singapore, pretty much a capitalist society, want statist economists?
Yes.
Congress aren’t the only people who should be fired, and trying to find new jobs…….preferably something like the city dogcatcher in Marriyourcousin, South Carolina.
A high percentage of what some might call the “intelligentsia” need to get out of their ivory towers in New York, DC, and San Francisco, and see the end result of the policies they have been endorsing, supporting, and providing “intellectual justification” for.
The Tea Party is just one of Main Street’s ways of fighting back.
(I’m not endorsing the Tea Party types….but can understand where they are coming from…… If Wall Street and Washington want to bitch about them, they only have themselves to blame.)
‘President Obama’s decision to nominate Janet Louise Yellen to be the next chairman of the Federal Reserve System is an endorsement of this simple idea: That the central bank’s expansive efforts to support economic growth and bring joblessness down are helping the recovery, and should continue. Yellen was the was the obvious choice if — and only if — you believe that the current direction of the nation’s powerful central bank is the correct one for the country.’
‘Yellen has been not merely an engineer of the Fed’s policies of “quantitative easing” and “forward guidance,” but a consistent voice within the central bank to go further.’
‘She is as prepared for the job, on paper at least, as anyone who has ever held the job. She has served at the Fed as a governor, president of the San Francisco Fed, and for the last three years as Bernanke’s No. 2. She is an accomplished academic economist.’
‘And above it all, will she have the right judgment to know when the time has come to end continuity with Bernanke-era easy money policies and begin the long road toward normal. She furthermore has to figure out, in this post-crisis world, what normal even looks like anymore.’
The long road to normal, eh?
‘It’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. The situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot.’
So she’s sitting there in the Bay Area in 2005:
‘Is it a bubble? Nobody ever knows for sure until one pops.’
All over the world, there are central bankers trying to pop housing bubbles. And she’s trying that same old “there’s no way to see a bubble” routine.
‘She is as prepared for the job, on paper at least’
She’s been at the Fed long enough to have contributed to the stock bubble and crash, the housing bubble. Wall Street’s meltdown. Yet in the eyes of the press, one would think we’re watching the most accomplished, perfect person to run this wrecking crew know as the Federal Reserve.
Obama likes that Fed pump. Pump it, baby, pump, pump, PUMP IT UP! ! ! PUMP THAT BEEYATCH UP- MELT THE COUNTRY DOWN!!!
“…in Marriyourcousin, South Carolina.”
+1 Now that’s fugg’n hilarious! Tears!!
A high percentage of what some might call the “intelligentsia” need to get out of their ivory towers in New York, DC, and San Francisco, and see the end result of the policies they have been endorsing, supporting, and providing “intellectual justification” for.
I have had zero success so far trying to explain to such folks why it’s their own fault that so many flyover people would never consider voting D even when it might be in their best economic interest. They think it just proves everyone who doesn’t agree with them is stupid and any information that suggests otherwise is ignored.
There were some real doozies this last week in the way the Feds handled the situation on the ground with the shutdown of Federal lands in an attempt to cause pain that they hoped would advance their cause. Hatred of the D brand is stronger than ever…same as it ever was.
I have had zero success so far trying to explain to such folks why it’s their own fault that so many flyover people would never consider voting D even when it might be in their best economic interest. They think it just proves everyone who doesn’t agree with them is stupid and any information that suggests otherwise is ignored.
Perhaps stupid isn’t the right word. What’s a better way to describe struggling families who vote against their own self-interest? Maybe they’re mis-informed or they’ve allowed themselves to be distracted by trivial issues.
Or maybe you don’t understand what I’m talking about because you’re not there. Just like the people I’m talking about. It’s easy to think an issue is trivial if you’re not living with it every day.
I’m from the east coast originally, but I live in the Phoenix area now. So I know a lot of those people. One fascinating example is people who work in construction - roofers, drywall people, plumbers, etc. - who have an odd hostility towards unions.
There are many other examples I won’t go into here.
Nevertheless, do you understand these people? Why do they vote against their economic self-interest? I suppose that there could other explanations than a lack of information.
I understand why they hate the Ds. This week’s example was the way the shutdown of Yellowstone was handled. Ongoing issues include the 2nd amendment and wolf reintroduction policy. Obviously my examples are Wyoming-centric since that’s what I know…
How could the shutdown of the national parks have been handled differently?
