It must be a dark day when Prof. Krugman finally has to admit publicly that powerful entrenched political and financial interests trumps closely held economic theory.
(Just so you know, Professor, I've always been on your side. I wish that the system worked in the wonderfully egalitarian way that you see things. But even the average person can see that there are more forces at work trying to game the system in their favor. It's human nature. Unfortunately.)
(Just so you know, Professor, I've always been on your side. I wish that the system worked in the wonderfully egalitarian way that you see things. But even the average person can see that there are more forces at work trying to game the system in their favor. It's human nature. Unfortunately.)
22
If the bankers had their way they would borrow from the fed at 1% and charge 26% with virtually no risk and all profit. Too bad that we have to worry about such things as the economy. The banks sole interest is their own bottom line.
38
Next excuse to be offered by reactionary economist shills: "All the inflationary pressure is... being absorbed by the stock market. Yeah, that's the ticket! 'Absorbed by the stock market' sounds good, right?"
5
Dr. K,
Is it your belief that Yellen is being assimulated by the "Borg" bankers? I know that sitting in an echo chamber can make someone deaf to other voices. It seems we need to get some non-bankers on the Fed.
Is it your belief that Yellen is being assimulated by the "Borg" bankers? I know that sitting in an echo chamber can make someone deaf to other voices. It seems we need to get some non-bankers on the Fed.
7
So, a housing bubble is a sign of economic apocalypse, but a stock market bubble warrants off-handed dismissal? And, anyway, why is it that it's only bubbles that give us any growth in the economy?
15
Sorry Paul all your argument proves is that keeping rates low will not effect inflation, not cause and effect, and that ZIRP and QE has benefited the rich, which is undeniable, but not not the rest whose wages are stagnant at best. The Fed supposedly has a dual mandate, and it seems like they have failed on the jobs side, if wage growth means more than everyone having a low paying job to nowhere with no benefits
"the Fed talks a lot to bankers..." I was under the impression that the Fed was made up of 12 big banks, so of course they talk to bankers, they are a bank full of bankers talking to themselves.
"the Fed talks a lot to bankers..." I was under the impression that the Fed was made up of 12 big banks, so of course they talk to bankers, they are a bank full of bankers talking to themselves.
15
The banking industry is still charging double digit interest rates on credit card balances while paying depositors basis points in interest. How much margin do they need?
71
As usual Mr. Krugman gives us only a partial view.
In particular, he disregards the plight of savers who get next to no interest on their CD's etc.
But then, savers are his enemy anyway. His incessant plea for more inflation shows how little he cares that life savings would be eroded in very little time.
This is not a critique of low interest rates in general, just an expose of Mr. Krugman's blinders-on thinking.
In particular, he disregards the plight of savers who get next to no interest on their CD's etc.
But then, savers are his enemy anyway. His incessant plea for more inflation shows how little he cares that life savings would be eroded in very little time.
This is not a critique of low interest rates in general, just an expose of Mr. Krugman's blinders-on thinking.
17
we are on the edge of deflation. Look at oil and gas. The rest of the world is in recession or worse. Look at China, Japan Russia and Europe. Now Australia is ready to slip under the waves. So. We are the only place with our heads above water. You really want to raise the water in the pool? There are worse things than a low interest FDIC bank account.
34
Someone once wrote "the Elite's want what they have always wanted. Everything.'
29
Bob Dylan "They want it all and they want it their way".
14
This is a good, informative article with a nice quote from John Ford's "Stagecoach." While the banker is absconding with his banks funds he tells the other passengers that the government should not try to regulate banking because "What's good for the banks is good for the country."
13
Quote from "Mr Robot" Give a man a gun and he can rob a bank. Give a man a bank and he can rob the world.
51
Give a government a central bank, with government-appointed central bankers, and a government can ruin its people, its economy, its banks, and then the world.
So much for quotes from a fictional character in an anti-capitalist TV series.
So much for quotes from a fictional character in an anti-capitalist TV series.
6
Krugman instead of being so blinded with rage against bankers that he even concerns himself with their tailors forgets the borrowers. John Kenneth Galbraith, in “Money: Whence it came where it went” 1975, wrote: “The function of credit in a simple society is, in fact, remarkably egalitarian. It allows the man with energy and no money to participate in the economy more or less on a par with the man who has capital of his own.” And so Krugman keeps blithely ignoring that the pillar of current regulations, the credit risk weighted capital requirements for banks, is as anti-egalitarian as regulations come.
http://subprimeregulations.blogspot.com/2014/10/janet-yellen-are-you-rea...
http://subprimeregulations.blogspot.com/2014/10/janet-yellen-are-you-rea...
1
Clearly, or at least if one takes the comments seriously, it all depends on whose ox is being gored, now doesn't it. Those who want to get rich off others labors hate low interest rates. Usury used to be a sin. Now it's treated as a virtue by all the would be shylocks. hummm? But I do agree that the rational gymnastics of the shylocks are impressive. Too bad they can't turn all that creativity to making something useful for everyone instead of theft.
p.s. In the years that interest rates have languished, anyone with their $$ in a simple low fee index fund, which is investing for dummies, has done pretty well.
p.s. In the years that interest rates have languished, anyone with their $$ in a simple low fee index fund, which is investing for dummies, has done pretty well.
14
Only rich are benefiting from the low rates right now. They can borrow at low rates and invest into risky endeavors while we cannot. Bond prices are high and guess what, who is holding them? Not me for sure. At the same time saving are gone to nothing for the middle class and working people. It is a win-win for the rich since if the rates will go up, they sell bonds at high prices and reinvest in something else, while we are going to be stuck. Rising rates at least would help the savors like you and me.
54
Is inflation low because wage growth is flat?
3
As George Brockway wrote 25 years ago, bankers make money on what amounts to a cost of living allowance based on perceived inflation risk: https://gpbrockway.wordpress.com/2013/02/05/bankers-have-the-classic-cola/
The cost to the economy of this is (well, I'm certain it was when he wrote about it) higher than the deficit... It's a long standing, big deal.
The cost to the economy of this is (well, I'm certain it was when he wrote about it) higher than the deficit... It's a long standing, big deal.
1
How can there be quantative easing, and not inflation?
1
If the economy is as weak as you think it is, then people who argue for a rate hike would experience a bond market rally as the economy forecasts a slowdown. This would flatten (or even invert) the yield curve, which means net interest margins would fall. So that argument doesn't hold water.
Inflation over the past 30 years has been a case of "too much money chasing too few assets" not "too much money chasing too few goods." And when you consider entities like Petrobras are able to issue 100 year bonds below 7%, you can make a strong case that you are in the midst of a credit bubble.
But, no Paul. It isn't a case of greedy nefarious bankers twirling their mustaches in a cigar smoke - filled room trying to make sure poor people can't get a job. They do see people taking insane risks to get yield when interest rates are held down artificially. We already know how that movie ends.
Inflation over the past 30 years has been a case of "too much money chasing too few assets" not "too much money chasing too few goods." And when you consider entities like Petrobras are able to issue 100 year bonds below 7%, you can make a strong case that you are in the midst of a credit bubble.
But, no Paul. It isn't a case of greedy nefarious bankers twirling their mustaches in a cigar smoke - filled room trying to make sure poor people can't get a job. They do see people taking insane risks to get yield when interest rates are held down artificially. We already know how that movie ends.
3
We need to create a new economic system that will work toward solving the problems that we face rather than one designed to please and cater to the richest people in the world.
Most countries have a few people at the top who have most of the money with everyone else trying to get by. And too many at the top are gaming the system with methods that harm or do little for the rest.
This needs to change.
Most countries have a few people at the top who have most of the money with everyone else trying to get by. And too many at the top are gaming the system with methods that harm or do little for the rest.
This needs to change.
11
What's good for bankers is bad for us. Thanks Fed.
7
"just follow the money" is the financial/economics analogue to asking whose ox is being gored.
Nothing new here, folks. Move on, please...
Nothing new here, folks. Move on, please...
1
Every time I admire my steady .01% interest, I thank God the well dressed bankers are displaying their "public interest."
HOORAH!
HOORAH!
5
I voted for Obama twice, yet he is the one who bailed out the banks and let main street go under. I am disappointed, to say the least. Bernie Sanders is our authentic hope.
9
You correctly wrote:
"But bankers are different from you and me: they have a lot more influence. Monetary officials meet with them all the time, and in many cases expect to join their ranks when they come out on the other side of the revolving door."
But there also is the election cycle. Bankers are usually Republicans. Over the 100 years of election cycles the Fed has favored Republicans.
"But bankers are different from you and me: they have a lot more influence. Monetary officials meet with them all the time, and in many cases expect to join their ranks when they come out on the other side of the revolving door."
But there also is the election cycle. Bankers are usually Republicans. Over the 100 years of election cycles the Fed has favored Republicans.
1
just got my checking account bank statement: "monthly maintenance fee" = $17.95, interest paid $ 0.01! for what, it's my goddam money.
4
Your bank loves you! Return the love.!
1
Dear Mr. Krugman:
A few weeks back I wrote a comment to your column imploring you to take a different approach to discussing the Republican debacle of economic policy, and you have responded (I hope I was at least a little influential), although, only indirectly today.
There is nothing like an "aha" moment. Suddenly the clouds are gone and one can see clearly to the horizon. Your article today explains a lot: The motives of those who stand to profit will clamor for reforms to that end, no matter what.
I think you've hit the nail on its head. In the absence of any data-driven reasoning, banker-led profit logic is driving the need for rate hikes. Voila!
A few weeks back I wrote a comment to your column imploring you to take a different approach to discussing the Republican debacle of economic policy, and you have responded (I hope I was at least a little influential), although, only indirectly today.
There is nothing like an "aha" moment. Suddenly the clouds are gone and one can see clearly to the horizon. Your article today explains a lot: The motives of those who stand to profit will clamor for reforms to that end, no matter what.
I think you've hit the nail on its head. In the absence of any data-driven reasoning, banker-led profit logic is driving the need for rate hikes. Voila!
6
The chief economist at the bank of england recently speculated they may have to ban cash in order to prop up the economy. A rational person would say. To have to do something to prop up the economy that has never had to be done in the history of the world means the systtem is broken. Yet economists and central bankers don't question their economics assumptions or foundations. That makes so sense to me. what I see is PK (and others) advocating more of what got the system so broken we'd have to ban cash. 40 years of declining labor share of GDP, having to ban cash. PK's answer is to lower rates. 40 years of gradually lowering interest rates and hitting the zero bound. How can people not admit they got major things wrong and screwed up the system. They can be economists that's how, and more concerned with their pet faulty theories than actually fixing the broken system It's surreal. We need to ban cash, but we didn't break the system. It's the system that needs fixing, it's a lot more than interest rates, and the priority should be asking how we got here, and what do we need to do to fix it. Not asking for more of the same. It's about protecting the privileged elites, not about the economy, and if it was about the economy central bankers could have figured a better way to get that QE money into the real economy. The fact that they haven't, and twe have record stock markets shows everyone who these people work for. Wealthy stockholders and wall street. Anything else is a farce
4
Banksters preaching that low interest rates will create bubbles and crashes is an admission that they cannot police themselves. Dimon responded to to his daughter's question of what is a financial crisis by saying they are no big deal they happen every 5-7 seven years indicates how little they care about long term stability vs quick short term gains. Who among this fine crop of POTUS candidates has uttered so much as a single lucid thought about this aspect of the economy?
6
I have long argued that Greenspan's artificially low, philosophically, and politically motivated interest rates of the 90's and 00's are what pumped up the dot com and housing CDO bubbles: deprived of "normal" returns on low risk investments, institutional investors seek yield with riskier bets, competition for higher yields starts a bidding war that drives prices below the cost of the risk, and "POP".
However institutional investors are not just banks, but also insurance companies and pension plans who locked in their obligations sometimes decades ago - failure to achieve adequate yield means more than forgoing profits, it can mean real losses.
However institutional investors are not just banks, but also insurance companies and pension plans who locked in their obligations sometimes decades ago - failure to achieve adequate yield means more than forgoing profits, it can mean real losses.
2
FED's quantitative easing (euphemism for money printing) combined with zero interest rate benchmark have created winners and losers.
Wall Street bankers, stock market operators, wealthy investors and corporations , the 1% crowd, big time winners.
Middle class small investors, the 99% crowd, losers. Arguments, academic or special interests, to preserve the status quo of money for free for wealthy individuals/corporations cannot deny the reality.
Wall Street bankers, stock market operators, wealthy investors and corporations , the 1% crowd, big time winners.
Middle class small investors, the 99% crowd, losers. Arguments, academic or special interests, to preserve the status quo of money for free for wealthy individuals/corporations cannot deny the reality.
9
As Dire Straits once said "money's for nothing your chicks for free".....That's the Wall Street crowd. They've become the new wealth made out of nothing as they suck the life out of main street and there noses full of coke with loose women for company.
1
Prof. Krugman's repeated statements that "the Fed's preferred inflation measure ... strips out volatile food and energy prices" are misleading. It may be that many members of the Federal Open Market Committee prefer to look at that measure, but the 2% target is for top-line PCE inflation including food, energy and everything else. The claim that inflation has "fallen short of [the Fed's] target of 2 percent, and shows no sign of rising" misstates the data. For some reason when we talk about GDP we always uses annual percentages. The Bureau of Economic Analysis reports "Real gross domestic product ... increased at an annual rate of 3.7 percent in the second quarter of 2015". We don't do that for inflation but if we did, the BEA would have reported the the seasonally adjusted price index for personal consumption expenditures increased at an annual rate of 2.4% in the second quarter. Excluding food and energy PCE inflation in the second quarter was at a 1.7% annual rate. For the six months ended in July top line PCE inflation was at an 2.2% annual rate and ex-food and energy it was 1.7%.
