Monetary policy is a great mystery to me, as it seems to be to the commentariate (that's you guys), the Fed and our politicians. I do know for sure however that unemployment figures are leave something out since they don't count all the people who can't collect unemployment, which at this point is a lot. I also know, sort of, that negative interest rates mean deflation is here, not inflation, and that Warren Buffet who seems to do pretty well for himself economically, has explained why deflation is really really bad, which I got even tho I have trouble remembering why. I also see many many people down here in the good ole' republican south who are making it as "rent skips" and car loan defaulters, and that people are getting their pictures in the paper regularly for stealing food. And that the local good republican Christians want me to give them $$$$$ because 25% of the children in this generally well to do county are going hungry, so I am not sure by whose standards the economy is doing well. And the only "free money" I'm seeing is the tens of thousands of dollars I as part of the 1% am making on the stock market. So go for it all you people who are supporting the Republican Koolaide vendors, I am making out like gang busters.
5
Raising interest rates will pop the stock market bubble that free money created.
Is this a bad thing? Wait a bit longer (after the election for example) and wait until the bubble implodes under its own weight may be politically good for the Dems but it is irresponsible and fundamentally counter to the charter of the Fed which is to reduce rather than increase economic instability.
Is this a bad thing? Wait a bit longer (after the election for example) and wait until the bubble implodes under its own weight may be politically good for the Dems but it is irresponsible and fundamentally counter to the charter of the Fed which is to reduce rather than increase economic instability.
2
"If you want to make a man feel rich give him a cheap loan". But feeling rich isn't being rich. Cheap lending is a lousy solution to lack of demand, it's how debt becomes a way of life. There's a Poverty Industry that offers cheap loans and makes money off fees and selling the loans to debt collectors who make money off fees. The loans to pay off the loans rise in interest rate to create a form of indentured service. We're at the point where raising rates will push many over the edge - a familiar situation from what happened with Real Estate loans before the Great Recession.
Tax rates should be adjusted to reward hiring at a living wage, the real solution to a demand problem. The insanity of lowering taxes "in the hope that" they'll invest in the US should end today. Our financialized economy is a built in tax on the whole economy that flows straight to the top.
Tax rates should be adjusted to reward hiring at a living wage, the real solution to a demand problem. The insanity of lowering taxes "in the hope that" they'll invest in the US should end today. Our financialized economy is a built in tax on the whole economy that flows straight to the top.
2
I don't see the FOMC raising at all this year, and maybe twice at the most in 2017. I also see some of our Treasury yields going negative within 4 years. So the value of most real assets will continue to slowly rise while the value of the dollar, bonds, and other paper assets gradually falls. So economic inequality in this country will continue to widen. Not a good long term projection for the American middle class
2
The only problem as of now is that interest rates are so low they can't do much unless they go negative. As I'm not an economist I don't know the ramifications of that. I do know that I'd like to get more interest on my savings but again, I'm coming at it from the consumer end, not the other side and am not qualified to say much more.
2
The Fed has been doing its job quite well. It is hard to exit from easy money because the market, not the Fed, is keeping rates down. The Fed just decided again to not try to force rates higher - because it could create a recession.
It is Congress that has not been doing its job - mostly Republicans who oppose stimulating the economy. And, they have been letting pass us by a golden opportunity to improve our infrastructure at a much lower cost.
Government could borrow to invest in infrastructure at virtually zero interest rates. The deficit is lower now (as a % of GDP) that it was when Regan was President. And, the carrying cost of the (accumulated) federal debt is lower now than it has been in a long time.
Republicans in Congress are spending their time trying to roll back the tepid financial protections that were put in place after Americans not only lost their jobs but also lost $5,000,000,000,000 in assets (e.g., retirement investments, homes, etc.). Rather than investing in our infrastructure, Paul Ryan, Donald Trump and other Republican politicians want to pass more big tax breaks for the wealthy.
By reducing financial protections and by not stimulating the economy, Republicans are putting our country at greater risk of another recession. If they would stimulate the economy, the Fed could force interest rates higher when the economy starts to heat up and that would end this long period of easy money
It is Congress that has not been doing its job - mostly Republicans who oppose stimulating the economy. And, they have been letting pass us by a golden opportunity to improve our infrastructure at a much lower cost.
Government could borrow to invest in infrastructure at virtually zero interest rates. The deficit is lower now (as a % of GDP) that it was when Regan was President. And, the carrying cost of the (accumulated) federal debt is lower now than it has been in a long time.
Republicans in Congress are spending their time trying to roll back the tepid financial protections that were put in place after Americans not only lost their jobs but also lost $5,000,000,000,000 in assets (e.g., retirement investments, homes, etc.). Rather than investing in our infrastructure, Paul Ryan, Donald Trump and other Republican politicians want to pass more big tax breaks for the wealthy.
By reducing financial protections and by not stimulating the economy, Republicans are putting our country at greater risk of another recession. If they would stimulate the economy, the Fed could force interest rates higher when the economy starts to heat up and that would end this long period of easy money
10
We are financing at least 20% of our daily expenses with paper (out of thin air) money and/or credit. Any interest rate increase will add tremendous amount of money and burden to our government to pay for the bond holders. If economy is improving, our government will take in more taxes and can handle the problem. If our economy stays stagnant, then our government cannot afford the interest rate rises. Or we can make (real) change in tax code to bring in more tax dollars. However, I doubt it. Thus, FED has no option but continues to sacrifice the bond holders for the better of population and elected officials.
2
If US 10-year bonds yield 1.56%, then this represents a P/E ratio of about 64.1, which can easily be computed as follows: P/E = ($100/$1.56) = 64.1 times. With the recent decline in quarterly earnings, I think average forward P/E s are at about 16.4 times. To relate this data to the very important average cost-of- capital for corporations, just take the average interest rate on corporate bonds; and multiply it by [(1 - effective tax rate)], which equals 0.72, computed as follows: [(1 - .28) = 0.72] and weight by its percentage amount of debt outstanding, as a percentage of total stock and bonds outstanding. For example, if average corporate debt cost 2% pretax, its after tax cost would be (0.02 x 0.72 = 0.01440. If debt was about 40% of total corporate equities: then (0.144 x 0.40 = 0.00576, so the cost of debt would be about 0.576%. At a P/E of 16.4, the cost of stock could be estimated as its E/P, or: ($1/$16.4) = 0.061; or 6.1%. So, the average cost of capital would equal: [0.00576 + 0.061(0.60)] = (0.00576 + 0.0366) = 0.04236; or 4.236%. The point is simply that cheap debt leads to higher profits and higher costs of capital for stock. With very cheap debt and the accompanying very high debt P/E s, perhaps this estimate helps to maintain an equilibrium or balance between these two often conflicting indicators. Of course, part of Dr. Yellen's job is to be very concerned about the cost-of-corporate capital, and debt.