More importantly, why do these voters give a greater weight to those three issues than their own economic well-being?
The people in the parks at the time of the shutdown could have been treated a lot better. The shutdown could have been done in a way that anything bringing in more money than it was costing the govt could have been allowed to keep operating…if this were just about money.
For an in depth analysis of why they value these things more than free cheese I’d point you to the Joe Bageant books. He explains it better than I could…both the good and the bad.
‘roofers, drywall people, plumbers, etc. - who have an odd hostility towards unions’
So it surprises you that middle-class and blue collar people don’t like unions.
When I was in my 20’s, I read about this union leader in a car plant in Fort Worth. He went on about how he was fighting for the socialist cause, etc. That’s a turn off. Personally, I don’t want anybody doing my negotiating for me or taking a cut of my pay or forcing me to contribute to this or that. I joined a fraternity once and lasted about 4 days with their BS.
From what I can tell, the National Park Service consumes funds paid by taxpayers. In other words, the amount that visitors pay to get into places Yellowstone doesn’t cover the cost of running those places. So a lot of people who live all over the country, many of whom have no interest in visiting national parks, have to pay for those places.
Also, when a shutdown occurs, only the parts of the government that are considered essential continue to operate. If some people think that the national parks should have that designation, I don’t understand why they would place the blame for that not happening on just one of the two parties.
I used to read some Joe Bageant’s columns on his web site. I think that he died a few years ago. I might try to go see if his columns are still available out on the web somewhere.
Also, Ben, the idea of a union is that a large group of workers negotiating together can get better pay, benefits and working conditions if they negotiate as a group than as individuals. Obviously, a union wouldn’t be worth it if the members didn’t get anything for their dues.
And I don’t think your won personal dislike of joining groups doesn’t explain much of the hostility to unions. Plenty of people like to join fraternities, bowling leagues, etc.
(Neo-) Jetfixr has written that the ability of managers to treat their employees disrespectfully or unfairly is reduced in union workplaces. This is something that hadn’t occurred to me until I read what he wrote. I thought the advantages of unionization had to do with pay and benefits. I’d really like him to write more here about the differences between union and non-union workplaces. I think that it would be beneficial since very few of us who participate on this blog have that kind of personal knowledge.
My own knowledge comes from my grandparents, who all grew up poor. My paternal grandfather grew up in an orphanage. He was there because his father died of tuberculosis in the early 1920s and his mother couldn’t afford to support all of her kids after that. This is what annoyed me last week when someone wrote here that poverty is not about a lack of money.
After my grandfather served in the Navy in the WW2, he got a factory job at a unionized company. He worked at that company for over 30 years and became a foreman. The union helped him and my grandmother to a nice lower-middle class standard of living. That included, after he retired, a nice pension and Medigap plan. My grandmother continued to receive that pension and use the Medigap plan until she died six years ago at the age of 88. I don’t know how much in union dues my grandfather had to pay during his working years, but my guess is that is was worth it.
As far as I know, outside of government, very few non-union blue collar type workers ever get pensions. I think that IBM may have them decades ago, but if there are other examples, they were probably in highly unionized industries.
‘your won personal dislike of joining groups’
I don’t dislike groups, I just don’t like to be told what to do. Have you ever been through hazing? It’s some seriously stupid and demeaning stuff. And you have to pay for the privilege.
I apologize for mischaracterizing your remarks. I was never hazed, though I was bullied occasionally in elementary school. The idea that boys still do that sort of thing in their early 20s is outrageous.
By the way, Carl, I found Joe Bageant’s website. It’s still up and running.
In first article that I read, he states his opinion that it’s lack of education that causes his people to support the Republicans. Some of the people that he writes about must be some of the poorest white people in America.
http://www.joebageant.com/joe/2004/06/sons_of_a_labor.html
Yeah, but you gotta read the books to get the full picture. He says both good and bad about “his people” and why they do what they do.
‘your won personal dislike of joining groups’
One reason they don’t support the Dems is that the Ds are aligned with race group politics lovers who put the interest of those groups forefront. The poor whites know that they are the wrong color for the race group politics crowd.
Another reason is that the Dem party doesn’t even pay lip service to the concepts of morality and family.
Finally, the liberal intelligentsia that runs the party is anti-religion.
Honestly, I wonder what percentage of the free cheesers even vote.