That said, the evidence is that inflation slowed quite a bit in July. to an annual rate of 1.0% and that next Monday's report may even show that the top-line PCE price index slipped into deflation in August like the CPI-U.
That said, the evidence is that inflation slowed quite a bit in July. to an annual rate of 1.0% and that next Monday's report may even show that the top-line PCE price index slipped into deflation in August like the CPI-U.
2
There's a disconnect now between banking and finance and creating jobs. Making money, which is basically what these banking and finance people do, does not necessarily create jobs, and sometimes it eliminates them. They'll jigger things to make a buck, like that clever former hedge fund manager in an article in today's New York Times who bought the rights to a particular drug and raised the price over 50 times--a drug that has been around for fifty years.
In a way, this difference is exemplified by George Romney, who was the president of American Motors and his son Mitt. Compared to the son, the father didn't make a lot of money. However he successfully presided over a large company that provided a lot of employment. The son buys and sells companies to maximize profit, and this often means laying a lot of people off. I'm sure the father did too when he had to, however his committed goal was to provide a service of building automobiles to make money, not cut jobs, pile on the debt, sell the company, and run.
So let the bankers fuss and fume. They aren't going broke with their wheeling and dealing as it is now. Keep the interest rates low and lend money to build the economy and provide jobs. When we're at full employment, commodity prices are rising (right now oil is plummeting) and there's high demand for goods and services--a real inflation scenario--then we can raise interest rates.
In a way, this difference is exemplified by George Romney, who was the president of American Motors and his son Mitt. Compared to the son, the father didn't make a lot of money. However he successfully presided over a large company that provided a lot of employment. The son buys and sells companies to maximize profit, and this often means laying a lot of people off. I'm sure the father did too when he had to, however his committed goal was to provide a service of building automobiles to make money, not cut jobs, pile on the debt, sell the company, and run.
So let the bankers fuss and fume. They aren't going broke with their wheeling and dealing as it is now. Keep the interest rates low and lend money to build the economy and provide jobs. When we're at full employment, commodity prices are rising (right now oil is plummeting) and there's high demand for goods and services--a real inflation scenario--then we can raise interest rates.
138
Banks may be suffering from the current "cheap money" environment, but so is the rapidly growing number of retirees who depend on earnings from their investments to pay the bills. I'm not sure the Fed made a mistake by holding back on a rate increase, but I don't think the banks would be the only beneficiaries of higher rates. Millions of Americans with savings accounts and CDs would also benefit.
4
Health insurance costs go up and up and the 1% CEOs
make 100s of millions on some sick guys chemo. Let's face it. A fair democracy this is not.
make 100s of millions on some sick guys chemo. Let's face it. A fair democracy this is not.
1
this only a partial explanation. the fed's policies are all about the 1% and not retail loans like mortgages. low interest rates push capital into derivatives and other unregulated markets. the bankers are angry because dodd-frank deprives them of opportunities for the same high-stakes speculation. rather than invest their holdings in the real economy to create decent jobs and generate higher wages, they act like spoiled children who have been told they can't go out to play. they just sit on their hands and sulk. this explains the absence of inflation; billions flowing out of the real economy into the vast universe of shadow banking.
14
Agreed.
I am a middle class, soon to be lower class average American. I am not paying the banks anything near 0 interest on my refinanced mortgage, variable still high interest credit cards and everything else.
The banks are doing fine but want more. Me and my buddies? Not so fine.
What should I do for a level playing field which is all I that I ask? I don't have the money to buy Congress, my vote has been watered down by money defined by SCOTUS as people, the impact of my vote for my congressman subjected to gerrymandering, my ability to vote suppressed by The Great State of Texas with racism in mind more than non existent voter fraud.
America is great in so many respects. Governing in the name of We the People (by that I mean all of the people) is not one of those great things and it is getting worse, back to what it was before 1929.
Wealth Concentration at the very top, dominance of well funded lobbies of the richest among us, oligopolies approaching the power of monopolies "too big to fail", ongoing racism and gender discrimination, minimum wages and living conditions heading back to instead of from the landscape of Upton Sinclair's The Jungle and Steinbeck's Grapes of Wrath.
I am a Nam vet, former Republican, a corporate survivor, current believer in the free market, a trained economist with an MBA from a flagship school. After living through the impact of the Reagan charade and 30 years of ongoing consequences, I must agree with Kruger: The Fed did right.
I am a middle class, soon to be lower class average American. I am not paying the banks anything near 0 interest on my refinanced mortgage, variable still high interest credit cards and everything else.
The banks are doing fine but want more. Me and my buddies? Not so fine.
What should I do for a level playing field which is all I that I ask? I don't have the money to buy Congress, my vote has been watered down by money defined by SCOTUS as people, the impact of my vote for my congressman subjected to gerrymandering, my ability to vote suppressed by The Great State of Texas with racism in mind more than non existent voter fraud.
America is great in so many respects. Governing in the name of We the People (by that I mean all of the people) is not one of those great things and it is getting worse, back to what it was before 1929.
Wealth Concentration at the very top, dominance of well funded lobbies of the richest among us, oligopolies approaching the power of monopolies "too big to fail", ongoing racism and gender discrimination, minimum wages and living conditions heading back to instead of from the landscape of Upton Sinclair's The Jungle and Steinbeck's Grapes of Wrath.
I am a Nam vet, former Republican, a corporate survivor, current believer in the free market, a trained economist with an MBA from a flagship school. After living through the impact of the Reagan charade and 30 years of ongoing consequences, I must agree with Kruger: The Fed did right.
33
Thanks for the very good points exposing the reasons banks want higher rates to increase their margins. What's missing is the criticism of the use of these funds for speculation, which does cause instability due to the higher risk of loss involved. What is needed to reduce speculation and drive the use of funds to real productive investment is a transaction tax on speculative investment, as proposed by Bernie Sanders. You hear very little about this from financial and political establishment pundits since it would tend to dry up flow of funds to the politicians and think tanks who thrive on contributions from Wall Street.
21
Krugman is not great on economics imo...it is hard to argue that our rates should be zero at this stage in the cycle and with the unemployment rate so low. Savers have been punished for years now, and the fed needs to get rates off zero just so they have some room to move down the next time the economy softens. Zero rates has allowed too many distortions in the economy and should not be thought of as a stable policy. The fed should be moving towards a 1% funds rate. That level won't harm anything in the economy. Long rates are the bigger issue, and they won't likely budge if and when the fed starts moving.
7
@ Dc1 - Krugman [who won a Pullitzer prize for yes, Economics] is not great on economics? That sounds like something Trump would say. So let m e guess, you will be so good on economics that it will make our heads spin?
1
Of course he's not great on economics - he only won a Nobel Prize for Economics, that apparently means nothing to you.
Krugman may have won a Nobel prize for Economics, but his op-ed columns are not about economics. They are about politics. And like every good biased political hack, Krugman skews his economics in his op-ed column to meet his political objectives.
4
A Times article dated Sunday, July 26, 2015 (Bu1) by Nathaniel Popper, entitled: "Twilight of a Traditional Trading Hub;" nicely complements today's discussion. In his article, Mr. Popper states: "The number of front-office employees, who are generally highly paid, at the 10 largest Wall Street banks has shrunk more than 20 percent since 2011-- to 51,000 from 64,000-- according to Coalition, an industry data provider. A study of top Wall Street banks, released in May by the Boston Consulting Group, found that revenue had been steadily falling across the entire industry since 2012, while costs had not." The causes of this declining revenue included, in addition to the domestic Dodd-Frank banking sector reform legislation, a tougher regulatory environment in the international financial arena. These new international banking sector rules, termed Basel III, deem that "the riskier the products a bank is trading, the more capital it needs to put aside for each dollar of trading." Thus, the risk profiles, of the portfolios of banking investments declined in concert with the ROIs from such less risky investments. Also, as central banks lowered interest rates globally, not only did bank trading desks' asset ROIs shrink with these lower rates, but market expectations came to more predictably anticipate these lower rates. As a result, this predictability of continued lower future rates reduced trading profits and lead to more IT automated routines to lower costs. 9/21 Mon 1:17p
4
I don't understand Paul Krugman. With low interest rates, banks and big corporations stockpile. Then the U.S. government comes to borrow at a higher rate..isn't that how it works? Then who makes money on the taxpayers? Looks to me like the big banks do. Unless I have this wrong, it seems higher interest rates would help the average Joe save some money. It would stimulate some spending as well..sort of like buy it before the price goes up kind of thing. Please straighten me out, if I"m not "getting" it.
4
The U.S. borrows money by a treasury *auction.* The market for treasuries determines the interest rate. If everyone wants to buy US treasuries, the rate goes down. If few want to by the treasuries, the rate goes up. Simple.
The current no/low interest policy has squeezed CDs out of consideration for retirement plans and pushed retirees into the roulette wheel called "the US Stock Market." It has also injected an abundance of plain STUPID into the real estate development market. The developers are tearing down livable properties and permitting and constructing more expensive, but cheaply constructed buildings all Austin. We are going to be left with a bunch of expensive, unlivable, cracking buildings in 5 to 10 years. Cheap money has also made it easy to buy the ear of City and State elected officials by intense lobbying.
13
"Suddenly, a lot of what has been puzzling about the discussion makes sense: just follow the money."
Actually, I think most political positions can -- and should -- be assessed in just that fashion.
Actually, I think most political positions can -- and should -- be assessed in just that fashion.
7
Agreed!
The difference between the quoted interest rate and inflation is known as "the real interest rate" or "the discounted interest rate."
Basically little people always lose as far as the real interest rate is concerned.
Bankers and big-money people know that if inflation comes, they can take advantage of it by taking out very big loans at fixed interest before it happens (presuming they can "time it") ... and then repaying it in the future with inflated dollars.
The bond markets are a very sensitive indicator of investor expectations of currency inflations.
But the little wage-earner never wins. If inflation happens their salary never keeps up with that inflation, and the cost of stuff they buy day-to-day is going up fast, so paying the mortgage gets worse, and in a bad inflation they lose their equity to the banksters.
In a deflationary epoch they lose their jobs, cannot pay the mortgage, and lose their equity to the banksters.
The banksters have first-call on the money governments pump into the system, as a whole the banksters always win, no matter what.
But it's a gambling game for them -- albeit gambling with other people's money. When they guess right they win a lot and get to keep it.
When they guess wrong ... they earn less than they expect, but others take the big losses.
Basically little people always lose as far as the real interest rate is concerned.
Bankers and big-money people know that if inflation comes, they can take advantage of it by taking out very big loans at fixed interest before it happens (presuming they can "time it") ... and then repaying it in the future with inflated dollars.
The bond markets are a very sensitive indicator of investor expectations of currency inflations.
But the little wage-earner never wins. If inflation happens their salary never keeps up with that inflation, and the cost of stuff they buy day-to-day is going up fast, so paying the mortgage gets worse, and in a bad inflation they lose their equity to the banksters.
In a deflationary epoch they lose their jobs, cannot pay the mortgage, and lose their equity to the banksters.
The banksters have first-call on the money governments pump into the system, as a whole the banksters always win, no matter what.
But it's a gambling game for them -- albeit gambling with other people's money. When they guess right they win a lot and get to keep it.
When they guess wrong ... they earn less than they expect, but others take the big losses.
Big thanks to Prof. Krugman for an enlightening piece.
We live in strange times; low interest rates in the US, the EU and Japan; low inflation also, and low or no growth in Japan and the EU. And it has been like that for years.
The world economy surely needs a jolt, the flatlining is no good for anyone.
We live in strange times; low interest rates in the US, the EU and Japan; low inflation also, and low or no growth in Japan and the EU. And it has been like that for years.
The world economy surely needs a jolt, the flatlining is no good for anyone.
5
It doesn't make sense that the bankers are enraged. They already charge high interest rates on consumer debt as it relates to their borrowing costs which is now low interest. If the fed raises rates, so will the banks on consumer offerings which will dampen applications. I would think the bankers would be happy with low borrowing rates.
1
The banks loan money to bottom feeder lenders, like 29% credit card companies, payday loan shops and used car finance operations, making big profits and passing the risk and handling charges off to those bottom feeders. The problem is this: there are only so many people in the lower 1/3 to 1/2 of the economy who can be exploited in this way. Plus, a certain number of those taking out high interest loans slip into bankruptcy all the time, making the pool smaller. The bankers would like to have more customers who can be charged higher interest rates and they would like a bigger spread for more profits.
2
Mr. Krugman's column, reading between the lines, goes a long way to explain why "the rich get richer and the poor get poorer", why, in other words, those stuck at the bottom of the economic middle class and below stay stuck there: the monied classes are in charge. The whole banking system points in this direction. The fact that you can't make money by not doing anything other than lending out money reveals the trap most of us are in. 30 yr. mortgages, a modern invention, represent a wealth transfer program from working people to coupon clippers. No wonder the wealthy and the mega rich look down on the rest of us.
We live, if lucky, 70 to 80 yrs., owning nothing much more than debt and hopes, having little or nothing for true emergencies, little or nothing to pass on to the next generation and, meanwhile, one political party wants to rip away the meager benefits received through a lifetime of work. One political party wants to make certain that millions of people don't have medical insurance, making them ever more dependent on corporations to hire them.
We are not vassals. We have come a long way since the middle-ages, but we sacrifice our personal freedom (time and opportunities) to try to secure a place in the world that slips rapidly out of grasp as we reach for it. The bankers, Wall Street and corporation have seized the power once held by kings and we spend our time focused on what lesser powers, like U.S. presidents, do that we don't like.
We live, if lucky, 70 to 80 yrs., owning nothing much more than debt and hopes, having little or nothing for true emergencies, little or nothing to pass on to the next generation and, meanwhile, one political party wants to rip away the meager benefits received through a lifetime of work. One political party wants to make certain that millions of people don't have medical insurance, making them ever more dependent on corporations to hire them.