[JJL, Th 06/16/2016 11:27 a.m.; Greenville NC]
[JJL, Th 06/16/2016 11:27 a.m.; Greenville NC]
1
Low interest rates is not synonymous with easy money. Please get that right NYTimes. The Fed should target NGDP.
1
It may be old school to say so, but we are in a liquidity trap (bog?). Whether we call it secular stagnation or something else, the facts confirm that monetary policy is not very effective. But before we resort to 'helicopter money' we may just try -- again old school -- stimulus. Especially investment in productive infrastructure ( no bridges to nowhere). By some estimates we are trillions in arrears. Also considering the slowing of productivity growth and the explosion of new technology, we might consider ways to implement the latter to boost the former.
7
I'm surprised by the number of investors here who think the government (the Fed) should guarantee them a return on their savings. Today, there is too much capital chasing too few low risk investment opportunities. The low rates represent the market's judgement about what savings are worth. Don't blame the Fed for that.
I'm also puzzled by the complaints over interest rates when the stock market is up so much since 2009. If people have a proper asset allocation, then they shouldn't be too worried by low interest rates. For those people who can't hold stocks, at least inflation has been low so the real value of cash has not been eroding too quickly. People should be thankful for that. The 1970s were much worse for investors in cash and bonds.
I'm also puzzled by the complaints over interest rates when the stock market is up so much since 2009. If people have a proper asset allocation, then they shouldn't be too worried by low interest rates. For those people who can't hold stocks, at least inflation has been low so the real value of cash has not been eroding too quickly. People should be thankful for that. The 1970s were much worse for investors in cash and bonds.
4
Monetary policy articles really bring out the crazies in the comments section. There is little to no case for raising rates right now, I haven't seen one good data point showing that increased rates would benefit the economy right now. The real irony is that the people who want rate hikes are the same ones who will then be railing against our expanding trade deficit when our currency appreciates. Then they will be getting antsy start trade wars and the economy really will be in trouble. Think manufacturing jobs are tough to come by now? Wait until rate imbalances with ECB BoJ etc make imports 25% cheaper.
When did monetary policy become a matter of values? It seems like many people are morally opposed to low rates even to the extent that they consider it theft from savers. There are lots of places for values and moral judgements in our policy discussion, monetary policy is not one of them.
When did monetary policy become a matter of values? It seems like many people are morally opposed to low rates even to the extent that they consider it theft from savers. There are lots of places for values and moral judgements in our policy discussion, monetary policy is not one of them.
6
There is no inflation in the near term. The economy has changed from a savers economy to a spenders/speculators economy. All this happy talk about wages going up is baloney. A living wage is still hard to find especially when supporting children. A major effort will have to be made by the gov't to get the economy moving for all people. Including steering money away from the Pentagon and raising taxes on the richest. But corporations and the super rich want to control the action and they control both parties. The FED clearly is incapable of managing the country's economic house the gov't must step forward and take the lead.
6
Alan Greenspan started us on this road in order to keep the economy growing supposedly. What he managed to accomplish is to increase the gap between the wealthy and the poor. Historians should look back to his term as Fed Chairman as one guided by shortsightedness and short-term gain at the expense of the long-term interests of the poor and the middle class.
13
It is more and more apparent that no one cares about the people who tried to save and be fiscally responsible as individuals and families. It's all about Wall Street. So--no pensions, no interest on savings, part-time and low-paying jobs for too many people who want jobs more similar to the jobs of old, rising health care costs, poorly made important products that cost way more than they are worth. Social Security and traditional Medicare are the only things holding up the lives of many elderly people, so it is imperative to keep them as is, since it no longer pays to be a saver. It only pays to be on Wall Street.
20
It truly is getting awful for the middle class. The wealthy have their money and the very poor have some government assistance but if you are in the "middle" it's impossible.
1
IMHO, the problem can be traced directly back to globalization of manufacturing and to a lesser extent, services, due to corporate interests to maximize short-term corporate profits over the long-term health of the consumers who would otherwise purchase their products / services. The wealthy, whether that be the 1% or the 10%, cannot sustain a level of demand needed to employ tens of millions of US workers. At a certain point, the needs of the wealthy have been met, while the US working classes cannot afford to live a middle-class lifestyle when forced to compete on wages with workers in Third-world countries.
Congress, in their infinite wisdom, has decided to not invest in rebuilding our aging infrastructure, despite the generational-low costs of borrowing and the need for employment of millions of blue-collar workers. The runaway inflation genie so feared by many of the Serious People of the GOP has yet to show its presence, and the Fed has many tools to manage that situation, should it arise again, as it did in the 1970's.
Congress, in their infinite wisdom, has decided to not invest in rebuilding our aging infrastructure, despite the generational-low costs of borrowing and the need for employment of millions of blue-collar workers. The runaway inflation genie so feared by many of the Serious People of the GOP has yet to show its presence, and the Fed has many tools to manage that situation, should it arise again, as it did in the 1970's.
9
Yes, Jack Welch started a wonderful thing didn't he. And then he sits there patting himself on the back and trying to get people's attention with his pearls of wisdom.
1
Wall Street is addicted to free money and will not let it's puppets - The Federal Reserve Board of Governors raise rates. This is the largest theft in the history of America and no one even talks about it let alone prosecute these criminals.
Do the simple math millions and millions of American Savers are being paid nearly zero on their savings when they used to get a fair return on their money. This is not an abstract idea it is real cash that has been stolen from the American Saver and handed over to Wall Street in the form of practically free money.
Every month we are forced to sit and listen to Janet Yellen give the same speech of lies and pretend the Fed is helping the average American.
Ya know, we fought the American Revolution for a lot less theft than this.
Do the simple math millions and millions of American Savers are being paid nearly zero on their savings when they used to get a fair return on their money. This is not an abstract idea it is real cash that has been stolen from the American Saver and handed over to Wall Street in the form of practically free money.
Every month we are forced to sit and listen to Janet Yellen give the same speech of lies and pretend the Fed is helping the average American.
Ya know, we fought the American Revolution for a lot less theft than this.
20
The Fed continues to steal from savers.
We live in a democracy. Why arent the banks competing to borrow our money and pay us interest?
Why is Wall Street the only group the Fed cares about?
This move is horrible.
We live in a democracy. Why arent the banks competing to borrow our money and pay us interest?
Why is Wall Street the only group the Fed cares about?
This move is horrible.
17
Why would any bank compete for our money? There's money sloshing around in the trillions.
2
President Obama keeps dancing around the elephant in the room. Namely, historically slow growth, a high U6 number, and tens of millions stuck in part-time, low-paying jobs.