What business does the government have meddling in moral or family matters?
Government should support morality and the family. The family is the basic unit of society. An immoral society will not last long.
Counterpoint: Children of non-families will have a lower chance of surviving to reproduce themselves. Evolution favors families as the basic unit of society.
(Neo-) Jetfixr wrote
“A high percentage of what some might call the “intelligentsia” need to get out of their ivory towers in New York, DC, and San Francisco, and see the end result of the policies they have been endorsing, supporting, and providing “intellectual justification” for.”
I think this is the first time I ever could say something nice about a post of yours. I couldn’t agree more with this.
If you think about it, you are making the point against centralized decision making. A voluntaryist (a libertarian with lower case “l”) all along wants to decentralize all human activity. Moreover, make all human consensual actions completely voluntary.
so a dove sells 200 billion a year and a hawk sells 300 billion a year?
3.4 trillion to sell off…………
“Ms. Yellen did not believe that the problems in the housing market would have broader consequences. ‘Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting,’ she said.”
Uh, it’s not relatively small when heaven knows how many Americans borrowed hundreds of thousands of dollars, whether it be primary mortgages or secondary or both, without the income to pay the debt off.
To me, the saddest thing about the credit debacle was the false sense of “wealth” & security it gave folks….why bother saving when your house will do it for you? Why save up for a car/vacation/house project when you can whip out your HELOC checkbook and voila, it’s funded? All that credit (and debt) masked how incomes weren’t keeping up with expenses (housing, healthcare, education, you name it), and folks took the bait.
Uh, it’s not relatively small when heaven knows how many Americans borrowed hundreds of thousands of dollars, whether it be primary mortgages or secondary or both, without the income to pay the debt off.
To me, the saddest thing about the credit debacle was the false sense of “wealth” & security it gave folks….why bother saving when your house will do it for you? Why save up for a car/vacation/house project when you can whip out your HELOC checkbook and voila, it’s funded? All that credit (and debt) masked how incomes weren’t keeping up with expenses (housing, healthcare, education, you name it), and folks took the bait.
Touchdown.
And not only do they not have the income(or are paying more than 25% for shelter costs), they grossly overpaid… essentially got ripped off and doubled down on that overpayment by borrowing. Now that to me is a horrible living financial nightmare.
One thing though. It was the monetization of a depreciating asset(in this case a house) that drove up the other items you mention.
If there is one thing certain that financial history demonstrates, it is that monetization of anything results in tragic consequences.
“… they grossly overpaid … essentially got ripped off and doubled down on that overpayment by borrowing. Now that to me is a horrible living nightmare.”
Not to me, to me that is a sweet dream.
They willingly committed themselves to forking over to me and my bank thousands of yet-to-be-earned dollars during a yet-to-be-determined, yet-to-be-settled questionable economic era full of trillions of dollars worth of unfunded commitments and unfunded promises.
They willingly did this! Amazing, isn’t it?
Here’s to hoping that they have lots of children.
‘why bother saving when your house will do it for you?’
I posted this in the desk clearing comments yesterday:
October 10, 2013
‘Earlier this year, Chris Benner searched online for a house priced between $275,000 and $375,000, looking from the San Fernando Valley south to San Pedro.’
“We came up with less than 10 matches that we would even think of looking at,” the 42-year-old freelance associate producer said.’
‘In April, he and his wife purchased a four-bedroom fixer-upper in Athens, an unincorporated area east of Hawthorne, for $297,000. The Benners make far more than the median household income — about $95,000 last year between them, Chris said — but it’s still tough.’
“We don’t save a penny,” he said.’
that is exactly what they have encouraged. People quit saving and started investing in homes to get any return. I saw that righting on the wall 10 years ago.
Houses deliver an negative rate of return.
Hush your mouth!
Yes Sir!.
Sir…. may I lick your boots?
‘As Washington is struggling with debt and all its political ramifications, American companies and consumers are embracing it, running up record amounts in 2013. Whether it’s corporate loans, all quality levels of bonds or simple consumer credit, the debt party is back on in the U.S., whether it’s in the boardroom or the living room.’
‘Consumer credit, for instance, surged past the $3 trillion mark in the second quarter of 2013 and continues on an upward trajectory, according to the most recent numbers from the Federal Reserve. At $3.04 trillion, the total is up 22 percent over the past three years. Student loans are up a whopping 61 percent.’