We are not vassals. We have come a long way since the middle-ages, but we sacrifice our personal freedom (time and opportunities) to try to secure a place in the world that slips rapidly out of grasp as we reach for it. The bankers, Wall Street and corporation have seized the power once held by kings and we spend our time focused on what lesser powers, like U.S. presidents, do that we don't like.
43
One of the worst investments out there is the 30-year mortgage. It makes the middle class look at their primary residence as an "investment" instead of what it is -- a place to live. Home ownership these days in many US metro areas is low return in the long run compared to stocks, as well as having high fixed costs of yearly property taxes and maintenance. How much are you not investing elsewhere when you have to pay $20,000 in yearly property taxes? Aside from the bubble of the 2000s where some made a fortune selling in 2005 and 2006, residential real estate -- the "American Dream" of home ownership -- is a poor investment. High fixed costs and very poor liquidity make it so. Look around at what the rich do, flipping multi-million dollar homes quickly and actually RENTING. Banks want you to have a mortgage so that they can stay in business, thus the emphasis on living the "American Dream". Best way to wealth is saving in a tax-efficient manner (401K, Roth IRA, regular IRA) along with low cost/low tax index funds. Live below your means and pay the lowest cumulative amount of interest (mortgage, credit card, car loan, etc.) you can over your lifetime.
2
Let's stop the insanity of believing that the Federal Reserve is somehow keeping the economy afloat through its heroic efforts. Every dollar that borrowers don't pay in interest is a dollar that lenders, particularly retirees, don't receive as income. The risk free nominal interest rate should be 2% or so in order to properly incentivize and fairly compensate savers. Even if we were to believe that inflation was running at only 1%, that would still call for a fed funds rates around 3%. As yes, that means that stock and bond prices would be lower because they are mispriced in the current ZIRP environment. The longer the Fed drags its feet, the larger and more painful those eventual bear markets will be. Janet Yellen and her august colleagues should summon some courage and do what's right rather than what is politically expedient.
10
You wanna see real pain? The pain you're describing, that of retirees not having any income from their nest eggs, is NOTHING compared to what everyone else would suffer if the interest rate rose to 3%. What you're saying is that raising unemployment by curtailing overall economic growth with higher interest rates is OK. It ain't. You wanna see real pain? A shrinking economy will give you just that. Please take off your blinkers.
Thank goodness the fed doesn't have to bend to political pressure. Janet Yellen has 3 more years before the next president can choose whether to keep her around. Reagan choose to NOT reappoint Paul Volcker even though Volcker had essentially saved our economy. Then we got Greenspan, who was so enamored with himself during the dot com expansion that we were led right into an enormous correction. History exposes the Fed's chairman for who they really were.
14
I wouldn't want an actual Communist revolution to happen in the U.S., but it's a pity we can't summon up a credible threat of one! That fear led to "the great leveling" of incomes in the mid-20th century, and kept the plutocracy in check. Only when bankers, billionaires and lawmakers are forced to realize that the security of their wealth depends on the well-being of their communities will they stop scooping out the fruit of the nation's wealth for themselves and leaving everyone else with empty rinds. Even the aristocrats of the Roman Republic grasped that basic concept, two millennia before Karl Marx set pen to paper. That Republic lasted five hundred years - will we?
29
I like that - a true red scare. In Michael Moore's documentary, Sicko, he said that the American people are afraid of the government, and that in France, the government is afraid of its people. I asked a Frenchman if there was truth to that. He said that the French government is afraid that people will strike and cripple railroads, museums, etc. I remember reading about the General Strike in England a century ago and war demonstrators half a century ago in the United States. What happened to the American people that they became so passive?
18
"just follow the money" -- brilliant, always a good first investigative choice!
12
"In particular, the Fed’s preferred inflation measure, which strips out volatile food and energy prices . . ?"
" . . . Voodoo economics. . ." - George H. W. Bush
" . . . Voodoo economics. . ." - George H. W. Bush
4
I understand the rationale to remove energy and food prices over the short term. But there should be a CPI-like gauge that includes food and energy prices over the long term. You can look at the CPI and see what it is relative to 10 years ago, but it would be illuminating to see a similar gauge including "volatile" items over the 10 year period.
I still don't understand why some of these bankers saw no jail time for the shenanigans they pulled in the run up to the 2008 crash. Bankers seem consumed by the need to screw the consumer and the economy. "Eat what they kill..." is an apt description of their role.
25
Because they violated no laws that existed at the time.
Now, *should* there have been laws against gambling with the US currency at stake? Yes.
It is more a lack of oversight than criminal behavior.
Now, *should* there have been laws against gambling with the US currency at stake? Yes.
It is more a lack of oversight than criminal behavior.
The very idea that you can manage the economy is totally delusional, as the past actions of the Fed has shown. The only thing the Fed is good at is printing money. It is that simple Paul, you should know better. I do agree with you about the Fed. It is best being a 'nothing', all other actions just make things in the economy worse. Belief in the Fed, a false god, show you have the slightest clue to what is really going on. What's that? Government taking or freedoms away.
Coolhunter---Krugman does know better. Every aspect of his facial expression says so. He loves fooling people with his " I think I can fool you saps forever"
look.
look.
Bring back Glass Stiegel. Strengthen the Dodd Frank measures that protect consumers.
The banksters will take every advantage of their customers, us, while pushing us all into recession. A good suit does not mean a good heart.
The banksters will take every advantage of their customers, us, while pushing us all into recession. A good suit does not mean a good heart.
24
All this cheap money is also at least part of the reason real-estate prices in many cities--I'm not just talking about New York City or San Francisco--continue to climb, despite the fact that incomes haven't kept up.
The winners are people who already own property. The losers are those who rent or would like to purchase a home but can't because prices have risen faster than wages.
Some people, like myself, would celebrate a market-correction or crash in real-estate because of how absurd and unaffordable, things are getting.
The winners are people who already own property. The losers are those who rent or would like to purchase a home but can't because prices have risen faster than wages.
Some people, like myself, would celebrate a market-correction or crash in real-estate because of how absurd and unaffordable, things are getting.
8
Gee, didn't we see just this same scenario LESS than 10 years ago? Only now we don't call it sub-prime lending. We call it cheap money and it always leads to bad decisions, whether they be individual, business, or government.
When it's cheaper to borrow at no-interest then, hey, why not? Let tomorrow be dealt with by our children.
When it's cheaper to borrow at no-interest then, hey, why not? Let tomorrow be dealt with by our children.
I have read through some the comments and for the most part they are right on. If you look back over the banker's history of the past 10 years or so, about the only thing you will come away with is their lack of both morality and judgement. They have been way over paid for their job performance and they have lost any creditability that they had before. You only have to remenber the LIBOR scandal that went on for years.
In the 20th century crooks robbed banks, in the 21st centuary the robbers work for the banks.
In the 20th century crooks robbed banks, in the 21st centuary the robbers work for the banks.
17
So True and Well Said!
Banks pay depositors 0.1% then loan that money out at 3%. Do the math this is a huge profit! The bankers are parasites and need to stop their whining about rates.
15
simplistic!
And if anybody wants the see the physical demonstration of what happens when bankers dictate public policy, please DO check interests rates in Brasil. It should be enlightening. (a simple Google search should do).
5
The day that CPI include housing is the day that I might believe that the Fed targeting inflation makes sense. What difference does the rest of the basket of goods makes if housing gobbles up everything. QE was a gift to the top 0.1%--both in assets and cheaper, more desperate labor.
6
No. QE was a gift to debtors and specuators- that's about 90% of the pop.
"In particular, the Fed’s preferred inflation measure, which strips out volatile food and energy prices, has consistently fallen short of its own target of 2 percent, and shows no sign of rising".
I love reading Paul Krugman but this one sentence got to me. I have not only seen large increases in food and my utilities bills but also in auto and home insurance rates, drug cost, property taxes, auto repairs and tire prices, home repairs like plumbers, AC work and electricians, new housing prices and building materials and many more everyday items needed. So to say we have not had inflation in the last seven years is very confusing to me and seems the real inflation numbers are being manipulated to keep interest rates low.
I love reading Paul Krugman but this one sentence got to me. I have not only seen large increases in food and my utilities bills but also in auto and home insurance rates, drug cost, property taxes, auto repairs and tire prices, home repairs like plumbers, AC work and electricians, new housing prices and building materials and many more everyday items needed. So to say we have not had inflation in the last seven years is very confusing to me and seems the real inflation numbers are being manipulated to keep interest rates low.
13
My heart bleeds for bankers, oh yeah. Despite Fed policy of zero interest, the suits behind the desk are still charging upwards of 5% for home equity lines of credit (I mean, you ingrates own my Tribeca loft if I default) and even more for home loans. And forget fixed rates on 10 terms. Those poor bankers can't wait to start recalculating. Breaks your heart.
6
The persistent low interest rates from the Fed are especially bad for insurers' profits. Insurers invest the premiums they collect in low-risk bonds (primarily U.S. Treasury) until the funds are needed to pay claims. Insurers are struggling in the low interest rate environment, especially as bonds with higher interest rates mature and need to be replaced.
3
But it seems that the howling of the left pretending to "feel the pain" of common folks years after the 2008 crash was that the big financial institutions were being given billions by the "complex" (wink, wink) means of zero fed interest rates and then their ability to buy 2% government bonds and their privilege of being 'staked' taxpayers money while they did casino capitalism that does not produce any jobs. So if both what Krugman is saying now, and what he said before are true ... then we must deduce that the 1%'s favored means of ripping off the 99% has changed.
1
I like the discussion of net-interest margins in here, but it misses an important point: Profitable lending means more plentiful lending. If you look at the course of the last six years, one reason (I believe) growth has been slow is the Fed's QE and ZIRP have meant bank lending isn't highly profitable. That makes capital hard to come by, impairing businesses' expansion plans and the like. This is also why loan growth was slow for years and why QE has had next to no (positive) impact on the economy. Hence, there is a case to be made that what is good for the banks actually is good for the economy--if you're trying to get a loan that's almost certainly the case.
Finally, a nitpick: "In particular, the Fed’s preferred inflation measure, which strips out volatile food and energy prices, has consistently fallen short of its own target of 2 percent, and shows no sign of rising." The Fed isn't targeting Core PCE, it's targeting Headline PCE. As St. Louis Fed President James Bullard said in April 2012, "The FOMC will target the headline inflation rate as opposed to any other measure (e.g., core inflation, which excludes food and energy prices) because it makes sense to focus on the prices that U.S. households actually have to pay."
https://www.stlouisfed.org/publications/regional-economist/april-2012/re...
Finally, a nitpick: "In particular, the Fed’s preferred inflation measure, which strips out volatile food and energy prices, has consistently fallen short of its own target of 2 percent, and shows no sign of rising." The Fed isn't targeting Core PCE, it's targeting Headline PCE. As St. Louis Fed President James Bullard said in April 2012, "The FOMC will target the headline inflation rate as opposed to any other measure (e.g., core inflation, which excludes food and energy prices) because it makes sense to focus on the prices that U.S. households actually have to pay."
https://www.stlouisfed.org/publications/regional-economist/april-2012/re...
1
Just because bank loans are not "highly profitable" does not mean that bankers will refuse to loan at all & just sit on their cash. Small profit > zero profit. You're confusing banks with corporations.
3
OMG!! So does this mean Krugman lied about the inflation metric? Does that explain his "sly old me, I fooled you again" facial expression?
When taking advice on the common good, one should give little credence to the opinions of those who have no stake in it.
Sadly, too many such people are firmly established in the federal government -- no matter which party holds power.
Sadly, too many such people are firmly established in the federal government -- no matter which party holds power.
1
For the most part, no one ever has enough money.
There is a difference, however, between having so much that you could never spend it and having so little that you can barely survive.
In America everyone gets to be on the same plying field. . . Young, old, strong, weak, healthy, sick, sociopaths, psychopaths, bullies, fair minded, aggressive, mentally ill, passive - it's survival of the fittest, winner take all. The fittest and most aggressive all agree that this is the way it was meant to be.
As George W. Bush once said to a woman who was working three jobs to get by- it's uniquely American. This is a great country.
There is a difference, however, between having so much that you could never spend it and having so little that you can barely survive.
In America everyone gets to be on the same plying field. . . Young, old, strong, weak, healthy, sick, sociopaths, psychopaths, bullies, fair minded, aggressive, mentally ill, passive - it's survival of the fittest, winner take all. The fittest and most aggressive all agree that this is the way it was meant to be.
As George W. Bush once said to a woman who was working three jobs to get by- it's uniquely American. This is a great country.
6
Mr. Krugman, you didn't mention pensioners who rely on higher interest rates to boost their TDA accounts. We haven't seen an uptick in years. Fortunately our portfolio is diversified so stocks and bonds (at various times) take up the slack, but it would be nice to see some return on our hard earned savings.
1
But bankers are borrowing essentially free money, paying virtually nothing on deposits and lending at rates many times the cost of the money they borrowed...
OHHhh! They're not getting rich enough FAST enough. Welcome to the club.
OHHhh! They're not getting rich enough FAST enough. Welcome to the club.
6
Below 2% inflation? Not where I live. Shopping for anything at any store evidences rampant inflation. Housing costs are $300/s.f., food & utilities consume an ever-escalating portion of income as well as medicine costs, and clothing costs — manufactured by low-wage workers in low-wage countries — are astronomical, so please tell me what inflation measure the Fed is using to determine LOW INFLATION? We who were once upper income are now middle income and falling quickly.
2
"Below 2% inflation? Not where I live."
So move, already.
So move, already.
3
The key words in Professor Krugman's column are "just follow the money."
When you do, you see a mutant version of capitalism. Instead of kings, we've anointed folks with a talent to make or inherit money. Capitalism, at least in the "Good Olde USA", is devouring itself because of the greed inherent in human nature. And modern banking illustrates the problem.