And yet, President Obama keeps ignoring the elephant and instead propagates happy-talking no one but partisans believe, about an economy he has helped hobble with Obamacare and his anti-growth environmental policies.
And yet, President Obama keeps ignoring the elephant and instead propagates happy-talking no one but partisans believe, about an economy he has helped hobble with Obamacare and his anti-growth environmental policies.
4
Uh, let's not forget the endless Bush war that was never even put on the balance sheet. I think that hobbled us just a little bit...
5
The New Deal was Marxist! The luxury tax was an unfair burden on the super ric, who then didn't buy luxury yachts.. (no one considered that maybe there was a glut of luxury yachts.. old people selling their's). Housing starts-- give me a break as a sign of a healthy economy?? no just more personal greed.. don' wanna old house, wanna new house. Now we are supposed to feel sorry for strawberry pickers.. give me a break... (a million worse jobs-- picking cotton for one, in a coal mine for another...) This is just left over Greenspan/ Clinton years free- the-banksters nonsense. Raise interest rates already so the little guy get a little bit for saving his moola.. and make it possible for all little guys with an extra 200$ to have a bank account so they can do things like cash cashier's checks.. Typically, we don't know the half of it.. Yes there is no inflation so public servant unions should stop the nonsense with pay raises... (including the unions for various government/ tax-payer paid workers.) Anything else. This is incoherent but no more so than the present policies.
The Fed has stolen the wealth of millions of American savers and retirees, the latter forced to use their principal to live on as the Fed created ZIRP and QE. The rewards of this went to deadbeats, speculators, debtors, owners of commercial real estate, banks and others. A transfer of wealth beyond comprehension. A theft without punishment because some economic professor wanted to try out his theory. And now the bug can't find a windshield to hit. But then they did invent the only business model where banks don't have to pay for what they resell.....$$. Just brilliant.
11
All this quibbling and yet no one wants to face that the Great Recession, wait, wait don't tell me, was really the "D" word. Hello it's almost 10 years later and the economy still sucks for most of the working population.
It's also interesting that the sad story about the family who lost their child at Florida's WDW gets over 430 COMMENTS and anything that addresses our economic welfare gets 21. Go figure...
It's also interesting that the sad story about the family who lost their child at Florida's WDW gets over 430 COMMENTS and anything that addresses our economic welfare gets 21. Go figure...
5
The Fed has become yet another capitalist tool. Pop a bubble? People will stop "making" money. Raise rates? People will stop "making" money. What there is not, is any discussion/backbone/political will among the Fed's Board of Governors to require people actually to "earn" Money - because try explaining that on the first tee or at your Man/Woman of the Year Awards ceremony...
3
ThIs note below was written to investment management colleagues this morning, before reading this column:
"You may recall that some time ago in connection with the FOMC contortions to get out of the straight jacket of ZIRP while keeping to their sensible policy of fact-based decision making, I commented that ".. wishing doesn't make it so." [unless, of course, you are Dorothy or Alice]. I recently commented that there seemed to be a misperception about the role of central banks in a fiat-based economy, i.e., the FED follows the economy, it does not lead it.
That being said, I am a little more sanguine about the acceptance of those realities by the FOMC and Ms. Yellen after reading her statement about rates and current FED policy. Reading between the lines, she seems to indicate that the FED is ready to accept the economic facts of the U.S. and the world economies as they are, not as she and others wish they were. That's a helpful first step.
The capitol of the U.S. is awash in lobbyist dollars, none of them paid by the "meek who will inherit the earth" but by the virulently self-interested. The voices of the timid are drowned out (Harry Reid) by the bold and the loud, no matter how profoundly ignorant they are (M.McConnell/Paul Ryan). The megaphone of the FED should be used to lobby for sensible and constructive fiscal policy as well as advocate monetary policy. Nine years on and counting, Sisyphus, we know one cannot succeed without the other.
"You may recall that some time ago in connection with the FOMC contortions to get out of the straight jacket of ZIRP while keeping to their sensible policy of fact-based decision making, I commented that ".. wishing doesn't make it so." [unless, of course, you are Dorothy or Alice]. I recently commented that there seemed to be a misperception about the role of central banks in a fiat-based economy, i.e., the FED follows the economy, it does not lead it.
That being said, I am a little more sanguine about the acceptance of those realities by the FOMC and Ms. Yellen after reading her statement about rates and current FED policy. Reading between the lines, she seems to indicate that the FED is ready to accept the economic facts of the U.S. and the world economies as they are, not as she and others wish they were. That's a helpful first step.
The capitol of the U.S. is awash in lobbyist dollars, none of them paid by the "meek who will inherit the earth" but by the virulently self-interested. The voices of the timid are drowned out (Harry Reid) by the bold and the loud, no matter how profoundly ignorant they are (M.McConnell/Paul Ryan). The megaphone of the FED should be used to lobby for sensible and constructive fiscal policy as well as advocate monetary policy. Nine years on and counting, Sisyphus, we know one cannot succeed without the other.
2
The Fed's policy is reckless - low rates have been punishing retirees and savers for years - rewarding speculators and borrowers taking billions yearly from average Americans. Estimates of savings lost in this artificially low rate environment are between $750 billion to $1 trillion dollars. The low rate policy is corrupt - it's had devastating effects on the economy. The 'only' benefit of low rates......the interest on our national debt is much lower.....so we continue borrowing. Janet Yellen is inept.
7
There is no demand. If the Fed raises rates, they'll crush what little demand there is. Rock and a hard place....
2
Neil -
The goal of the Fed is not "To take care of the American economy".
It's stable currency and full employment. Period.
It is *not* a stable "rate of inflation". That was never (ever) part of the Fed's mandate and it's a product of intellectually bankrupt Keynesian charlatans. One must point out that one could have a stable 30% rate of inflation. So clearly, the idea of a "stable rate" was never part of the picture.
As such, the Fed has failed hopelessly at their mandate.
Secondly, the Fed utterly failed to learn from history and has now painted itself into a corner. They created a simulacrum of economic growth by lowering interest rates and presiding over the exponential growth of debt and leverage.
Now they are well and truly screwed.
Which brings me to their last point: Re: Your headline.
There is only ONE party that is remotely surprised that raising rates is "hard". And that party is the Fed.
The Fed foolishly believed that their stimulus would magically result in a perpetual-motion machine of organic growth.
That that belief was unsound was apparent long, long ago. Only the Fed kept repeating it because they are terrified bureaucrats who were reared on the false promises of Keynesianism and have hopelessly poor understanding of business, commerce and organic mechanisms of actual growth. They are mandarins. They are central planners. And like the rest of their ilk they will and must logically fail.
Get the popcorn. What comes next is going to be painful.
The goal of the Fed is not "To take care of the American economy".