‘Total household debt, according to the Fed’s flow of funds report, is at $13 trillion, nearly back to its pre-crisis level in 2007 and a shade below government debt of $15 trillion.’
‘Through September, high-yield—or junk—bond issuance came in at $378.2 billion, a new record and a 27 percent surge for the same period in 2012, according to Dealogic. The debt deluge doesn’t end there, either, with lots of loans being taken out as well by companies.’
‘U.S. loan volume alone totaled $1.53 trillion through the first three quarters, a gaudy 25 percent higher than the same period in 2012. Globally, syndicated marketed loans—put together by multiple parties for a single borrower—hit $2.93 trillion in the first three quarters, a 15 percent annualized gain, with average deal size of $458 million the highest since 2007, Dealogic reported.’
‘High-risk leveraged loans hit a global volume of $1.23 trillion, passing the trillion barrier for the first time since 2007.’
“We have not solved (anything) when it comes to the deleveraging myth,” said Michael Pento, president of Pento Portfolio Strategies. “We have learned nothing.”
‘Gluskin Sheff’s noted bear, David Rosenberg, said the rebirth of leverage is actually a reason for optimism. A July analysis Rosenberg released on the topic marked a sharp change in tone for someone who only a few years ago saw an economy not in recession but rather depression.’
“The building blocks for the consumer to grab the torch are being put together with each and every passing data point as of late,” he said. “Don’t fight it. Embrace it.”
And posters here will say, ‘I see a lot of new cars’, ‘Applebee’s has a waiting line’.
The only deleveraging that occur was write offs irrespective of the deleveraging ruse reported by the financial news crime syndicate.
So many U.S. entities, from households to corporations to governments, are borrowing at record levels to take advantage of historically low interest rates.
Whatever could possibly go wrong?
Nothing was learned from the crash. NOTHING. I have lost all faith in this country and its people.
‘Nothing was learned from the crash’
I don’t know about that. Many thousands of households switch from owning to renting every month in the US, and have for years. I’m not saying renting is some big goal, but on net, the public isn’t buying the BS.
the debt party is back on in the U.S.,
Well, then… the economy must be booming, right? It typically booms when the debt-binge is in full swing…
And this successful trick to get everyone to pay a fortune for overpriced houses in turn creates an obligation for the Fed to continue its $40 bn a month in QE3 mortgage purchases in order to pump up the home equity value that McMansion buyers expect to be able to pull out of their homes to pay for cars, expensive vacations and retirement living expenses.
‘Of course, housing is a relatively small sector of the economy, and its decline should be self-correcting,’
It might well have turned out that way, except for the Fed’s housing stabilization practices, including $40 bn a month in QE3 mortgage-backed security purchases. Apparently everyone except for Fed insiders recognizes the market-distorting effect of this policy.
“If all it took was manipulation of the money supply to reach full employment and a high standard of living, Haiti could do it while producing little or nothing of value and having no useful social institutions.”
Haiti does not have a reserve currency.
High & Low Finance
At Risk: Currency Privilege of the Dollar
By FLOYD NORRIS
Published: October 10, 2013
Not all government debt is created equal. Some governments get a much better deal than others, and no one gets a better deal than the United States.
The United States borrows in its own currency, and it borrows at extremely low interest rates. It also borrows under its own laws, an often overlooked advantage. Such a situation makes default — or at least involuntary default — impossible because the government can print dollars if need be. The value of the dollars it repays may be less than the value of the dollars it borrows, but that is a risk the lenders accept. The United States could change its laws, but it is trusted not to abuse that right.
The perils of not having that flexibility became clear 80 years ago.
In 1933, when Franklin D. Roosevelt became president, the world was in the Great Depression and many countries were devaluing their currencies in a desperate attempt to stimulate exports and growth. That left the United States at a disadvantage, and one of the first things the president did was to persuade Congress to devalue the dollar.
The United States, like other countries, was on the gold standard. A dollar was worth 25.8 grains of gold, and anyone with a dollar bill could turn it in for that much gold. President Roosevelt and Congress redefined the dollar as being worth 15.238 grains and made it illegal for Americans to own gold coins. They were required to turn in their old gold coins for dollars at the new rate.
United States government bonds of that era specified that the payment of interest and principal was to be made in gold dollars, at the old rate. Many private bonds had similar provisions. Congress overruled all those provisions.