The banksters want nothing to do with traditional banking, taking in deposits and lending the funds out at a higher rate of interest. Nope, they prefer much riskier investments with your money. After all, their friends in Congress can be counted on to bail them out.
When you do, you see a mutant version of capitalism. Instead of kings, we've anointed folks with a talent to make or inherit money. Capitalism, at least in the "Good Olde USA", is devouring itself because of the greed inherent in human nature. And modern banking illustrates the problem.
The banksters want nothing to do with traditional banking, taking in deposits and lending the funds out at a higher rate of interest. Nope, they prefer much riskier investments with your money. After all, their friends in Congress can be counted on to bail them out.
9
However, high personal consumption rates and low interest rates do not bode well for the elderly on fixed incomes. Who cares?
1
If you're on a fixed income, low inflation is a boon. Most elderly on fixed incomes don't have large savings that produce income from interest. They're living on Social Security, pensions, and to a lesser extent 401Ks. Low interest rates aren't going to matter that much to the vast majority of elderly. They are better off with low inflation.
2
Quote: In particular, the Fed’s preferred inflation measure, which strips out volatile food and energy prices....
Yes, Mr. Krugman, that's exactly why those out here in the real world know that both the banks and the government are lying to them. For real families, food and energy costs, next to housing, consume most of their daily budget. To be told cheerfully that there is no inflation, because the government chooses to ignore it, is maddening.
Yes, Mr. Krugman, that's exactly why those out here in the real world know that both the banks and the government are lying to them. For real families, food and energy costs, next to housing, consume most of their daily budget. To be told cheerfully that there is no inflation, because the government chooses to ignore it, is maddening.
4
I am a little confused. My gas/electric bill has been the same for 10 years. Gas, right now, at the corner station, is 2.44 a gallon. And my weekly grocery bill is still the same for the last 5 years. My car insurance and house insurance have been pretty stable too. Movies and theater, not much change. Clothing? I know almost every single thrifty store in 3 counties, so that has not made a dent. Now, my health insurance has gone up. The price of airline tickets has gone up. The price of college tuition has gone up. Oh, and my internet, Netflix and phone bills have been pretty stable too (I have ditched cable for at least two years). But food and energy? My bank account begs to differ.
2
Nationally energy prices have been declining fairly rapidly. Because of this, the price index for personal consumption expenditures (PCE inflation) increased by only a smidgen below 0.3% over the year ended in July. Excluding energy and food, PCE inflation over the year was above 1.2%. The difference between inflation measured by the consumer price index for urban consumers (CPI-U) is even more dramatic with top line CPI-U rising just 0.2% over the year ended in August while excluding energy and food it increased by 1.8%. The CPI-W which uses a market basket based on what most American workers (urban wage earners and clerical workers) buy shows a 0.3 decline in all prices over the year ended in August but a 1.8% increase including food and energy. Unless something totally unexpected has happened this money, that means there will be no increase in Social Security Benefits in January.
That said Prof. Krugman's repeated statements that "the Fed's preferred inflation measure ... strips out volatile food and energy prices" is misleading. It may be that many members of the Federal Open Market Committee prefer to look at that measure, but the 2% target is for top-line PCE inflation including food, energy and everything else.
That said Prof. Krugman's repeated statements that "the Fed's preferred inflation measure ... strips out volatile food and energy prices" is misleading. It may be that many members of the Federal Open Market Committee prefer to look at that measure, but the 2% target is for top-line PCE inflation including food, energy and everything else.
1
This might be the most bracing defense of nothing that I've ever read.
1
NEWS FLASH: low rates are not bad for banks, although that's what the banks (i.e. Wall Street) want us to believe. Prior to the financial crises, short-tem rates were about 5%and the interest margin on consumer debt (credit cards) was between ten and fifteen percent. As a result of the FED lowering rates the margin INCREASED to between fifteen and twenty percent. So how was this bad for the banks? It's true that in a declining rate environment, there is a lag in the lower rates being passed on to bank customers, but seven years later why are we still waiting for lower consumer rates? The "great Recession" would have been much shorter and the recovery substantially stronger if the FED would realize that to stimulate an economy that is based on consumer spending (70%of GDP), it's the rate on Consumer borrowing that needs lowering and the FED cannot force the banks to give up their windfall profits without them whining about the risk to the safety and soundness of the financial system. So the banks have recoded billions in net interest margin over the last seven years at the expense of the American consumer and the overall economy. It's time that Chair Yellen stops doing what only benefits Wall Street. The FED needs to establish a "Consumer reference rate to replace LIBOR and the Prime rate for the pricing of consumer debt. The fed could then better manage the economy by lowering consumer rates to zero(or below if necessary).
The White House has a log, accessible to the public, that records all comings and goings. It is particularly useful for finding out what lobbyists and other special interest groups have met with members of the administration and when.
If the Fed has such a list, PK should tell us where to find it.
If the Fed doesn't have such a list, PK should start publicly agitating for it. In fact, even if the Fed does have one, PK should agitate for it to cover not just in-house meetings but also both formal and informal outside meetings, including lunches.
It's clear from what PK writes that he is aware of meetings between Big Bankery and the Fed. Why doesn't he name names?
If the Fed has such a list, PK should tell us where to find it.
If the Fed doesn't have such a list, PK should start publicly agitating for it. In fact, even if the Fed does have one, PK should agitate for it to cover not just in-house meetings but also both formal and informal outside meetings, including lunches.
It's clear from what PK writes that he is aware of meetings between Big Bankery and the Fed. Why doesn't he name names?
3
"and bankers reacted to its decision with sheer, unadulterated rage."
Nice stalking horse Paul. Bankers largely shrugged off the news.
Nice stalking horse Paul. Bankers largely shrugged off the news.
2
Sounds like Calvinball to me.
45
It's like the old "Land Shark" skit on SNL. The shark would use any excuse to get the victim to open the door. Eventually, the shark would succeed and would eat the victim. The bankers keep throwing any old warning hoping the Fed will buy it. Eventually they will but hopefully for the right reason.
2
Paul, I think retirees would like to see interest rates rise so that retirees would not need to take the risk of investing in the equity markets to get any return on their savings. Retirees have been getting killed in this low interest rate environment, having to choose between no return on their savings and massive risk to their savings from the stock market. Thank you for supporting the punishment of older Americans.
1
I'm sorry but I find myself lacking in sympathy. The elderly in this country presided over the 40+ year destruction of the middle class and blindly followed along. They went along with the "Contract for America" crowd which then repealed Glass-Steagal. They allowed for the systemic gutting of rational progressive taxation. They allowed for the destruction of worker rights and pension funds and went along with the 401k lie. They voted around the country in county, state and federal elections to elect folks to de-fund infrastructure, R&D & education. This is why our airports and harbors are falling apart. This is why we have pot-holed streets and crumbling bridges. This is why we have very low levels of public transportation compared to other 1st world countries. This is why we have record student loan debt. They have de-funded the country and allowed the Oligarchs to take ever increasing shares of GDP gains all the while being placated by HELOC's, all you can eat buffets and poor quality consumer goods.
This may all sound harsh yet it is all true and verifiable and it all came to fruition on their watch. I recall a saying about chickens coming home to roost that seems applicable...
This may all sound harsh yet it is all true and verifiable and it all came to fruition on their watch. I recall a saying about chickens coming home to roost that seems applicable...
1
The problem for retirees is simple: there is too much investment money. This surplus means that all that is needed can be had for a low rate. As a retiree, I am not thrilled with being forced to stock-pick, and manage asset distribution to avoid the dreaded "eat cat food" outcome of running out of money to live on. However, I do understand why there is no "high-return, low-risk" option available.
Forcing high interest rates to provide retired folks with more money and less worry is a stunningly inefficient way to address this issue. Raising social security would ensure that extra money would go to those retired folks who most need it.
Raising interest rates to reward retirees will reward bankers and wealthy retirees living on interest based securities. It will punish wage earners (because the economy will suffer), punish those using the federal safety net (because it will raise the cost of financing the existing federal debt, leading to cutbacks on benefits), and hurt those invested in equities (rich and not-so-rich). Why punish the overwhelming majority of citizens: working, retired, or, unemployed in order to reward wealthy, interest based savers, and bankers?
Forcing high interest rates to provide retired folks with more money and less worry is a stunningly inefficient way to address this issue. Raising social security would ensure that extra money would go to those retired folks who most need it.
Raising interest rates to reward retirees will reward bankers and wealthy retirees living on interest based securities. It will punish wage earners (because the economy will suffer), punish those using the federal safety net (because it will raise the cost of financing the existing federal debt, leading to cutbacks on benefits), and hurt those invested in equities (rich and not-so-rich). Why punish the overwhelming majority of citizens: working, retired, or, unemployed in order to reward wealthy, interest based savers, and bankers?
I'm amazed! I'm agreeing with Paul K for once. But he forgot to mention 1 more important fact: Many of the Fed Reserve voting members ARE bankers--running the regional Fed banks. Did I hear "conflict of interest"? Yes, they themselves want higher rates to make their own private institutions more profitable. Yellen did the right thing, but I don't think this means she's in the clear. She'll have her hands full now, controlling her own committee of rebellious (and self-interested) bankers!
1
I appreciate what you have said before, Prof. Krugman: banking needs to be boring. Probably means less wealth for some bankers, but also less disaster for the world economy when the expanded financial ventures of banks collapse. Less wealth for a few to better protect the majority sounds like a positive to me!
216
Low interest rates benefit debtors and those who borrow to invest in interest rate sensitive assets - such as stocks and real estate. Higher interest rates benefit savers and pension funds. I'm not sure which side of that equation Dr. Krugman is on.
But Dr. Krugman comes to the wrong conclusions on the facts. Banks benefit when there is a large spread between short and long term interest rates and it has been the shrinkage of that difference that has reduced banks' net interest margin, not low interest rates per se. Raising short term interest rates wouldn't necessarily help banks and could even reduce profitability. In fact, the zero interest rate policy of the past 8 years is widely credited with restoring banks' balance sheets after the great recession.
As for bank stock prices falling, I doubt that related directly to not increasing interest rates. It's more the message sent by that move. Since a rate increase was expected, the Fed's failure to do so clearly sent a message that the Fed was concerned about the economy. And of course, if the economy is doing worse, banks will do worse both from lower loan demand as well as greater loan losses.
I know Dr. Krugman has his viewpoint, but trying to fit the facts to his viewpoint only works when the facts truly support his conclusions. In this case they do not.
But Dr. Krugman comes to the wrong conclusions on the facts. Banks benefit when there is a large spread between short and long term interest rates and it has been the shrinkage of that difference that has reduced banks' net interest margin, not low interest rates per se. Raising short term interest rates wouldn't necessarily help banks and could even reduce profitability. In fact, the zero interest rate policy of the past 8 years is widely credited with restoring banks' balance sheets after the great recession.
As for bank stock prices falling, I doubt that related directly to not increasing interest rates. It's more the message sent by that move. Since a rate increase was expected, the Fed's failure to do so clearly sent a message that the Fed was concerned about the economy. And of course, if the economy is doing worse, banks will do worse both from lower loan demand as well as greater loan losses.
I know Dr. Krugman has his viewpoint, but trying to fit the facts to his viewpoint only works when the facts truly support his conclusions. In this case they do not.
2
If interest rates are low, the potential for a "good" spread for the bankers is greatly reduced. They have more of a problem in this environment justifying higher rates on loans. Also, in an inflationary environment, they can jump ahead of the upward curve and charge higher rates than would otherwise be justified by the rates they pay. Those taking out loans in inflationary times tend to be more eager to get the loan ahead of future inflation.
I think there is inflation in the cost of food. If you do the food shopping in your household you know this is true. A box of Cheerios may have cost $3 in the year 2,000 and may still cost the same, but the box is third or half as big. Or with some products the box is the same but the interior liners hold less food. Ice cream containers are no longer gallons, quarts and pints but are weighted in ounces of various sizes. A bottle that contained a pound of olives before might have 10 ounces. And a loaf of bread has shrunk before our very eyes, but has thiner slices to compensate. Also, the tags the tell the consumers the cost per ounce has shrunk and a smaller font size is used until most people just can't read them without their reading glasses.
Think there is a real need to reflect the true cost of food. Perhaps this is already reflected in the statistics you are using but measurement I use is my wallet and how little food is in the bags I carry out of the store.
Think there is a real need to reflect the true cost of food. Perhaps this is already reflected in the statistics you are using but measurement I use is my wallet and how little food is in the bags I carry out of the store.
6
Changing the amount contained in food packaging is called marketing. I noticed this when I was a kid and fell in love with Snickers candy bars (first loves are always memorable).
A candy bar would start to shrink a few months after a price increase. Then, when another price increase came along, presto!, it was bigger than before, sort of justifying the jump in the mind of a ten year old. (I'm paying more, but I am getting more.) Then, it would start to shrink again until the next price hike.
These kinds of manipulations are carried out by food packagers and manufacturers all the time. They think we won't notice. We pay more, get less and they profit.
The entire grocery store is an example of marketing broken down to a near scientific level. One near where we live, Harris-Teeter, carefully places everything to get you to buy the most expensive and, in many cases, it doesn't carry items that sell for a better price/value equation. It is insulting to be marketed to in this way, manipulated into paying higher prices that, over a year, will easily add up to several hundred dollars more.
As for bread, I noticed when the Great Recession hit that most every company was taking the quality out of their product and putting in more air. Air is cheap. One brand of bread had so much air it felt like it was cutting my mouth.
If we don't demand quality and value, we won't get it. They bank the profits.
By the way, I did not study marketing formally, just through experience.
A candy bar would start to shrink a few months after a price increase. Then, when another price increase came along, presto!, it was bigger than before, sort of justifying the jump in the mind of a ten year old. (I'm paying more, but I am getting more.) Then, it would start to shrink again until the next price hike.