It's stable currency and full employment. Period.
It is *not* a stable "rate of inflation". That was never (ever) part of the Fed's mandate and it's a product of intellectually bankrupt Keynesian charlatans. One must point out that one could have a stable 30% rate of inflation. So clearly, the idea of a "stable rate" was never part of the picture.
As such, the Fed has failed hopelessly at their mandate.
Secondly, the Fed utterly failed to learn from history and has now painted itself into a corner. They created a simulacrum of economic growth by lowering interest rates and presiding over the exponential growth of debt and leverage.
Now they are well and truly screwed.
Which brings me to their last point: Re: Your headline.
There is only ONE party that is remotely surprised that raising rates is "hard". And that party is the Fed.
The Fed foolishly believed that their stimulus would magically result in a perpetual-motion machine of organic growth.
That that belief was unsound was apparent long, long ago. Only the Fed kept repeating it because they are terrified bureaucrats who were reared on the false promises of Keynesianism and have hopelessly poor understanding of business, commerce and organic mechanisms of actual growth. They are mandarins. They are central planners. And like the rest of their ilk they will and must logically fail.
Get the popcorn. What comes next is going to be painful.
4
They have little choice. There is so much debt that only a massive asset bubble will allow them to raise rates without the economy grinding to a halt.
3
Hard to have a massive bubble when only high end art is selling at increased prices.
1
Well, I think they will because we're only about two years away from returning to normal. Everyone is thinking that can't happen, but the unexpected happens more often than not.
Thanks student loan crisis.
Other than a few bankers and their supporters, there is no support for increasing the cost to borrow money.
1
It's too late to warn the Fed not to drive interest rates down to nothing and hold them there. There is no escape and no margin left for monetary policy to stimulate anything.
4
It's so annoying to me when I read misinformation about Fed policy. The idea that central banks are actually concerned about unemployed workers is insulting and laughable.
This has been smoke and mirrors from the start. You cannot fix a problem created by too much debt and way, way too much reckless speculation with instruments derived from that debt, by issuing more debt and shoveling free money into the piles of the gamblers who took down the house.
For 7 long, deceptive years the Fed has been pumping helium into the financial system, hoping the hole in the ballon would magically fix itself. What do we see? The stock market is at all-time highs with entirely unsustainable valuations. N.Y. real estate prices have exploded past pre-crash levels. Institutional investors have been force-fed cash to inflate new bubbles wherever they could and have partied like it was 1999. Meanwhile, what's happening in Detroit?
Central banks decided to go on a feeding frenzy and are choking. In 2009, the Fed balance sheet was $1.3 trillion. Today, it is over $4.5 trillion. The Fed is leveraged at 78-1. The E.C.B. is obese and needs bypass surgery but they can't stop eating now, not when the Eurozone is on the verge of collapse.
The $555 trillion derivatives market is bursting full of interest rate-related derivatives instruments. That's the time bomb Yellen is sitting on, built with bone-headed Fed and regulatory policy. A return to normalcy will be cataclysmic and is inevitable. Truth helps.
This has been smoke and mirrors from the start. You cannot fix a problem created by too much debt and way, way too much reckless speculation with instruments derived from that debt, by issuing more debt and shoveling free money into the piles of the gamblers who took down the house.
For 7 long, deceptive years the Fed has been pumping helium into the financial system, hoping the hole in the ballon would magically fix itself. What do we see? The stock market is at all-time highs with entirely unsustainable valuations. N.Y. real estate prices have exploded past pre-crash levels. Institutional investors have been force-fed cash to inflate new bubbles wherever they could and have partied like it was 1999. Meanwhile, what's happening in Detroit?
Central banks decided to go on a feeding frenzy and are choking. In 2009, the Fed balance sheet was $1.3 trillion. Today, it is over $4.5 trillion. The Fed is leveraged at 78-1. The E.C.B. is obese and needs bypass surgery but they can't stop eating now, not when the Eurozone is on the verge of collapse.
The $555 trillion derivatives market is bursting full of interest rate-related derivatives instruments. That's the time bomb Yellen is sitting on, built with bone-headed Fed and regulatory policy. A return to normalcy will be cataclysmic and is inevitable. Truth helps.
11
The Fed needs to be more honest and tell they are not going to raise interest rates for the rest of this decade. 2020 at the earliest. Our government cannot pay the interest now, let alone a more historical rate.
5
The US has achieved better economy than the EU or Japan after the financial crisis because of the quick actions of the bank rescue, initial fiscal stimulus and aggressive QE that stopped meltdown of the global financial system and free-fall of the housing market. On the other hand, the EU has sacrificed second-class and rising economies mainly in the southern Europe by the aggressive austerity policy without shame even though they still suffer from over 10% unemployment, continued slow growth that is constantly threatened by deflation. Japan has tried every monetary and fiscal policy, but they have not been able to get out of deflation due to policy confusion. The worst Japan has done is to increase consumption tax rate twice during deflation. On the other hand, American society is dynamic, and the middle/under class people, both conservative and liberal, have revolted against establishment's handling of the economy. It is interesting to watch how the country will change in the next 5 years.
1
If real productive investment is down, and if there are a trillion or more $ looking for income, then supply/demand says there's way more money than can be put to good use so it might as well be free. The obvious solutions are government fixed investment, drawing on this unused money, and so-called "soft" investment, notably education, paid with taxes on the unused trillion. This common sense seems to be anathema to governments, so we muddle on.
3
What is the magic about high inflation. If low inflation is a buzz saw we'll take it. The world is awash with cash. Interest rates are low. D'oh.
4
Good comments, but I think the broad area between low and high inflation is more interesting than the extremes. From what I have read, the rate of inflation is a reasonable probe into the degree of competition by corporations for workers. If unemployment (or underemployment) is high, companies do not need to give raises to their employees. They also can avoid investing in productivity enhancements because they have an oversupply of cheap labor. If it is difficult to find enough workers, companies will have to pay more to get and keep workers. Some part of those higher wages comes from profits, but some goes into higher inflation. In such a climate, it would seem to me that companies should want to invest in productivity enhancements. Finally, if a worker shortage gets really desperate then large wage increases go mostly into ever higher inflation. The current low long-term interest rates represent a bet by experts the world around that we are not going to reach any severe worker shortage for a long time.
Given all that, it makes sense for the Fed to encourage higher inflation for the next few years. I don't think very many responsible economists would advocate for 10% inflation, but many think 2% is at least a bit too low. The private markets are saying that even getting up to 2% is going to be a long haul.
Given all that, it makes sense for the Fed to encourage higher inflation for the next few years. I don't think very many responsible economists would advocate for 10% inflation, but many think 2% is at least a bit too low. The private markets are saying that even getting up to 2% is going to be a long haul.