Was that legal?
In 1935, the Supreme Court answered. Chief Justice Charles Evans Hughes, with the support of four of his colleagues, concluded that the government could change the private contracts, just as it could pass a bankruptcy law that enabled some debtors to escape their obligations. But, he said, the government had no legal right to amend its own bonds.
Then, in a pirouette that left legal scholars gaping, he ruled that because it was no longer legal to own gold coins, a bondholder suffered no actual losses. Had the government paid gold coins, the bondholder would have been required to exchange them for dollars at the new rate.
It was not one of the great court decisions, at least in terms of legal logic. But it was necessary for the health of the American economy.
Consider what would have happened if the gold clause had been upheld, for both government and private debts. Suddenly any debtor who owed $1,000 in gold dollars would owe $1,690 in new dollars. But incomes would not have risen. Companies that were barely hanging on would have gone broke. The Depression would have become much worse.
Robert H. Jackson, who would later become a Supreme Court justice, wrote in 1941, “Any decision that upset the law as Congress had enacted it, however sound in lawyer logic, could only breed widespread trade mischief, commercial confusion and debtor disaster.” President Roosevelt deemed the issue so important that he planned to defy the court if the government lost the suit.
I bring this up because most sovereign nations now do not have the luxury the United States has. When they borrow internationally, they borrow in a foreign currency. And the bonds often specify that any disputes will be settled under foreign law — usually United States or British law.
…
Related Stories
Treasury Chief Warns of Severe Debt-Limit Fallout (October 11, 2013)
DealBook: Faith in U.S. Debt Is Rattled (October 10, 2013)
The Trade: Complacency on Wall Street Could Be Worse Than a Panic (October 9, 2013)
‘In April, he and his wife purchased a four-bedroom fixer-upper in Athens, an unincorporated area east of Hawthorne, for $297,000. The Benners make far more than the median household income — about $95,000 last year between them, Chris said — but it’s still tough.’
“We don’t save a penny,” he said.’
No mention of a down payment of course. If they borrowed that full amount, or close to it, yes, they’d be at a tipping point, especially with CC debt, car payments, health insurance, groceries, etc.
The Benners’ numbers are very similar to mine when I bought in 1996….paid $280K and was making $100K a year, put 10% down, no CC debt, 6 months cash in the bank and a tiny car payment. I was able to save, but it was not easy…mortgage payments, RE taxes, insurance, higher utilities, etc, and that was almost 20 years ago.
People forget traditional lending standards weren’t in place to make it “difficult” to buy; they were in place to make it safer, as you weren’t allowed to take on an obligation you couldn’t fulfill, nor were you allowed to “compete” with other unqualified borrowers for a roof over your head.
Again…. it’s the price.
“We don’t save a penny”, he said.
Ah, the music.
I suggest he get a second job, then maybe he will qualify for one of my bank’s credit cards, and maybe he’ll max it out.
At 2% annual inflation, the dollar loses half its value every 36 years.
Given the Fed’s presumed omnipotence, I don’t understand why they can’t simply create 2% seigniorage a year instead of taxing savings at that rate in perpetuity?
The new head of the Federal Reserve
Dove ascendant
Janet Yellen will stick to her predecessor’s expansionary policies
Oct 12th 2013 | WASHINGTON, DC |From the print edition
An uphill slog awaits
FOR most of the past few years, monetary policy has urged the economy on while dysfunctional fiscal policy has held it back. Barack Obama’s decision to nominate Janet Yellen to succeed Ben Bernanke as the Fed’s chairman in February raises the odds that stimulative monetary policy will continue. But disquiet about that stance is growing.
In addition to being the first woman to run the Fed, Ms Yellen is also the first acknowledged dove. Presidents once felt compelled to appoint monetary-policy hawks such as Paul Volcker and Alan Greenspan to reassure markets that the Fed would not succumb to the political system’s inflationary bias. In appointing Ms Yellen Mr Obama has implicitly acknowledged how much the world, and the Fed’s priorities, have changed. Since 2008 America, like many other countries, has struggled with slack demand and high unemployment. Meanwhile, energy prices excluded, inflation has persistently fallen short of the Fed’s 2% target.
…
“At 2% annual inflation, the dollar loses half its value every 36 years.”