These kinds of manipulations are carried out by food packagers and manufacturers all the time. They think we won't notice. We pay more, get less and they profit.
The entire grocery store is an example of marketing broken down to a near scientific level. One near where we live, Harris-Teeter, carefully places everything to get you to buy the most expensive and, in many cases, it doesn't carry items that sell for a better price/value equation. It is insulting to be marketed to in this way, manipulated into paying higher prices that, over a year, will easily add up to several hundred dollars more.
As for bread, I noticed when the Great Recession hit that most every company was taking the quality out of their product and putting in more air. Air is cheap. One brand of bread had so much air it felt like it was cutting my mouth.
If we don't demand quality and value, we won't get it. They bank the profits.
By the way, I did not study marketing formally, just through experience.
Would the rate hike increase the rate on excess reserves? If so, that, and not the interest rate spread, is all the answer you need. An extra basis point or two on $2.3 trillion (risk free and no transaction costs) is not chump change.
The overnight reverse repo arrangment would also make alternative cash funding sources more expensive, i.e., raise the competition's costs. That's related to the excess reserves too.
The overnight reverse repo arrangment would also make alternative cash funding sources more expensive, i.e., raise the competition's costs. That's related to the excess reserves too.
I'm not worried about runaway inflation, because of the reasons Krugman has shown: there just isn't any hint that it is happening.
On the other hand I am worried that given the almost non-existent Fed rates, a valuable tool has no more utility if another economic shock hits.
There was some hint that last week most of the Wall Street folks expected a rate increase. If it had come, that expectation would probably have moderated any extreme movements in the markets. It also may have spurred more immediate investments to secure cheap money while it was still cheap, which could in turn spur economic expansion.
Maybe an increase in the Fed rate is needed to create an increase in inflation.
On the other hand I am worried that given the almost non-existent Fed rates, a valuable tool has no more utility if another economic shock hits.
There was some hint that last week most of the Wall Street folks expected a rate increase. If it had come, that expectation would probably have moderated any extreme movements in the markets. It also may have spurred more immediate investments to secure cheap money while it was still cheap, which could in turn spur economic expansion.
Maybe an increase in the Fed rate is needed to create an increase in inflation.
1
"...the clamor for higher rates has nothing to do with the public interest." The bankers and other members of the top economic 1% continue to see their interests diverge from those of the 99%, despite the obvious truth that savings and income increases to those with the least wealth will be immediately spent, expanding the economy for all (and especially those at the top). Rather than critique the policies of the craven rich, we need clear prescriptions for how to re-invigorate our economy, which if followed, will lead to the desired interest rate rise.
1
As for eventually increasing interest rates, banks gradually learned to keep controlled "duration" portfolios during the late 1970s, early 1980s, so that losses in portfolio value are limited when rate rise. Vanguard controls the durations on its bond funds to protect investors in just the manner that banks protect themselves.
Paul Krugman's analysis of the importance of "spread" to bankers is critically important. A wonderful insight for us all.
Paul Krugman's analysis of the importance of "spread" to bankers is critically important. A wonderful insight for us all.
2
Net-interest margins may shrink during periods of low federal rates, but wouldn't it also follow that low rates spur a higher volume of borrowing? The big banks, the ones that have the ear of policy makers, don't appear to be suffering, but seem to be finding other ways to stay profitable.
Ha!
At lease the bankers are supporting the garment industry... along with the lawyers.
At lease the bankers are supporting the garment industry... along with the lawyers.
4
Wall Street is not the middle class working or retired person's friend. When Wall Street says "BUY", consider selling (after a few days); when Wall Street says "SELL", consider buying (after a few days).
What is good for banks and Wall Street is to move income and assets from the middle class to the banks and Wall Street. Unfortunately, they could care less if that leaves less income and wealth in the middle class.
What is good for banks and Wall Street is to move income and assets from the middle class to the banks and Wall Street. Unfortunately, they could care less if that leaves less income and wealth in the middle class.
8
Can he give some examples of bakers that were "raging"? Did not Lloyd Banfein say no rate increase the day before the decision? How can the Times print this without any citations?
By the way, given the depressed rate of the 10 year note, a rate increase at this time would have flattened the yield curve and lowered interest margins. However, Krugman is now nothing more than a cheap-shot artists,so who needs facts.
By the way, given the depressed rate of the 10 year note, a rate increase at this time would have flattened the yield curve and lowered interest margins. However, Krugman is now nothing more than a cheap-shot artists,so who needs facts.
Carefully working through an important problem with readers beginning with "The Creativity of the Permahawks" on your blog has been a simply wonderful experience, at least for me though I assume for many readers, and I will be much the better analyst and writer for having followed your developing analyses.
6
"Again, if you think that rates are much too low, where’s the inflation?"
In the cost of housing, for one.
In the paper value of the pension funds, for two.
Both of these, among others, are calculated ends of the money printing. To deceive the people into believing they own more value than they do, so as to quell unrest and discontent. To kick the can farther down the field. "We'll deal with the problems, when we really have to."
The scheme falls in on itself because at the end of the day, people have less money for what they need. They are spending increasing portions of their income on housing, food, energy, and medical care, and life is becoming more difficult.
The academics conveniently leave these four items out of their calculation of inflation, so that they can argue for more money printing, since there is no inflation. However, people who are living in their petri dish will report a very different reality while they pour cereal from ever smaller containers.
Krugman often criticizes the Republicans for not dealing with reality. Yet, he routinely engages in the same sort of suspension of disbelief when it comes to the economy. Exchange inflation for climate change in the typical Republican environmental argument, and you will have Krugman's argument on the economy.
In the cost of housing, for one.
In the paper value of the pension funds, for two.
Both of these, among others, are calculated ends of the money printing. To deceive the people into believing they own more value than they do, so as to quell unrest and discontent. To kick the can farther down the field. "We'll deal with the problems, when we really have to."
The scheme falls in on itself because at the end of the day, people have less money for what they need. They are spending increasing portions of their income on housing, food, energy, and medical care, and life is becoming more difficult.
The academics conveniently leave these four items out of their calculation of inflation, so that they can argue for more money printing, since there is no inflation. However, people who are living in their petri dish will report a very different reality while they pour cereal from ever smaller containers.
Krugman often criticizes the Republicans for not dealing with reality. Yet, he routinely engages in the same sort of suspension of disbelief when it comes to the economy. Exchange inflation for climate change in the typical Republican environmental argument, and you will have Krugman's argument on the economy.
5
The housing bubble is a housing supply problem and the US housing market is the safest place in the world to park excess money. Housing prices will come down as the Chinese stock market declines and housing starts rise.
Medical care costs have stabilized but are still 150% of what they should be compared to Europe since Obamacare caved to the insurance companies. Now we have to squeeze them out of the business.
Food and energy costs are tolerable - renewable energy costs can come down even faster when we get coal and oil companies' hands off the steering wheel of national energy policy. Food costs can come down by creating local and regional alternatives to agribusiness.
Now what were you saying about Krugman...
Medical care costs have stabilized but are still 150% of what they should be compared to Europe since Obamacare caved to the insurance companies. Now we have to squeeze them out of the business.
Food and energy costs are tolerable - renewable energy costs can come down even faster when we get coal and oil companies' hands off the steering wheel of national energy policy. Food costs can come down by creating local and regional alternatives to agribusiness.
Now what were you saying about Krugman...
For once, I agree with bankers, although I don't know why they should object to borrowing "free money." For most of us small investors, no-interest on our investments is a bummer.. Where does one invest to get a decent return? We used to enjoy rates of return on our saving of about 5 percent. Now, there's no place where we can get even that much. It's the end of the middle class investor. Too bad. So sad.
14
Index funds. Try Fidelity
Supply exceeds demand for many of the goods and services on which the Fed's preferred inflation measure is based, and if demand increases in many cases more production quickly comes on line. Cheap money has been a significant contributor to the cause of this over-supply. Plants have been consolidated and mechanized, production capacities and efficiencies have been increased, all in a process in which capital has been allocated at an artificially low cost. And now the world has too much of everything, while insurers, pension funds and millions of people who in whole or in part depend upon investment income are living on a shoestring.
The world has changed fundamentally since the days of Knut Wicksell.
It may be the banks have an ulterior motive in advocating an increase in interest rates, and perhaps their recommendations and opinions should be discounted because of this, but there are still many reasons to question the policy of continued low rates.
The world has changed fundamentally since the days of Knut Wicksell.
It may be the banks have an ulterior motive in advocating an increase in interest rates, and perhaps their recommendations and opinions should be discounted because of this, but there are still many reasons to question the policy of continued low rates.
4
What breeds bubbles and crashes is too many investment dollars chasing too little consumption. More dollars in the hands of investors is exactly what the Supply Siders told us we needed to create wealth for all Americans. And, they are still peddling the same lies.
32
Once again I am so glad I carry out my financial transactions via a credit union. The legalized thievery of banks and bankers, reminds me of the story of the well-dressed English gentleman who in fact is a wolf and scoundrel.
14
Credit unions continue to stick it to merchants. Remember, they lobbied Congress for an exemption to the cap on swipe fees.
It's fine to congratulate yourself on choosing a credit union. Just keep that card in your pocket and pay cash for your dry cleaning.
It's fine to congratulate yourself on choosing a credit union. Just keep that card in your pocket and pay cash for your dry cleaning.
"The justification du jour is “financial stability,” the claim that low interest rates breed bubbles and crashes."
It's stupid/corrupt lending practices and securities fraudulently rated as investment grade -- not low interest rates -- that most recently created bubbles and crashes.
It's stupid/corrupt lending practices and securities fraudulently rated as investment grade -- not low interest rates -- that most recently created bubbles and crashes.
14
If the Fed's rates were out of sync with the market, there would be lots of economic fallout (e.g., inflation) that we simply do not have.
So the bankers want the government to interfere with the free market?!
Hahaha!
Why is this not surprising?
So the bankers want the government to interfere with the free market?!
Hahaha!
Why is this not surprising?
13
Once again Mr. Krugman points to the truth regarding wealthy people or organizations motives for what they preach as sane monetary policy. I, over the last 50 of my years have come to the opinon that when those who already have much (money, property yada yada yada, that they are preaching ONLY in thier own interest. Although they proclaim they are looking to protect the little guy, they are, in effect, ONLY promoting their own interest. SO when the Banks or the Koch Brothers, or Exxon/Mobil tells me that they are looking out for MY interests, I put my hand on my wallet and hold on TIGHT.
8
Just more in the saga of out of control big banks. Elect Bernie Sanders, it is long past time to break up these big banks and reinstate Glass-Steagall.
16
But inflation HAS been happening in the LUXURY segment. I suppose if I were a banker, those tailored suits and fine things HAVE been getting more expensive.
And then there's the housing market. Although below the 2007 high point is STILL too expensive when compared with actual income.
If I were a banker yes I would be howling. But we should continue to ignore their cries for more.
And then there's the housing market. Although below the 2007 high point is STILL too expensive when compared with actual income.
If I were a banker yes I would be howling. But we should continue to ignore their cries for more.
5
And higher interest rates help the housing market how, other than possibly lowering the asking price. However, the higher interest rates will still leave people priced out of the market.
By the way, if banks can't make money because interest rates aren't high enough, they just charge more fees. They are in a "no lose, non-competitive" environment.
11
"...ever-changing rationales for never-changing policy demands..."
This is the essence of a large fraction of right-wing argumentation. Think of discussing anything contentious with a conservative: capital punishment, evolution, the death penalty, anything to do with Barack Obama. Each time you disprove one of their claims, a new one is presented instead of a counterargument. In a long discussion, your opponent will circle around and start going through the same list again. This is a sign that there is no truth involved.
Progressives need to learn a new mantra: "Stop changing the subject. Either prove that you're right or admit that you're wrong".
This is the essence of a large fraction of right-wing argumentation. Think of discussing anything contentious with a conservative: capital punishment, evolution, the death penalty, anything to do with Barack Obama. Each time you disprove one of their claims, a new one is presented instead of a counterargument. In a long discussion, your opponent will circle around and start going through the same list again. This is a sign that there is no truth involved.
Progressives need to learn a new mantra: "Stop changing the subject. Either prove that you're right or admit that you're wrong".
7
35 years after the New Deal America was humming along; the GI bill was sending people to college, helping them buy homes and start businesses; we were building an interstate highway system, lots and lots of houses, sending men to the moon; income equality was at an all time low.
America was open and ready for business.
35 years after Reaganomic supply side voodoo America is in the toilet. Our infrastructure is crumbling and republicans won't fix it because that might give the democrats some credit. Wealth inequality is at historic highs with trillions of dollars (and euros) being hoarded while child poverty is also at historic highs (for a super wealthy country, anyway).
Those doing the hoarding and whining (bankers) need to remember that cycles of history do swing like the pendulum do and when it swings the other way there will be hell to pay.
There are 300 millions firearms floating around in America and when the rednecks who own them finally figure out that the enemy is not labor unions or liberals or black folk or brown folk, but the con artists in the republican party who have convinced them that their problems come from their fellow working class stiffs - it could get a bit dangerous.
Do these hoarders and thieves and charlatans not remember the Bastille?
America was open and ready for business.
35 years after Reaganomic supply side voodoo America is in the toilet. Our infrastructure is crumbling and republicans won't fix it because that might give the democrats some credit. Wealth inequality is at historic highs with trillions of dollars (and euros) being hoarded while child poverty is also at historic highs (for a super wealthy country, anyway).
Those doing the hoarding and whining (bankers) need to remember that cycles of history do swing like the pendulum do and when it swings the other way there will be hell to pay.
There are 300 millions firearms floating around in America and when the rednecks who own them finally figure out that the enemy is not labor unions or liberals or black folk or brown folk, but the con artists in the republican party who have convinced them that their problems come from their fellow working class stiffs - it could get a bit dangerous.
Do these hoarders and thieves and charlatans not remember the Bastille?