The Fed has known for years that it would be hard, if not impossible, to extricate itself from its easy money policy without creating havoc. The Fed thought it could smooth natural economic cycles by toying with monetary policy. Instead, it foolishly painted itself in a corner because this is how they think:
http://investmentwatchblog.com/how-the-federal-reserve-thinks-by-a-fly-o...
http://investmentwatchblog.com/how-the-federal-reserve-thinks-by-a-fly-o...
3
@times
Houston, TX
Er...there is no havoc and the Fed has largely achieved the recovery in the face of Republican opposition to some fiscal stimulus. It has smoothed the cycle. The S&P is nearly three times the level it fell to in early 2009. Want to go back to that do you?
Houston, TX
Er...there is no havoc and the Fed has largely achieved the recovery in the face of Republican opposition to some fiscal stimulus. It has smoothed the cycle. The S&P is nearly three times the level it fell to in early 2009. Want to go back to that do you?
3
@John The anemic economic recovery since 2009 is one of the weakest in U.S. history despite the Fed's protracted ZIRP along with several QE programs. The rise in the S&P is directly correlated to the expansion of the Fed's balance sheet, which clearly shows that the Fed's money printing is artificially fueling the rise in the stock market. The Fed has put its heavy thumb on the scale of supply and demand in our marketplace disrupting fair price discovery. The Fed now finds itself stuck in a trap of its own design and can't find the will to raise rates without fear of crashing the economy and the stock market. People are losing confidence that the Fed knows what it is doing. Let free markets determine interest rates and let the markets determine the fair price of assets without heavy-handed interference from the Fed. That is how a capitalist system like ours is supposed to function.
3
@times
Houston, TX
It's been sluggish because it was a recovery from just about the greatest balance sheet recession in history. In fact according to This Time is Different (an exhaustive examination of every banking crisis and recession for the last 200 years but a book I doubt you've ever read) it's actually been quicker than most. Free markets have never determined interest rates ever since central banking came into existence. In fact the management of credit was the principal reason they came into existence. The Fed doesn't need to raise rates. The CPI is at 1%. Even core is only at 2.2%. And as this article makes clear the economy is doing pretty well. If it's not broke don't fix it.
Houston, TX
It's been sluggish because it was a recovery from just about the greatest balance sheet recession in history. In fact according to This Time is Different (an exhaustive examination of every banking crisis and recession for the last 200 years but a book I doubt you've ever read) it's actually been quicker than most. Free markets have never determined interest rates ever since central banking came into existence. In fact the management of credit was the principal reason they came into existence. The Fed doesn't need to raise rates. The CPI is at 1%. Even core is only at 2.2%. And as this article makes clear the economy is doing pretty well. If it's not broke don't fix it.
1
Low interest rates have not stimulated demand because consumers are afraid of another meltdown like 2008. Nothing has been done to correct the situation. There is still too much money in the hands of a few speculators. Wages are not keeping pace with rapidly escalating living costs. Free trade has devastated the American middle class and now it is a race to the bottom for the value of labor. The cost of living index is artificially low and does not reflect how consumers actually spend their income. It's all a shell game that is designed to keep people from panicking.
11
You want to see why companies are not growing and hiring. Just look at activist investors like Carl Icahn. He buys enough stock in a company that the board of directors have to give him a say in the company's operations. He buys in because the company has a good cash reserve. He then has the company buy back stock taking it out of circulation raising the price, he sells at the higher price. Activist investors are short term investors, the take money out of a company that should be used to grow the company, improve the product, hire workers.
He and his ilk are multi billionaires, they can not spend all that money, they just want it. They are one major reason the economy is so slow in growing.
He and his ilk are multi billionaires, they can not spend all that money, they just want it. They are one major reason the economy is so slow in growing.
18
Short term investors that manipulate companies for short term profits (such as Bain / Romney, who loaded firms with debt, under funded pensions, and sold them off, leaving the government PBGC and retirees holding the bag - ripped off) are indeed a scourge.
But they don't stop companies from expanding capacity in today's business climate. A lack of customer orders is what is doing that - lack of demand, plain and simple. Give an industry or company some customers waving cash for orders, and businesses will move heaven and earth to get their hands on that profit - including training workers if necessary.
Supply side issues that you describe, are characterized by shortages, and rapidly rising prices of whatever is in short supply, be that labor, land, commodities - whatever. We haven't seen those kind of shortages for decades, because we have had a chronic lack of demand for decades. Sure, there was the late 1990's stock bubble (temporary boost in demand from over investing in tech supply capacity), followed by a huge bust. Employment of 2000 peak wasn't recovered till 2005, and took the housing bubble fueled by borrowing - which *still* didn't cause wage inflation.
Dramatically higher wages are needed to increase demand, and allow workers to each work fewer hours, for *sustainable* demand - not based on temporary borrowed funds. Pushing from the supply side is misguided, and results in malinvestment.
But they don't stop companies from expanding capacity in today's business climate. A lack of customer orders is what is doing that - lack of demand, plain and simple. Give an industry or company some customers waving cash for orders, and businesses will move heaven and earth to get their hands on that profit - including training workers if necessary.
Supply side issues that you describe, are characterized by shortages, and rapidly rising prices of whatever is in short supply, be that labor, land, commodities - whatever. We haven't seen those kind of shortages for decades, because we have had a chronic lack of demand for decades. Sure, there was the late 1990's stock bubble (temporary boost in demand from over investing in tech supply capacity), followed by a huge bust. Employment of 2000 peak wasn't recovered till 2005, and took the housing bubble fueled by borrowing - which *still* didn't cause wage inflation.
Dramatically higher wages are needed to increase demand, and allow workers to each work fewer hours, for *sustainable* demand - not based on temporary borrowed funds. Pushing from the supply side is misguided, and results in malinvestment.
7
One other point regarding a chronic lack of demand in the economy: It leaves us more vulnerable to bubbles. If, at the start of the housing bubble, we had full employment, and full utilization of supply side capacity, the extra temporary (debt fueled) demand of the housing bubble, would have quickly caused shortages and inflation - which would have led the FED to raise interest rates, nipping the housing bubble before it got to such huge and economy-destabilizing proportions.
The other enabler of the housing bubble, was the deregulation allowing the risk of obviously risky loans to be foisted onto those "least able to understand that risk".
But these housing bubble related activities were all very profitable to well connected people in the finance industry, whose interests have long been put first, leaving the economy as a whole to become completely dysfunctional.
FDR's New Deal gave us the best economy the world had ever seen - and maybe the pro-demand policies of that era went just a bit too far ahead of the supply capacity of the day.
But in response to the inflation of the 1970's, the lesson of the depression and the New Deal response of pro-demand policy seems to have been completely forgotten, and bankers given veto power - not only over the economy, but over the entire conversation about the economy in our media.