Of course it doesn’t always work out that well. For instance, gold was valued at $35/oz in 1970, and by circa 2012 had ‘increased in value’ to $1900. Note that gold is a shiny, malleable metal whose ‘real value’ doesn’t change much over time, qualitatively speaking, or in terms of the real goods one can buy with it (i.e. an old saying is that a decent man’s suit can be purchased for an ounce of gold, no matter what the dollar price is).
Perhaps the right way to look at this is the dollar’s value recently dropped in gold-denominated terms by (1-35/1900)*100 = 98% over a period slightly longer than 36 years. The Fed exercises discretionary monetary policy, which means there is no guarantee they will limit inflation to 2% a year going forward.
For instance, gold was valued at $35/oz in 1970,
You know very well that the 1970 nominal value was thoroughly artificial, as it had been set at that level by fiat, and was unchanged since the GD.
In other words, there was a huge amount of pent-up devaluation that had not been realized or acknowledged.
The Fed exercises discretionary monetary policy, which means there is no guarantee they will limit inflation to 2% a year going forward.
Too true.
“You know very well that the 1970 nominal value was thoroughly artificial, as it had been set at that level by fiat, and was unchanged since the GD.”
Actually, I am not an economic historian, and no, I didn’t know that.
But thanks for the education, which helps put the 98% collapse in the dollar against gold since the GD1 devaluation of the dollar into proper historical perspective.
Actually, I am not an economic historian, and no, I didn’t know that.
Ah, sorry—I just assumed you knew that. My apologies for assuming.
No need for the apology. I actually appreciate free education when it is offered.
‘China’s export growth fizzled in September to post a surprise fall as sales to Southeast Asia tumbled, data showed, a disappointing break to a recent run of indicators that had signaled its economy gaining strength.’
‘China’s exports dropped 0.3 percent in September from a year earlier, the Customs Administration said on Saturday, sharply confounding market expectations for a rise of 6 percent, and marking the worst performance in three months.’
‘Analysts said weak exports underscored worries about flagging global demand, which may crumble further in coming months - especially in emerging markets - when tighter U.S. monetary policy pushes investors away from developing economies.’
‘Indeed, the data showed Chinese exports to Southeast Asia, China’s fastest-growing export market in the past year, dived to a 17-month low in September. Capital outflows from the region on bets that the U.S. central bank will cut its bond purchases had hit demand, said Louis Kuijs, an economist at RBS in Hong Kong.’
‘A breakdown of the data showed exports to Europe, the second-biggest buyer of Chinese good after the United States, South Korea, Taiwan, and Australia all fell last month. Shipments to Taiwan struck a 17-month low while those to Australia posted their worst growth in three months.’
‘Despite the subdued export outlook, we expect the government to maintain its current policy stance,” said Kuijs from RBS. “We expect it to hold on to the firmer monetary stance that it is trying to pursue in order to rein in overall credit growth.”
Is the Baltic Dry Index setting up to tumble again as it did at the start of 2012?
Even after a great bull run this year, it remains off 39% from July 2009.
I normally find C-Span as stimulative as watching paint dry. However, these nomination hearings could get quite interesting.
Politics
Rand Paul: Why I Plan to Grill Yellen
The Federal Reserve needs to be audited so that the public can better know what the institution is doing with the U.S. money supply, the Senator writes
By Sen. Rand Paul
Oct. 11, 2013
From left: U.S. President Barack Obama listens to economist Janet Yellen after she was nominated as Federal Reserve chairman at the White House in Washington, D.C., on Oct. 9, 2013.
Jewel Samad / AFP / Getty Images
President Obama’s announcement of Janet Yellen as his choice as the new Federal Reserve chairman has prompted speculation about what this might mean for our central bank. Perhaps this can best be judged by reviewing its recent history and Yellen’s place in it.
It is also important to focus on the fact that the Federal Reserve is structurally flawed. The institution needs to be reformed to prevent Yellen, or any other future nominee, from using the enormous power of the Fed to aid and abet the allies of big government. I intend on using the Senate’s constitutional power of consent to nominations as a means to educate the American people on the structural flaws and policies of the Fed that are bankrupting our nation.
The Fed’s favored practice of “quantitative easing” has been questionable at best. One need not be an economist or mathematician to wonder whether printing money out of thin air is a sound way to help the economy. Still, as The Washington Post’s Neil Irwin notes, “Yellen has been not merely an engineer of the Fed’s policies of ‘quantitative easing’ and ‘forward guidance,’ but a consistent voice within the central bank to go further.”