66
You mention the possibility that low interest rates may create bubbles. I believe that is presently the case and the primary bubble is the same bubble as the last financial meltdown; junk bonds.
The bankers now are aping the approach of Bush administration in the lead up to the war in Iraq, if the bankers are trying out a new argument periodically in favor of their preferred course of action. The changing arguments back then made me suspicious, to say the least, and they raise suspicions now.
6
Please don't forget about the millions of savers who earn nothing on their assets in the current environment. Please realize that the FED is keeping rates low and punishing savers. Please realize that there are now asset bubbles in real estate, stocks and bonds which will burst when rates rise. It's not clear the growth, not asset bubbles, would be affected by letting the market dictate interest rates and not the FED. Not clear at all.
4
Ross Salinger,
The banks could pay a bit more if they wanted to. They use the low cost of borrowing on depositors while they charge 4% and up to borrowers on money they received for practically nothing.
The banks could pay a bit more if they wanted to. They use the low cost of borrowing on depositors while they charge 4% and up to borrowers on money they received for practically nothing.
If you think the bankers are raging now, wait till Bernie Sanders wins a couple of primaries. Their rage will turn to apoplexy.
Sanders' position on big banks is evident by the bill he proposed to break up big banks (http://www.sanders.senate.gov/newsroom/press-releases/sanders-files-bill...
Sanders' position on big banks is evident by the bill he proposed to break up big banks (http://www.sanders.senate.gov/newsroom/press-releases/sanders-files-bill...
58
When the peasants crest the hill with torches and pitchforks the bankers might start to get an inkling.
269
I'm tired of waiting for my fellow citizens to light 'em up!
I would like Prof. Krugman to address what is an increasingly glaring gap in his analyses.
So far we have been given lots of excellent arguments that, in a liquidity trap, low interest rates do not lead to serious inflationary pressure, and so, we shouldn't be worried about inflation.
But another worry I've heard consistently expressed is that the easy money from low interest rates leads to a "frothy" stock market - that is, overvalued stocks, especially for tech companies, such as Uber, where the valuation is highly speculative instead of being based on business fundamentals. The worry is that, unless interest rates go up, this will keep happening, inflating too many unsustainable bubbles, and once they burst, it won't just be the speculative gamblers who end up hurting. The last burst bubble hurt a lot. If over-leveraged debt was a problem for the housing market, it seems it would be a problem here too.
Is this a reason for the Fed to be concerned? We readers need a careful assessment, not another set of ad hominems - even if justly deserved - against bankers and financiers. Prof. K has consistently not addressed this issue. And should.
So far we have been given lots of excellent arguments that, in a liquidity trap, low interest rates do not lead to serious inflationary pressure, and so, we shouldn't be worried about inflation.
But another worry I've heard consistently expressed is that the easy money from low interest rates leads to a "frothy" stock market - that is, overvalued stocks, especially for tech companies, such as Uber, where the valuation is highly speculative instead of being based on business fundamentals. The worry is that, unless interest rates go up, this will keep happening, inflating too many unsustainable bubbles, and once they burst, it won't just be the speculative gamblers who end up hurting. The last burst bubble hurt a lot. If over-leveraged debt was a problem for the housing market, it seems it would be a problem here too.
Is this a reason for the Fed to be concerned? We readers need a careful assessment, not another set of ad hominems - even if justly deserved - against bankers and financiers. Prof. K has consistently not addressed this issue. And should.
5
Not quite true
http://web.mit.edu/krugman/www/stockbub.html
True, this was about the dot com bubble, and in this case "quantitative easing," an actual fed policy that went beyond low interest rates is likely involved in the current bubbles. But the Fed has stopped doing that. So, perhaps, do nothing is still the best role for the Fed now as well.
http://web.mit.edu/krugman/www/stockbub.html
True, this was about the dot com bubble, and in this case "quantitative easing," an actual fed policy that went beyond low interest rates is likely involved in the current bubbles. But the Fed has stopped doing that. So, perhaps, do nothing is still the best role for the Fed now as well.
Your "frothy" stock market has a lot more to do with income inequality than it does with low interest rates. The "uber wealthy" have an ever increasing share of total income, and they can't spend what they have now - any increase simply increases the amount they dump into the stock market, driving up the prices of dubious stocks. If taxed the uber wealthy at significantly higher rates and used the revenue to invest in rebuilding the infrastructure, it wouldn't affect their lifestyle a bit, but it would solve your "frothy" stock market problem - and help the overall economy over the long term
I have to defer to Dr. K in all matters of depth on this topic. What I know with certainty is that the effect has been bank interest rates that pay less than the banks charge to keep my money in them, and the fees they continue to create for everything (e.g.: $1 for printing a statement at the ATM, charge for more than 10 electronic transactions). This is a rigged system to push us into the vagaries of the stock market, or keep those who desire certainty with our principle from getting ahead.
4
Banks need to both attract depositors and make money on loans. Why should interest rates be below the rate of inflation. Hard to see how lending money below the future cost of that money will stimulate lending.
Hard to see how paying depositors interest below the rate of inflation will stimulate the deposits needed to lend money.
We are at full employment. Half of the dual mandate has been reached. The US federal reserve is not the World's federal reserve. If we had any kind of rational government spending to rebuild our failing down infrastructure inflation in the US would start to accelerate. While a shutdown over funding of Planned Parenthood is in the cards both parties are looking to end sequester for more military and NSA spending. While that has decidedly little long term pay back it will be inflationary.
Hard to see how paying depositors interest below the rate of inflation will stimulate the deposits needed to lend money.
We are at full employment. Half of the dual mandate has been reached. The US federal reserve is not the World's federal reserve. If we had any kind of rational government spending to rebuild our failing down infrastructure inflation in the US would start to accelerate. While a shutdown over funding of Planned Parenthood is in the cards both parties are looking to end sequester for more military and NSA spending. While that has decidedly little long term pay back it will be inflationary.
2
We are at full employment? Full employment would suggest pressure on wages. No such thing has happened. Therefore the full employment rate number you refer to must be wrong, or the unemployment rate is a poor measurement, unless you use the complete figure.
Why Has Labor's Share Of GDP Declined For 40 Years?
wages and salaries--earned income--is a steadily decreasing share of the entire economy, this means household earned income is eroding even when the economy is expanding."Something's gotta give":http://www.zerohedge.com/news/2015-09-21/why-has-labors-share-gdp-declin...
This is the problem and it's not going to be solved by lower and continued low interest rates. The decreased income is in effect deflationary, if you want to fix the economy it has to happen at the expense of wall street, stock prices. That's not going to happen under our current crony capitalist system where both parties are owned by wall street. The system has got to change. rates have been going down steadily since volker, yet the above has happened (labor share of GDP. ). Lets stop advocating solutions that haven't addressed the problem for 40 years. I think 40 years of falling wages relative to GDP means something is wrong with the system, it's not republican vs democrat. PK's just got to drop his dogma based and seek new solutions, not advocate past failures . Note, if you want to reach inflationary targets this is the way, (via wages) not monetary policy and a correct understanding of the Phillips curve is exactly that. But most economists refuse to realize how the Phillips curve is misused and abused. Then they would have to question their assumed beliefs ahnd theories
wages and salaries--earned income--is a steadily decreasing share of the entire economy, this means household earned income is eroding even when the economy is expanding."Something's gotta give":http://www.zerohedge.com/news/2015-09-21/why-has-labors-share-gdp-declin...
This is the problem and it's not going to be solved by lower and continued low interest rates. The decreased income is in effect deflationary, if you want to fix the economy it has to happen at the expense of wall street, stock prices. That's not going to happen under our current crony capitalist system where both parties are owned by wall street. The system has got to change. rates have been going down steadily since volker, yet the above has happened (labor share of GDP. ). Lets stop advocating solutions that haven't addressed the problem for 40 years. I think 40 years of falling wages relative to GDP means something is wrong with the system, it's not republican vs democrat. PK's just got to drop his dogma based and seek new solutions, not advocate past failures . Note, if you want to reach inflationary targets this is the way, (via wages) not monetary policy and a correct understanding of the Phillips curve is exactly that. But most economists refuse to realize how the Phillips curve is misused and abused. Then they would have to question their assumed beliefs ahnd theories
2
The unhealthy surge of mergers and acquisitions is one good reason to increase interest rates. An increase in interest rates would also stop some of the speculative real estate market.
While not true across the US, where I live real estate prices are still on an escalating upwards spiral, some properties being purchased and not occupied--by anyone. The new buyers pay all cash and leave the homes empty, neither owner occupied nor rented to someone. This results in a blight on the neighborhood as a whole and serves as an attractant for squatters.
Finally, the low interest rates are hurting anyone who saves and carefully lives within their means. An increase in interest rates would help savers, especially seniors who rely on these savings for income.
The Fed should include food in the inflation considerations. Fresh foods that are seasonal should not be included as these vary a lot. Packaged foods, such as, flour, sugar, salt, anything with a longer shelf life have shown a huge inflation either through actual price increases or decrease in package contents. These increases do not disappear nor vary as the seasons change.
While not true across the US, where I live real estate prices are still on an escalating upwards spiral, some properties being purchased and not occupied--by anyone. The new buyers pay all cash and leave the homes empty, neither owner occupied nor rented to someone. This results in a blight on the neighborhood as a whole and serves as an attractant for squatters.
Finally, the low interest rates are hurting anyone who saves and carefully lives within their means. An increase in interest rates would help savers, especially seniors who rely on these savings for income.
The Fed should include food in the inflation considerations. Fresh foods that are seasonal should not be included as these vary a lot. Packaged foods, such as, flour, sugar, salt, anything with a longer shelf life have shown a huge inflation either through actual price increases or decrease in package contents. These increases do not disappear nor vary as the seasons change.
Over the past 5 years I have seen no long-term change in the prices I pay for flour and sugar. Or much of anything else. But I'm a cook-from-scratch flexitarian who doesn't confuse grocery-sack logos with status symbols.
Bankers havent acknowledged that they have done better under democratic administrations. But in the past those administrations had a democratic Congress or enough sensible republicans to pass sound policy to spur the economy. Today's Congress does not seem interested in spurring the economy. They talk about jobs; they ran and won in 2010
2
I fail to see how a quarter point hike would have this effect, pro or con. I think it would have given consumers some confidence. As we all know, money management is a highly emotional activity.
1
You let us know when the Fed funds rate affects your decision to buy anything at all, from a home to an afternoon snack.
On the other hand you might consider what happens when the dollar gets stronger than it already is. To things like domestic jobs and foreign imports. This 'confidence' you speak of is not an event in the minds of consumers. It is, as Professor Krugman relates an event in the dark and troubled souls of financiers in their continuing search for yet higher scores in the game they play.
On the other hand you might consider what happens when the dollar gets stronger than it already is. To things like domestic jobs and foreign imports. This 'confidence' you speak of is not an event in the minds of consumers. It is, as Professor Krugman relates an event in the dark and troubled souls of financiers in their continuing search for yet higher scores in the game they play.
56
do most consumers know what the Federal Reserve is or does? Do they know what the current is or will they know when it rises?
3
So what happens when the dollar is stronger? Is that tied to rate increases?
Bankers gamble with bank deposits and retirement accounts, pay tellers in New York City $25,000 per year, foreclose on millions, and now, it turns out, they have rejected 72 percent of homeowner applications to modify mortgages. So instead of writing down mortgages for homeowners, who were least responsible and most victimized for the housing collapse, they foreclose on their victims and sell the house out from under them - for fair market value. The settlement to help homeowners should have been mandatory, and given homeowners a cause of action against banks, but as usual it's the big shots with their expensive suits and their armies of lobbyists calling all the shots. Thank goodness they didn't win their battle over interest rates with the Fed. They don't deserve a dime.
http://www.nytimes.com/2015/08/02/business/pulling-down-underwater-borro...
http://www.nytimes.com/2015/08/02/business/pulling-down-underwater-borro...
25
Bubble? What bubble? The stock market has been having a pretty tough year, in part because businesses don't want higher interest rates that would increase their borrowing costs.
We might begin to see some inflation when we approach full employment and people have more money to spend. Too many people still work two part time jobs that pay little or are part time when they want to be full time employees.
Banks need to issue more loans to qualified individuals and businesses to stimulate growth. Businesses need to raise salaries, and the minimum wage target we have in Seattle ($15) need to become the norm.
Meanwhile, the government needs to take advantage of this low-interest environment and build crumbling infrastructure.
What we must NOT do is be stingy with Social Security at a time when retired people and those approaching retirement earn close to nothing by safely investing in cash instruments.
We might begin to see some inflation when we approach full employment and people have more money to spend. Too many people still work two part time jobs that pay little or are part time when they want to be full time employees.
Banks need to issue more loans to qualified individuals and businesses to stimulate growth. Businesses need to raise salaries, and the minimum wage target we have in Seattle ($15) need to become the norm.
Meanwhile, the government needs to take advantage of this low-interest environment and build crumbling infrastructure.
What we must NOT do is be stingy with Social Security at a time when retired people and those approaching retirement earn close to nothing by safely investing in cash instruments.
7
I agree.
The US and other advanced economies are weak. Most are teetering toward deflation and economic stagnation. The Fed made the correct decision but the US and other countries must change fiscal policies to encourage investment in public goods & services that will benefit most people, not just a few bankers.
The debt of the Federal government is NOT understood by the public and they really have no guru to teach them the difference, backed with historical evidence, between kitchen table & sovereign national investments to support that the economies of the World need to invest in implementing goods and services that will improve the standard of living.
We have many challenges ahead, one being the future fossil fueled transport & electric power generation costs. Much investment must be made by the global economy to make the environment survivable.
I am not certain that private utilities are going to be able to hack it. Maybe we need to create a government owned high speed internet, TV, & electric power distribution system (shared ditch) to bring secure weather proof energy/com to urban homes & offices.