The other enabler of the housing bubble, was the deregulation allowing the risk of obviously risky loans to be foisted onto those "least able to understand that risk".
But these housing bubble related activities were all very profitable to well connected people in the finance industry, whose interests have long been put first, leaving the economy as a whole to become completely dysfunctional.
FDR's New Deal gave us the best economy the world had ever seen - and maybe the pro-demand policies of that era went just a bit too far ahead of the supply capacity of the day.
But in response to the inflation of the 1970's, the lesson of the depression and the New Deal response of pro-demand policy seems to have been completely forgotten, and bankers given veto power - not only over the economy, but over the entire conversation about the economy in our media.
9
I feel exactly the same way. It is idiotic how Janet Yellen keeps wondering why growth has been so anemic despite interest rates near zero. Has she forgotten that supply is NOTHING without demand? Stimulate demand by cutting taxes on the middle class consumers and raising them on the Investor class that is awash in money that it can't possibly spend. What gives? This isn't rocket science. It has to be corruption.
1
Putting off raising interest rates to create easy money for investing means the FED will have no tools to use with the next financial crisis. They keep kicking the can down the road, with negative interest rates looming abroad.
Meanwhile, the middle-class continues to lose money in savings accounts that get interest at a rate less than the rate of inflation, while their salaries have been stagnant for 30 years.
The game continues to be stacked, with a dim future.
Meanwhile, the middle-class continues to lose money in savings accounts that get interest at a rate less than the rate of inflation, while their salaries have been stagnant for 30 years.
The game continues to be stacked, with a dim future.
24
The middle class has a lot more debt than savings, therefore, low interest rates are good for the middle class and high interest rates are bad. I don't get the idea that somehow low rates are good for investors. They're looking for a high rate of return on their investments, i.e. high interest rates.
This is killing retirees and those approaching retirement.
When I turn 70 1/2, I MUST withdraw 4% of my sheltered assets annually, which would be fine with normal interest rates. But with current rates? Financial suicide. And inflation continues while savings do not grow.
I have yet to hear a membership of the Fed, etc., talk about this coming crisis, let alone propose remedies.
When I turn 70 1/2, I MUST withdraw 4% of my sheltered assets annually, which would be fine with normal interest rates. But with current rates? Financial suicide. And inflation continues while savings do not grow.
I have yet to hear a membership of the Fed, etc., talk about this coming crisis, let alone propose remedies.
25
Seems like the whole world is waiting for US baby boomers to die off and decrease the surplus population.
2
I agree. The continuation of financial repression against savers for the financial benefit of financial speculators is criminal. Unfortunately, the financial class has hijacked the economy and any time the FED meets to consider raising rates, the speculators act through short-term price manipulation to scare the FED bankers into keeping rates low to ward off a recession or a market meltdown on their watch. Where is Paul Volker when you need him?
8
Unless we find a mountain of silver like the Spanish did in Peru, we will simply inflate our way out when all other options end. Not a very elegant solution and very painful, but a tried and true remedy. It will do the job and we can start the cycle again.
3
Good luck generating that mythical inflation with no demand....
From Dean Baker:
"The recent news reports make it sound like the problem is that the Fed can't raise interest rates, as though this is a goal in itself. The real point is that we should want to see a strong economy in which it might be necessary for the Fed to raise interest rates to prevent overheating. The fact that the economy is not stronger means that people are unable to get jobs, or full-time jobs, or jobs that fully utlilize their skills.
It also means that we are foregoing an enormous amount of potential output."
http://cepr.net/blogs/beat-the-press/
We have had chronic lack of demand for decades, caused by real wages falling far behind productivity growth over those decades.
Surely the bankers in control of our economy know this.
But banker friendly presidential candidates and banker friendly media consistently fail to even mention the possibility that we could reinstate New Deal policies to increase demand, or even acknowledge the chronic lack of demand. A chronic excess of supply and lack of demand is made obvious by *decades* of historically low interest rates, low wages, high unemployment, and cheap commodities - punctuated by temporary bubble peaks in demand.
But, the issue is always framed as: Are we nearly at inflation? Or hyperinflation?" Rubbish. We need serious and sustained pro-demand policy.
"The recent news reports make it sound like the problem is that the Fed can't raise interest rates, as though this is a goal in itself. The real point is that we should want to see a strong economy in which it might be necessary for the Fed to raise interest rates to prevent overheating. The fact that the economy is not stronger means that people are unable to get jobs, or full-time jobs, or jobs that fully utlilize their skills.
It also means that we are foregoing an enormous amount of potential output."
http://cepr.net/blogs/beat-the-press/
We have had chronic lack of demand for decades, caused by real wages falling far behind productivity growth over those decades.
Surely the bankers in control of our economy know this.
But banker friendly presidential candidates and banker friendly media consistently fail to even mention the possibility that we could reinstate New Deal policies to increase demand, or even acknowledge the chronic lack of demand. A chronic excess of supply and lack of demand is made obvious by *decades* of historically low interest rates, low wages, high unemployment, and cheap commodities - punctuated by temporary bubble peaks in demand.
But, the issue is always framed as: Are we nearly at inflation? Or hyperinflation?" Rubbish. We need serious and sustained pro-demand policy.
39
Re: " media consistently fail to even mention the possibility that we could reinstate New Deal policies "
Haven't you listened to Sanders ?
Sadly , he was disparaged not only by bankers but by a "conscience of a liberal" economist.
Haven't you listened to Sanders ?
Sadly , he was disparaged not only by bankers but by a "conscience of a liberal" economist.
26
And sadly we couldn't get Bernie in, who would have fearlessly done whatever was needed.
1
It's spelled P-O-N-Z-I...
The Fed's only exit plan is to extend-and-pretend to have a way out of the bond market corner they've engineered, something I've been saying ever since 2008.
ZIRP is a market doomsday device.
None of this is a surprise to anyone who truly understands monetary history and markets.
Here's how it plays out: The Fed keeps pyramiding debt until the markets take away their money machine.
When will that be?
Only the people can decide how much pain they're willing to endure before shutting down the extant regime.
The political environment is getting more volatile by the day, so my guess is that something will happen within the next few years.
Timing markets is hard to do...
The Fed's only exit plan is to extend-and-pretend to have a way out of the bond market corner they've engineered, something I've been saying ever since 2008.
ZIRP is a market doomsday device.
None of this is a surprise to anyone who truly understands monetary history and markets.
Here's how it plays out: The Fed keeps pyramiding debt until the markets take away their money machine.
When will that be?
Only the people can decide how much pain they're willing to endure before shutting down the extant regime.
The political environment is getting more volatile by the day, so my guess is that something will happen within the next few years.
Timing markets is hard to do...