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David Weidner’s Writing on the Wall Archives
Oct. 10, 2013, 11:02 a.m. EDT
Yellen can do it all, unfortunately she has to
Commentary: Leading the Fed is a big job, maybe too big
By David Weidner, MarketWatch
Janet Yellen takes the podium after being nominated to succeed Ben Bernanke as the new Federal Reserve chair.
There aren’t enough superlatives to describe the importance of President Barack Obama’s decision to nominate Janet Yellen as chairwoman of the Federal Reserve.
Unfortunately, that’s mostly because the job has become far too powerful and influential — a default government for economic policy instead of its true job as manager of monetary policy.
Canadian short-story writer Alice Munro has been awarded the Nobel Prize in literature. Munro is only the thirteenth woman to win the prize since its inception in 1901. The Nobel Foundation said they had been unable to reach her and had left a message on her answering machine.
No wonder that the role of Fed chairman is being described as “the world’s most powerful economic policy maker.”
U.S. Sen. Sherrod Brown, (D., Ohio), who lobbied for Yellen, hinted at this enormous responsibility in his statement praising the move on Wednesday.
“Gov. Yellen will work to prevent future bailouts, boost our housing markets, and give the Fed’s mandate to maximize employment the attention it deserves,” he said in a statement.
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Do writers like this one realize they are setting up Yellen for a brutal Senate confirmation hearing?
What’s really amusing to me, and is amusing to my stock broker buddies, is Joe6Pack comes to us when he is in search of financial advice. I wonder if Joe goes to a used car lot when he is seeking advice about what sort of car he should buy?
‘The debt ceiling for the United States is currently set at $16.7 trillion. In 2000, the U.S. national debt stood at $5.7 trillion. The amount of the U.S. national debt is now roughly the same size as the annual output of the economy. Is this a problem?’
‘Yes, suggests recent research by numerous macroeconomists. Specifically, they find that a big public debt “overhang” likely slows down future economic growth for more than two decades.’
‘Before the financial crisis, U.S. economic growth averaged 3.2 percent annually. If a high debt-to-GDP ratio reduces growth by one percent each year, future annual growth will likely average 2.2 percent. With a population of 315 million, the U.S. currently has a GDP per capita of roughly $53,000. The Census Bureau expects U.S. population to grow to about 375 million over the next two decades. In 20 years, the difference between economic growth of 3.2 versus 2.2 percent amounts to $5.5 trillion. At an annual economic growth rate of 3.2 percent, per capita income would rise to $84,000 over the next 20 years. On the other hand, growth at 2.2 percent would yield a per capita income of $72,000.’
‘In other words, Americans two decades hence would be, on average, $12,000 poorer than they would have been had our leaders the foresight to rein in our burgeoning levels of public debt.’
$12,000 poorer…and with an additional $50K or $100K debt obligation.
‘It’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. The situation you’re handing off to your successor is a lot like a tennis racquet with a gigantic sweet spot.’
It was too late by the time anyone noticed the racquet’s broken strings.
This goes back to my simple point
They hire the wrong people…..over and over again…people who can think outside the box or have critical thinking skills are told to get lost…….it’s truly is that simple.
Instead of thinking wow this guys got an incredible gift….they turn it around and tell you to stop being so negative…..
When that is exactly what you need to see things coming….
———–
For my own part, I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system… I didn’t see any of that coming until it happened.’”
I don’t know who this “they” you are talking about is, but I can tell you it doesn’t work that way in the computer industry. If you apply for an engineering or IT job and are brought in for an interview, you can expect to slog through an all day gauntlet where your problem solving and critical thinking skills are assessed. I can assure you that “chickie poos” and “gamer guys” don’t get those jobs.
If you are talking about Yellen getting the FedRes job, well duh, it’s a political job.
ft dot com
On Wall Street
October 11, 2013 9:30 am
Markets dance to the tune of easy money
By Henny Sender
US default fears have been overlooked in many markets
The Yellen put is proving to be even more seductive than either the Bernanke or Greenspan put.
With the expiry of the debt ceiling just days away (possibly), most market players are focusing less on the prospect of a default on government debt and the possible questioning of the dollar’s reserve currency status and more on the fact that quantitative easing is alive and well. It is as if Bernanke’s statements on tapering on May 22 and then again in June had never been uttered. Mentally, it is May 21 once more.