I am certain that we need to invest in test programs for very efficient transport systems like the new superconducting Maglev invented by James Powell & Gordon Danby so that it can compete with offerings developed by foreign governments.
Clearly, We need to raise wages & invest if we are to avoid secular stagnation which won't help anyone including the bankers.
The US and other advanced economies are weak. Most are teetering toward deflation and economic stagnation. The Fed made the correct decision but the US and other countries must change fiscal policies to encourage investment in public goods & services that will benefit most people, not just a few bankers.
The debt of the Federal government is NOT understood by the public and they really have no guru to teach them the difference, backed with historical evidence, between kitchen table & sovereign national investments to support that the economies of the World need to invest in implementing goods and services that will improve the standard of living.
We have many challenges ahead, one being the future fossil fueled transport & electric power generation costs. Much investment must be made by the global economy to make the environment survivable.
I am not certain that private utilities are going to be able to hack it. Maybe we need to create a government owned high speed internet, TV, & electric power distribution system (shared ditch) to bring secure weather proof energy/com to urban homes & offices.
I am certain that we need to invest in test programs for very efficient transport systems like the new superconducting Maglev invented by James Powell & Gordon Danby so that it can compete with offerings developed by foreign governments.
Clearly, We need to raise wages & invest if we are to avoid secular stagnation which won't help anyone including the bankers.
10
If we accept the notion of gross income onequality, and the failure of trickle down supply side theory, wouldn't it be not only possible, but likely that extended periods of low interest rates could have inflationary effects at the top of the economy without having the same impact at the bottom? If this is the case, and I would argue that it is, then we would in fact be at risk of cyclical bubbles appearing as a small group of investors with access to pools of easy money at the top chases higher returns in a very small pool of assets.
2
With QE bankers were taking in Fed money and buying treasuries and pocketing the interest--big money and no risk transactions. They've sure got it rough. And now almost no interest and 15% on cc loans. sure got it rough...
But what about the 'other' inflation? College tuition rates are skyrocketing and housing prices are rising. If it quacks, is it not a duck?
1
Next rationale: Unless bankers always get their way, more of them will leave finance to poison other industries, like Martin Shkreli at Turing Pharma:
http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-...
http://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-...
1
" St.Louis Fed head Jim Bullard sent a message to "your friend Cramer", saying "The Fed cannot permanently raise stock prices," adding, rather astonishingly to the anchors, "to have [Cramer] cheerleading for lower rates 24 hours a day is unsavory."
http://www.zerohedge.com/news/2015-09-21/feds-bullard-slams-unsavory-jim...
I'm not sure where Krugman gets his version of events here. It sounds like something he's been told by a fed insider and how they want to spin their pro wall street policies
http://www.zerohedge.com/news/2015-09-21/feds-bullard-slams-unsavory-jim...
I'm not sure where Krugman gets his version of events here. It sounds like something he's been told by a fed insider and how they want to spin their pro wall street policies
If the rich can't get enough income from interest on their capital, they can do what the rest of us do: get a job.
8
The bankers do ... have excellent tailors. A very acute observation, especially considering how many are empty suits.
6
Even for conspiracy theory, this is sloppy and lazy stuff.
Krugman does not cite a single banker demanding that rates be raised, let alone one foaming at the mouth. As befits an oracle, Krugman's citations seem to be only to himself. That is what he means by "evidence-based."
Remember that this is what the Brits call a "silly season" -- a Presidential election is looming. So take with a grain of salt Krugman's cartoons of oligarchs and conspirators.
Krugman has conveniently forgotten what Schumpeter told us about business and politics: "A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose—both in the drawing room and on the platform. Knowing this he wants to be left alone and to leave politics alone. [...] There is surely no trace of any mystic glamor about him which is what counts in the ruling of men."
Or, as John Maynard Keynes replied when a lady told him that there was a conspiracy of bankers, "I wish the bankers would conspire."
Krugman does not cite a single banker demanding that rates be raised, let alone one foaming at the mouth. As befits an oracle, Krugman's citations seem to be only to himself. That is what he means by "evidence-based."
Remember that this is what the Brits call a "silly season" -- a Presidential election is looming. So take with a grain of salt Krugman's cartoons of oligarchs and conspirators.
Krugman has conveniently forgotten what Schumpeter told us about business and politics: "A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose—both in the drawing room and on the platform. Knowing this he wants to be left alone and to leave politics alone. [...] There is surely no trace of any mystic glamor about him which is what counts in the ruling of men."
Or, as John Maynard Keynes replied when a lady told him that there was a conspiracy of bankers, "I wish the bankers would conspire."
3
Exactly why are the bankers angry about low rates, after all they are the prime beneficiaries of the FED's low rate policy decision; they borrow money for nothing, and then lend it to consumers based on credit scores.
I am fairly certain there are a number of consumers who do not qualify for zero or minimal interest rate auto loans, and also have credit card debt with an annual APR of close to 30%; I find it hard to believe the banks are not raking in exorbitant profits from these individuals, even after factoring in the default rate.
Moreover, regardless of the media hype that the banks have repaid their TARP loans, this was accomplished for the same exact reason they are now supposedly complaining about; they received free money and were able to turn a profit, which allowed them to "repay" TARP with taxpayer money. Further, the FED still cites Toxic Assets as one of their holdings in the FED's monthly credit report.
Finally, the only possible area where the banks have a complaint about low interest rates is in treasury securities, an area where the FED still has an impact on the going auction rates, regardless of the FED strategy Du Jour.
I am fairly certain there are a number of consumers who do not qualify for zero or minimal interest rate auto loans, and also have credit card debt with an annual APR of close to 30%; I find it hard to believe the banks are not raking in exorbitant profits from these individuals, even after factoring in the default rate.
Moreover, regardless of the media hype that the banks have repaid their TARP loans, this was accomplished for the same exact reason they are now supposedly complaining about; they received free money and were able to turn a profit, which allowed them to "repay" TARP with taxpayer money. Further, the FED still cites Toxic Assets as one of their holdings in the FED's monthly credit report.
Finally, the only possible area where the banks have a complaint about low interest rates is in treasury securities, an area where the FED still has an impact on the going auction rates, regardless of the FED strategy Du Jour.
4
This comment will be a little wonkish and offer more questions than answers.
There's this little equation:
P = (MV)/S
where P is prices , M is the amount of money in the economy, V measures the frequency that money changes hands in domestic commerce, and S is the dollar amount of the amount of stuff, goods and services, we can produce in some time period.
A word on V. If the government gives Scrooge McDuck a Billion for advice on the comic book market, M increases by a Billion, but if Scrooge puts the bucks in his basement, and forgets about it, that doesn't affect P at all. That Billion has a V of 0.
If you want to find the rate of inflation, you simply differentiate. Using ´ for the derivative wrt time, i.e. rate of change, we get:
P´ = (SMV´ + SVM´ - MVS´)/ S² = (1/S) (MV´ + VM´ - PS´)
which shows that the relation of P´ to V´, M´ and S´ is pretty complicated.
To make matters worse V is very difficult to measure. In fact, it is usually measured by using the litle equation to compute it, i.e. it is a fudge factor.
The effect of other parameters like interest rates on V & V´ is also largely guesswork.
The success of Volker's rise in interest rates in lowering inflation is often cited, but as recent article said."the messiness of Mr. Volcker’s triumph is often overlooked. The Fed’s initial plans did not work and were revised and did not work and were revised again — and still didn’t work." I suspect the fall in oil prices may have also had something to do with it.
There's this little equation:
P = (MV)/S
where P is prices , M is the amount of money in the economy, V measures the frequency that money changes hands in domestic commerce, and S is the dollar amount of the amount of stuff, goods and services, we can produce in some time period.
A word on V. If the government gives Scrooge McDuck a Billion for advice on the comic book market, M increases by a Billion, but if Scrooge puts the bucks in his basement, and forgets about it, that doesn't affect P at all. That Billion has a V of 0.
If you want to find the rate of inflation, you simply differentiate. Using ´ for the derivative wrt time, i.e. rate of change, we get:
P´ = (SMV´ + SVM´ - MVS´)/ S² = (1/S) (MV´ + VM´ - PS´)
which shows that the relation of P´ to V´, M´ and S´ is pretty complicated.
To make matters worse V is very difficult to measure. In fact, it is usually measured by using the litle equation to compute it, i.e. it is a fudge factor.
The effect of other parameters like interest rates on V & V´ is also largely guesswork.
The success of Volker's rise in interest rates in lowering inflation is often cited, but as recent article said."the messiness of Mr. Volcker’s triumph is often overlooked. The Fed’s initial plans did not work and were revised and did not work and were revised again — and still didn’t work." I suspect the fall in oil prices may have also had something to do with it.
5
Correction: My apologies but just found an article showing that Brian Moynihan's base pay was $1.5 million in 2014. The rest of his $13 million in pay in 2014 was in stock units and was not in addition to the $13 million.
"bankers reacted to its decision with sheer, unadulterated rage" ... "howling of the bankers". What on earth is Dr. K talking about? Could you cite examples of this? I think the financial markets would be pretty unhappy if a rate hike sent the global economy into a recession. Not to mention low-rates have spurred the most deal-making and M&A (over $1 trillion this year) since 1999 - which is how investment bankers get paid. While low NIMs hurt bank stocks, Dr. Paul "Glenn Beck" Krugman either doesn't know what he's talking about or is flat out lying about the desire of financial market participants to see a rate hike.
3
Do you read the FT, or the Business section of the NYT, or even the Economist, not to mention the WSJ? If you did, you wouldn't be asking such a question. And all that M&A is not a positive sign of economic health, in this context its as much a symptom of idle money with no place good to go. Idle not because it needs to be, or the market demands that it be, but because a political decision was made in the Republican party, when the Obama administration came to power, to ignore market orthodoxy and promulgate policies that we today call 'austerianism': an unnecessary and unwise policy to deleverage government debt during a time of unusually low interest and inflation rates by insisting on deficit-neutral government spending.
The bankers are finding out there's a price to pay for their tightfistedness.
And you know, they hate it paying for anything, those 'market types'.
The bankers are finding out there's a price to pay for their tightfistedness.
And you know, they hate it paying for anything, those 'market types'.
Um, he only cited bankers. Not all "financial market participants".
As far as I can tell, nobody is reacting with "sheer unadulterated rage". I am all for proper regulation of the financial markets, clamping down on lobbying / special interests, and fair taxation of carried interest. But I despise intellectuals and academics who devolve to demagoguery. Let's leave that to the pundits. Summer and Bernanke present rational, fact-based arguments advocating similar views without resorting to unnecessary partisanship and crowd-baiting.
It seems to me that the banisters stole our money (think the bubble and all the money lost in housing). They owe us big time. It is time to tax the living daylights out of the banisters because they do not produce anything but profits for themselves. And let's break them up while we're at it.
10
It is a beautiful Monday morning here on the Vermont Quebec border. The trees are as green as they were on the first day of summer. Tomorrow begins the Day of Atonement but I will not be too hard on myself after a year of great sorrow and pain where despite it all I did my best to bring some love love and lots of laughter into a world desperately in need of both.
The Days of Awe delivered the same message from my Conservative Prime Minister I received 50 years ago from my High School Vice Principal that you can't go to that school it is not for second class citizens. Even as fifty years later that school is diverse and welcoming as any on the planet I am still a second class citizen.
Steve Schmidt told me that indeed Trump, Carson or Fiorino may be the next White House occupant.
Today Paul Krugman talks to us about the power of the BANKERS and I would like to tell a joke I thought of to close this years comments.
It is 10,000 years in the future and the world has finally recovered from WW3 and the Bankers have again resumed their role as the guardians of the Temple. It is history class and little Johnny asks why did WW3 happened.
The teacher looks at little Johnny and says.
The war started because men had lost their faith. They no longer trusted their bankers and their sacred objects. The people started taking wheelbarrows full of computers, drugs and other valuables into the supermarket to trade for food and their social structure collapsed. Without bankers only chaos.
The Days of Awe delivered the same message from my Conservative Prime Minister I received 50 years ago from my High School Vice Principal that you can't go to that school it is not for second class citizens. Even as fifty years later that school is diverse and welcoming as any on the planet I am still a second class citizen.
Steve Schmidt told me that indeed Trump, Carson or Fiorino may be the next White House occupant.
Today Paul Krugman talks to us about the power of the BANKERS and I would like to tell a joke I thought of to close this years comments.
It is 10,000 years in the future and the world has finally recovered from WW3 and the Bankers have again resumed their role as the guardians of the Temple. It is history class and little Johnny asks why did WW3 happened.
The teacher looks at little Johnny and says.
The war started because men had lost their faith. They no longer trusted their bankers and their sacred objects. The people started taking wheelbarrows full of computers, drugs and other valuables into the supermarket to trade for food and their social structure collapsed. Without bankers only chaos.
2
Krugman: "There’s no reason to believe that what’s good for bankers is good for America...And the howling of the bankers should be taken...as a demonstration that the clamor for higher rates has nothing to do with the public interest."
Amen! Whether the "howling" is from bankers or from the political right, I think that we can "take it to the bank" that the cacophony hurting our ears has "nothing to do with the public interest" nor what is "good for America."
The prevalent disinterest in the public/common good is a major problem for our country, and much of that has to do with the apathy regarding what binds us together as a community and the uncritical embrace of individualism; and this indifference to the importance of community extends beyond the bankers, unfortunately. This indifference to what builds and benefits the community explains why political ideology trumps what advances the common good.
Amen! Whether the "howling" is from bankers or from the political right, I think that we can "take it to the bank" that the cacophony hurting our ears has "nothing to do with the public interest" nor what is "good for America."
The prevalent disinterest in the public/common good is a major problem for our country, and much of that has to do with the apathy regarding what binds us together as a community and the uncritical embrace of individualism; and this indifference to the importance of community extends beyond the bankers, unfortunately. This indifference to what builds and benefits the community explains why political ideology trumps what advances the common good.