20
Explain more, please.
This is from the end of the section of sectoral balances in Wikipedia:
"...budget surpluses remove net savings; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Hence, continual budget deficits are necessary for a growing economy that wants to avoid deflation.
...
Economist Richard Koo described similar effects for several of the developed world economies in December 2011: "Today private sectors in the U.S., ... are undergoing massive deleveraging [paying down debt rather than spending] in spite of record low interest rates. This means these countries are all in serious balance sheet recessions. ... With borrowers disappearing and banks reluctant to lend, it is no wonder that, after nearly three years of record low interest rates and massive liquidity injections, industrial economies are still doing so poorly. Flow of funds data for the U.S. show a massive shift away from borrowing to savings by the private sector since the housing bubble burst in 2007. The shift for the private sector as a whole represents over 9 percent of U.S. GDP at a time of zero interest rates. Moreover, this increase in private sector savings exceeds the increase in government borrowings (5.8 percent of GDP), which suggests that the government is not doing enough to offset private sector deleveraging."
And the federal deficit has decreased since this was written making conditions even worse.
"...budget surpluses remove net savings; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Hence, continual budget deficits are necessary for a growing economy that wants to avoid deflation.
...
Economist Richard Koo described similar effects for several of the developed world economies in December 2011: "Today private sectors in the U.S., ... are undergoing massive deleveraging [paying down debt rather than spending] in spite of record low interest rates. This means these countries are all in serious balance sheet recessions. ... With borrowers disappearing and banks reluctant to lend, it is no wonder that, after nearly three years of record low interest rates and massive liquidity injections, industrial economies are still doing so poorly. Flow of funds data for the U.S. show a massive shift away from borrowing to savings by the private sector since the housing bubble burst in 2007. The shift for the private sector as a whole represents over 9 percent of U.S. GDP at a time of zero interest rates. Moreover, this increase in private sector savings exceeds the increase in government borrowings (5.8 percent of GDP), which suggests that the government is not doing enough to offset private sector deleveraging."
And the federal deficit has decreased since this was written making conditions even worse.
18
Who needs low rates? Private equity firms and others who have borrowed too much. For the rest of us, the Fed's policy ceased to be helpful years ago. Janet Yellen only seems to be interested in bailing out the banks.
16
Right now, 32% of the US population is 50 or older. These people have all the possessions they need, and are looking to downsize and save for retirement, if they are not retired already.
In ten or fifteen years, the 50-plus population will be as high as 40%. This will make any sort of significant growth almost impossible.
In ten or fifteen years, the 50-plus population will be as high as 40%. This will make any sort of significant growth almost impossible.
25
All US citizens over 50 have all the possessions they need? Jonathan, you need to get out more.
1
@Glassyeyed - Economics deals in general cases, and in groups of people numbering in the ten millions. Overall, there is a surplus of possessions among the over-50s. Those who want to move to smaller places after their kids have grown up and moved out have difficulty disposing of surplus furniture, china, and glassware.
Yellen has one excuse after an other. Unemployment too high, too low, not enough wind in Yucca Valley, Too much wind in DC, --it goes on.
I suspect that the real reason is that the US government is so deep in hock that any increase in rates would put us in serious trouble. Any economists out there willing to figure what our debt would be if interest rates inches up to 1%?
Once again, I sy we should split the FED and have someone deal with unemployment figures, and one deals with the money but 1 group working with both can easily play one against the other and we, the little savers of the world are going to take it in the shorts--every time.
I suspect that the real reason is that the US government is so deep in hock that any increase in rates would put us in serious trouble. Any economists out there willing to figure what our debt would be if interest rates inches up to 1%?
Once again, I sy we should split the FED and have someone deal with unemployment figures, and one deals with the money but 1 group working with both can easily play one against the other and we, the little savers of the world are going to take it in the shorts--every time.
10
Commenter: It is also a back door means of doing away with Social Security as the Fed lies about inflation thus rendering lower c.o.l.a. increases to recipients of the program they have paid into their entire working lives. If you are a self employed individual in a small business this can mean twelve percent off the top. That The S.S. Fund has been raided for years is an open secret and I would guess this is part of the reason for wishing to continue the big lie of no inflation which none of the economists such as Dr. K. are able to reconcile in plain English as to why stuff costs more if there is no inflation. We will continue to lurch from one fed induced bubble to the next until the whole system implodes. For a more balanced discussion I suggest reading Henny Sender @ The Financial Times, she has long addressed the folly of Americas monetary policy.
15
Well, Ted, how righteous of you to say this! Yet, you really need to tell us exactly when you think we in the US should have stopped the folly, taken our medicine, and suffered accordingly. And whether you or anyone else could have gotten consensus from the various US stakeholders to do this. We all know this is a kick the can down the road scenario, which is a different way to express the lurch from bubble to bubble idea. But we in the US have certainly become addicted to spending vastly too much ever since the 1960's when we simultaneously bought a huge space program, a set of huge social programs, and a Vietnam war. Some say the can started to be kicked then. The important fact is not that it is a folly, or that it is inherently risky, but how exactly do we stop the folly now? Because the past is gone, Ted.
The Fed has lost all credibility. Monetary policy has become irrelevant for the real economy. All they are doing is inflating asset prices which will soon come back to bite us as financial engineering has taken the place of civil engineering. Is it any wonder that productivity growth has collapsed.
40
Oh, the unintended consequences of QE, commenced by the Fed, later followed by the ECB and BOF. Once QE has generated a speedy enough recovery, senior officials at the Fed argue, there is no reason not to raise rates as in normal times.
From the Economist Jan2nd, 2016
"If the Fed is right, 2016 will be a rosy year for the American economy. The central bank expects growth to accelerate and unemployment to keep falling even as it lifts rates to 1.5% or so by the end of the year. Yet markets reckon that is wildly optimistic, and that rates will remain below 1%. That is where the other two explanations come in."
"If this (the third of three) story is the right one, the outcome of the Fed’s first rises will seem unremarkable. Growth will weaken slightly and inflation will linger near zero, forcing the Fed to abandon plans for higher rates. "
As in the soccers apprentice: Tired of fetching water by pail, the apprentice enchants a broom to do the work for him – using magic in which he is not yet fully trained. The floor is soon awash with water, and the apprentice realizes that he cannot stop the broom because he does not know how.
From the Economist Jan2nd, 2016
"If the Fed is right, 2016 will be a rosy year for the American economy. The central bank expects growth to accelerate and unemployment to keep falling even as it lifts rates to 1.5% or so by the end of the year. Yet markets reckon that is wildly optimistic, and that rates will remain below 1%. That is where the other two explanations come in."