US equities are near their all-time high, rallying 2.2 per cent on Thursday to stand just 33 points off September’s record closing high of 1,725.52. Indeed, the only market with any visible sign of jitters was short-dated Treasury bills, which sold off as players in the short-term funding markets declined to accept Treasury bills as collateral. The benchmark 10-year Treasury has barely moved, though.
Every time hedge funds and other investors have positioned themselves defensively, cutting back on risk in the face of uncertainties, they have regretted their prudent stance. They, like Chuck Prince, the hapless former chief executive of Citibank, have concluded that while the music is still playing they might as well keep dancing to the tune of easy money – which means staying long US equities. The mood, in other words, is very different than it was just over two years ago, the last time the debt ceiling was an issue.
Since that time, the Fed has been far more explicit in its language on low rates. The markets have now accepted the circular logic of the Fed, which is that a whisper of the prospect of tapering leads to financial conditions tightening which the Fed then cites as the excuse not to taper. Indeed, this week Goldman Sachs put out a report reiterating its belief that the Fed won’t raise rates until 2016, suggesting well over two more years of liquidity and rising asset prices.
And of course, it isn’t just the Fed that is doing its bit for asset price rallies. There is talk of another round of easing in Europe, the BOJ continues on its aggressive easing and Australia has just cut rates.
Thanks to these policies, hedge funds are sanguine. Two years ago, they weren’t in good shape. But today most funds, whether long short equities, or macro, are sitting on real profits and feel they can afford to take even more risk, because that is what they are being told to do by the central banks. Who wants to fight the Fed under these circumstances?
“The Fed is always there,” says one Hong Kong-based hedge fund on the sidelines of the Goldman Sachs hedge fund conference in Singapore earlier this week. “It is clear that it will not tolerate a decline in asset values. If you sell in the face of QE, you look like an idiot.”
…
World prepares for U.S. debt default
By Phillip Inman, The Guardian
Saturday, October 12, 2013 22:40 EDT
President Barack Obama statement
Phillip Inman, The Observer
Without a budget in place, the US government has run out of the cash needed to pay thousands of government workers in Washington and keep national parks open. But this week an even more critical issue comes to the fore. On Thursday, the country will be forced to default on its $16.8 trillion in borrowings if it does not secure a rise in the debt ceiling.
Republican leaders, aware that their intransigence over the budget has hit the party’s popularity, last week proposed a six-week postponement of the deadline. John Boehner, leader of the Republicans in the House of Representatives, has dropped a previous demand that talks could only take place following a Democrat concession to review President Barack Obama’s Affordable Care Act – or “Obamacare” – although a format for discussions has yet to be agreed.
How did we get here?
The road towards a default that would risk plunging the world economy into recession began last year in the wake of Obama’s return to the White House. The radical Tea Party wing of the Republicans decided that the only way to block Obamacare, which for them exemplifies hated “big government”, was to hold up the president’s entire budget plan.
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‘the country will be forced to default’
‘One of the nation’s top credit-rating agencies says that the U.S. Treasury Department is likely to continue paying interest on the government’s debt even if Congress fails to lift the limit on borrowing next week, preserving the nation’s sterling AAA credit rating.’
‘In a memo being circulated on Capitol Hill Wednesday, Moody’s Investors Service offers “answers to frequently asked questions” about the government shutdown, now in its second week, and the federal debt limit. President Obama has said that, unless Congress acts to raise the $16.7 trillion limit by next Thursday, the nation will be at risk of default.’
‘Not so, Moody’s says in the memo dated Oct. 7.’
” We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,” the memo says. “The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default.”
http://www.washingtonpost.com/blogs/post-politics-live/liveblog/live-updates-the-shutdown-4/?hpid=z2#c1e3ada3-dc00-41d8-92cb-327c5c814d82
Yellen = What people start doing a whole lot of when they find out they are underwater and can’t sell their house.
LOLZ
Which brings up a more important point;
There are far more underwater houses than what is reported.
And she will not settle until more houses are underwater during her watch.
Ms Yellen, a puppet who probably will set any decent recovery into more uncertanity and confusion.
This is why this admintrtion will be recognize as the most enept in American history, I’m sorry to say.