"If this (the third of three) story is the right one, the outcome of the Fed’s first rises will seem unremarkable. Growth will weaken slightly and inflation will linger near zero, forcing the Fed to abandon plans for higher rates. "
As in the soccers apprentice: Tired of fetching water by pail, the apprentice enchants a broom to do the work for him – using magic in which he is not yet fully trained. The floor is soon awash with water, and the apprentice realizes that he cannot stop the broom because he does not know how.
10
Stagnation due to extreme inequality. This is the reality that the USA and many other nations are facing.
The incredible increase in the share of the wealthiest over the past generation has come at the price of stagnating or decreasing wealth to almost everyone else. Is it any surprise that the economy seems "stuck" when most people have little money to buy with and those who are rich have more than enough stuff and focus on "return on investment".
Without another bubble to create the illusion of extra money--and hopefully there is sufficient recent experience with the downside of bubbles--on what real basis is the economy supposed to grow?
The incredible increase in the share of the wealthiest over the past generation has come at the price of stagnating or decreasing wealth to almost everyone else. Is it any surprise that the economy seems "stuck" when most people have little money to buy with and those who are rich have more than enough stuff and focus on "return on investment".
Without another bubble to create the illusion of extra money--and hopefully there is sufficient recent experience with the downside of bubbles--on what real basis is the economy supposed to grow?
60
The US economy would grow if, to take on just one example , Ford would build its $ 1.6 billion plant in the US rather than, as announced, in Mexico.
Globalist would argue that the gains from selling US manufactured goods abroad out weights this - but this is clearly not the case in our trade with Mexico.
Globalist would argue that the gains from selling US manufactured goods abroad out weights this - but this is clearly not the case in our trade with Mexico.
14
Yes, you are right. And guess what contributed to this extreme inequality? The Fed's own actions since 2008..........QE 1,2,3, and ZIRP. All those things accomplished were to artificially inflate the stock market (so that those invested there, primarily the upper class, made even more money). Meanwhile, those of us who have little or no money in the stock market are still faced with flat (or declining) wages for years now, so we struggle from paycheck to paycheck, barely getting by. History will show that the Fed's actions over the last 8 years or so were a huge contributor to the stagnant economy that we now find ourselves in. And this is nowhere near ending.........this situation could go on for a long time, and will probably get even worse.
1
I say, forget the presidential election, we need to clean out Congress. They really have been "do nothing" and for political reasons of their own have let their constituents suffer. We should have invested in infrastructure, employment tariffs, etc. ages ago but thanks to Congress trying to make things so bad for us that we'd all run over and vote Republican we are all suffering now. Well, now they have Trump, what goes around comes around. I can't wait to get into the voting booth this year.
1
We need to find a way to generate wealth that does not require the mass production and consumption of goods and services by means of great industrial facilities. This kind of economy stops growing fast enough to support high rates of growth if the ability of the consumers of these products to buy a lot more is not continually increasing. It does no good to offer cheaper goods and services unless the consumers need and can buy more and more of these goods. Just take the 80% to 90% of the population who are not prospering out of the economy. Shut down the factories which sell them goods and only keep the factories that make high end products which the very wealth ever buy and use them as the primary wealth generators. The economy will be a lot smaller but it will be more dynamic. The alternative is so much more horrible to contemplate, higher taxes and public works to redistribute wealth to generate a more dynamic overall economy -- the horror, the horror. Reagan and the supply siders were wrong, pay attention.
6
Interesting you mention "It does no good to offer cheaper goods and services unless the consumers need and can buy more and more of these goods." I just returned from China and let me tell you all they do is WINDOW SHOP, I didn't see lots of buying going on. The Chinese are waiting for us, the US, to buy their stuff and as you say, consumers here really don't need or want all that crap anymore. Hence the "Tiny House" trend.
The Fed and other central banks have a mandate to manage the economy, the problem is that they were asleep at the switch when economic bubble grew beyond the ability to manage its potential destruction of the global economy.
I often wonder what would happen if we stopped Fiat currencies from printing like central banks were Pez dispensers? The biggest joke of all is the 4.7% unemployment figure in the US. That's like counting bankers in states or countries that only begin with B or S. (Yes that was intentional)
We've turned a corner in human development and quite frankly these old geezer banksters really have no clue what's coming next.
Time for some new economic innovations in the globalized world and reengineering the current global banking system should be seriously discussed in the sunlight. (Just keep the UN out of it)
I often wonder what would happen if we stopped Fiat currencies from printing like central banks were Pez dispensers? The biggest joke of all is the 4.7% unemployment figure in the US. That's like counting bankers in states or countries that only begin with B or S. (Yes that was intentional)
We've turned a corner in human development and quite frankly these old geezer banksters really have no clue what's coming next.
Time for some new economic innovations in the globalized world and reengineering the current global banking system should be seriously discussed in the sunlight. (Just keep the UN out of it)
14
Ron with a large trade deficit taking money out of the country. how would we provide enough money to support a growing economy if we did not print it? The only other place to get money is by borrowing from banks, and 2008 was a great lesson in where that leads (as was 1929).
6
It's going to take economic innovations or we'll have to wait for Jefferson's quote that "a little rebellion now and then is a good thing " to come to fruition. Because it's getting to that point..
Yeah, the markets are right. See Krugman's blog. Err on the side of no raise in rates. You can slay inflation when that beast is sitting in your lap. The dragon of drag (no demand, sluggish economies around the world) is the more fearsome beast right now.
16
Consider the possibility that zirp, though initially inflationary, has turned deflationary. Imagine you get a credit card and go on a spending spree. Short-term, your life looks more prosperous. Longer term, what happens? You eventually run out of credit.
Governments that have their own currencies do not have a technical credit limit, but the real economy imposes a variety of limits on markets that are independent of the monetary metrics. Money can move financial markets but it is inherently limited in its real economic scope.
Cheap credit is not a panacea.
All said, I do not want the Fed to raise interest rates. I want the Fed to stop buying bonds and let where rates go where they're going to go without government intervention and market manipulation.
Bottom line: If the Fed cannot forecast the economy - and, make no mistake, they've consistently failed to forecast growth accurately - then the Fed has no business setting interest rates.
Governments that have their own currencies do not have a technical credit limit, but the real economy imposes a variety of limits on markets that are independent of the monetary metrics. Money can move financial markets but it is inherently limited in its real economic scope.
Cheap credit is not a panacea.
All said, I do not want the Fed to raise interest rates. I want the Fed to stop buying bonds and let where rates go where they're going to go without government intervention and market manipulation.
Bottom line: If the Fed cannot forecast the economy - and, make no mistake, they've consistently failed to forecast growth accurately - then the Fed has no business setting interest rates.
14
With no safe earnings from cash, people expect what they have will have to last the rest of their lives.
zirp wipes out the time value of money. That is why it freezes money in place.