9
I normally agree with Dr. Krugman, but not this time.
First, he says that bankers are hurt by low interest rates, but I see no evidence of that presented here. They can borrow money at, essentially, zero interest, either from the fed or from me (My savings currently pay .01 percent interest -- free) and loan it out at whatever it wants. Credit cards are 18 percent, student loans are 9 percent, and while a housing loan rate of 3 percent sounds low, remember the bank itself pays nothing for that money.
Second, low rates are smother demand because seniors -- me too! -- are making nothing on the savings we so carefully socked away for retirement. I'd love to spend more, but I can't because that would mean spending down my savings, my principle, which would both reduce the amount of money banks have the free use of, and would eventually mean I'd have to stop spending entirely.
Interest rates seem to be one of those relative things -- raising the fed's rate to even 2 percent or 4 percent might sound horrendous now, but where was it in the 80s when mortgage rates were 10 percent or more? During the 1950s to 1970s the interest rate on even simple savings was 4 percent and nobody thought that was a disaster.
So raising the rate now is only relative -- and will bankers and investors freak out? Of course they will. They freak out at everything, their own shadows included. Raise the rate, let them freak, and then move on.
First, he says that bankers are hurt by low interest rates, but I see no evidence of that presented here. They can borrow money at, essentially, zero interest, either from the fed or from me (My savings currently pay .01 percent interest -- free) and loan it out at whatever it wants. Credit cards are 18 percent, student loans are 9 percent, and while a housing loan rate of 3 percent sounds low, remember the bank itself pays nothing for that money.
Second, low rates are smother demand because seniors -- me too! -- are making nothing on the savings we so carefully socked away for retirement. I'd love to spend more, but I can't because that would mean spending down my savings, my principle, which would both reduce the amount of money banks have the free use of, and would eventually mean I'd have to stop spending entirely.
Interest rates seem to be one of those relative things -- raising the fed's rate to even 2 percent or 4 percent might sound horrendous now, but where was it in the 80s when mortgage rates were 10 percent or more? During the 1950s to 1970s the interest rate on even simple savings was 4 percent and nobody thought that was a disaster.
So raising the rate now is only relative -- and will bankers and investors freak out? Of course they will. They freak out at everything, their own shadows included. Raise the rate, let them freak, and then move on.
4
Not only the bankers are hurt by low interest rates. It also hurts the elderly who live on their interest income on money they spent all their lives saving. Their monthly interest check keeps shrinking. The stock market is too risky and 2% is too little money to earn on CDs so people can count on their interest income to pay some of their major bills.
4
If your CD returns are too low, buy the Dow. It's tripled since Obama took office
110
Every week brings new tales of corporate wrong-doing on minor to major issues...financial risks, fraud or health risks are common place. Just why anybody listens to tales of whats right or wrong from banks, hedge funds or corporations is beyond me. The merger of the airline industry was going to bring efficiency and cut fares - wrong. Merges of drugs firms - would bring lower priced and improved drugs - wrong. Bank mergers would improve that sector - wrong. Cutting back government regulations from the FDA to SEC will unleash capitalism. The scream of less or smaller government is really driven by the mega rich and their corporate interests so they can fleece the public and do what they want. The last decade of events bares that out.
8
No surprise here that bankers would feel this way.
An important lesson in the most useful "science of human nature" is that at the end of the day one may count on reasonable people to act reasonably in their own best interest.
http://lifeamongtheordinary.blogspot.com/2012/02/important-lesson-part-o...
An important lesson in the most useful "science of human nature" is that at the end of the day one may count on reasonable people to act reasonably in their own best interest.
http://lifeamongtheordinary.blogspot.com/2012/02/important-lesson-part-o...
1
Professor Krugman's article makes the case, again, for breaking up the colossal banks. They are too big to fail and too big to manage. These colossal banks only serve the interest of the bankers and other Wall Street mandarins.
7
There has been massive inflation in U.S. commercial real estate and to a different degree, many residential real estate markets. Have sizable bubbles formed? It appears so. Do these put our economy and employment at risk? Most certainly yes. The Fed is tasked with executing policy that promotes stability and the situation around RE pricing, rents and cap rates is likely an important factor in the FOMC's deliberations these days.
"There has been massive inflation in U.S. commercial real estate and to a different degree, many residential real estate markets."
Well, perhaps we should be heavily taxing the speculators. Unfortunately, the RepubliCON criminals in Congress have been paid to not harm their financial benefactors, no matter how much damage that they do to the economy.
Well, perhaps we should be heavily taxing the speculators. Unfortunately, the RepubliCON criminals in Congress have been paid to not harm their financial benefactors, no matter how much damage that they do to the economy.
In reply to Charlie, who states as a fact that "there has been massive inflation in...real estate...". He then states as fact that sizable and threatening bubbles have already formed. I would respectfully say that these are minority opinions rather than generally-accepted facts. There's also the problem that price changes in a commodity group like housing or oil are not inflation or deflation by themselves.
If Charlie could present some data to back up his opinions, it might be possible to move the discussion forward. Absent any such data, I am left to wonder whether Charlie is just looking at the past 7 years, which seem to represent a partial rebound after a very large drop.
If Charlie could present some data to back up his opinions, it might be possible to move the discussion forward. Absent any such data, I am left to wonder whether Charlie is just looking at the past 7 years, which seem to represent a partial rebound after a very large drop.
Median home prices in Denver, SF Bay Area, Los Angeles, San Diego, Seattle, Portland, Boise far above prerecession record levels. Cap rates for office space are at 2-4% in these markets.
Look at Zillo for home price data. For example, median price of a home in Santa Clara County (pop 1.9 million) was $905k in August up 65% since August 2012. Denver prices were $313k up 52% since 2012. We are talking about major markets throughout the west, not isolated pockets.
The data is right in front of us. Construction related jobs in most of these markets today account for much of the overall growth in jobs. For example, statewide CA construction jobs are up 32% since 2012 and again considerably more than that in the larger metropolitan areas. State data is out there for Washington, Colorado etc. and shows the same boom in construction jobs.
The issue is that Fed policy is fueling this construction boom but not helping generate manufacturing jobs. Our problem is that Fed policy works indiscriminately and the hot money is being used to fund speculative RE.
Again, if you go back to pre-recession high water prices on RE, current pricing is well above that in most cases in most markets. Crying out the exception and denying this reality is like denying the reality of global warming.
The point is, the issue is real and of concern for the stability of our economy despite the gloss-over by Mr. Krugman.
Look at Zillo for home price data. For example, median price of a home in Santa Clara County (pop 1.9 million) was $905k in August up 65% since August 2012. Denver prices were $313k up 52% since 2012. We are talking about major markets throughout the west, not isolated pockets.
The data is right in front of us. Construction related jobs in most of these markets today account for much of the overall growth in jobs. For example, statewide CA construction jobs are up 32% since 2012 and again considerably more than that in the larger metropolitan areas. State data is out there for Washington, Colorado etc. and shows the same boom in construction jobs.
The issue is that Fed policy is fueling this construction boom but not helping generate manufacturing jobs. Our problem is that Fed policy works indiscriminately and the hot money is being used to fund speculative RE.
Again, if you go back to pre-recession high water prices on RE, current pricing is well above that in most cases in most markets. Crying out the exception and denying this reality is like denying the reality of global warming.
The point is, the issue is real and of concern for the stability of our economy despite the gloss-over by Mr. Krugman.
Banks, having accumulated enormous reserves, now want higher interest rates for the $25 Trillion in loans that their $2.5 Trillion in reserves will permit. Otherwise they must bear the risk of a future spike in interest rates that would depress the market value of their loan portfolios. Raising rates sooner rather than later permits the loans to happen with less market risk for the banks. No-brain-er?
1
Well, few people seem to believe professional scientists and economists any more. But bankers still pass as Those People Who Understand The Economy (And Are Businessmen, too), even when understanding the economy, the banking business, and financial engineering can be three highly non-overlapping regimes.
So IMHO this is more about psychology than it is about anything else.
So IMHO this is more about psychology than it is about anything else.
1
If you are an "economist" and work for a bank, it is because you have no integrity and are willing to forget all the principles of economics that you learned in college.
Unfortunately, this is where most people get their opinion of economists as lying shills.
Unfortunately, this is where most people get their opinion of economists as lying shills.
We should remember the historical economic terrorism bankers have committed against this nation and the American people over the last 20 years.
In the late 1990's, banksters recruited right-wing Republicans Gramm-Leach-Bliley and the Republican Congress to write and pass a bill that repealed the Glass Steagall Act so the banks could begin to heavily gamble with other people's money, savings and houses.
It took the banksters awhile to set the world on fire with their economic plutonium, but eventually, they got the hang of economic pyromania.
Remember, it wasn't the working lady and manual laborer who invented the no-documentation, no-verification, 0%-interest teaser rates, balloon mortgages that artificially exploded the country's housing market.
The people who invented that garbage and then sliced it up, diced it and dressed it up AAA securities was the Wall St. bankster industry and their corrupted front men - mortgage brokers and fake 'rating agaencies'.
The 2008 economic meltdown never would have happened without AmericanWall St. banksters starting their own bonfire of psychopathic greed.
So when a banker shows discomfort with the Federal Reserve or any other elements of public policy, that is a wonderful thing - not a bad thing.
American bankers have worn out their welcome as respectable members of society.
Let them burn down their owns going forward.
They and their right-wing friends burned down enough houses and neighborhoods in America in 2008.
In the late 1990's, banksters recruited right-wing Republicans Gramm-Leach-Bliley and the Republican Congress to write and pass a bill that repealed the Glass Steagall Act so the banks could begin to heavily gamble with other people's money, savings and houses.
It took the banksters awhile to set the world on fire with their economic plutonium, but eventually, they got the hang of economic pyromania.
Remember, it wasn't the working lady and manual laborer who invented the no-documentation, no-verification, 0%-interest teaser rates, balloon mortgages that artificially exploded the country's housing market.
The people who invented that garbage and then sliced it up, diced it and dressed it up AAA securities was the Wall St. bankster industry and their corrupted front men - mortgage brokers and fake 'rating agaencies'.
The 2008 economic meltdown never would have happened without AmericanWall St. banksters starting their own bonfire of psychopathic greed.
So when a banker shows discomfort with the Federal Reserve or any other elements of public policy, that is a wonderful thing - not a bad thing.
American bankers have worn out their welcome as respectable members of society.
Let them burn down their owns going forward.
They and their right-wing friends burned down enough houses and neighborhoods in America in 2008.
414
Sorry, Charlie, Glass-Steagall was a Democratic coup of a Democratic President.
Definitely not an economist, but could it be that so much of our capital has now been concentrated in so few hands in such huge piles that there's simply not much incentive to make "safe" and dull fixed rate loans. If the folks with the big bucks mostly feel that they can afford to lose money on riskier but more promising investments, why should they fool around with the safe stuff? And if the fixed income seems important, hey, they can go to Greece for mind boggling returns.
Besides, we've made it so easy export all of our assets that nobody is looking to build much of anything in this country anymore. I was talking to a fellow yesterday who is setting up for a meeting in Cuba for American investors.
Besides, we've made it so easy export all of our assets that nobody is looking to build much of anything in this country anymore. I was talking to a fellow yesterday who is setting up for a meeting in Cuba for American investors.
5
There are both cultural and historical reasons for the Banks current position. The cultural component is our current never admit your mistake stance. If a politician answers a reporters question wrong, it's the reporters fault for asking a "gotcha" question. So those who have wrongly been predicting runaway inflation for the past 20 years refuse to admit their wrong, but instead simply claim their timing is slightly off...just wait for it, inflation is going to come. The historical component was the banks response to being able to make easy money in the investment markets. In response banks got rid of profit centers like checking accounts and a host of bank services and service charges. They also lost the skill set to do their core business, lending money. With interest loans low, they need to ake more loans than ever, but they have lost the skills to tell good loans from bad and what risks to take. So they are left to complain, actually whine that if only the Fed raised rates they could make some money. Let us all get our tiniest violins out for all the poor bankers who lost their way.
7
There is an accepted maxim that long-term rates should be 2% above inflation, meaning that currently 4% is almost certainly a Fed target. A .25% rise is insignificant, and the angst of banks and Krugman both are risible.
A steady progression of small rises will be preferable to a sharper rise should inflation spike suddenly in the future.
A steady progression of small rises will be preferable to a sharper rise should inflation spike suddenly in the future.
2
There is an accepted maxim that long-term rates should be 2% above inflation, meaning that 2% above inflation is almost certainly a Fed target.
Or maybe negative rates, as occurred in Europe, should be a Fed target.
Or maybe negative rates, as occurred in Europe, should be a Fed target.
That's not at all an "accepted maxim."
The closest thing monetary policy has to an accepted maxim is the Taylor Rule, which is an different equation.
Look it up...
The closest thing monetary policy has to an accepted maxim is the Taylor Rule, which is an different equation.
Look it up...
"the clamor for higher rates has nothing to do with the public interest"
As Adam Smith wrote: "The proposal of any new law or regulation of commerce which comes from [the dealers], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
As Adam Smith wrote: "The proposal of any new law or regulation of commerce which comes from [the dealers], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."
23
So the Fed gets brownie points for doing nothing? How about the fact that the Feds lowered interest rates to this level but haven't got comparable bang for the buck?
It's time for Professor Krugman to admit that Monetary Policy no longer works as a standalone tool. And therefore by extension, Fiscal and Keynes need to be in the mix. Otherwise Monetary Policy is a joke, perhaps the most important slot-machine job in the works, raising and reducing numbers by fractions, gathering statistics post, and repeating to infinity. There's got to be more prof. Otherwise why not just outsource the entire useless exercise?
It's time for Professor Krugman to admit that Monetary Policy no longer works as a standalone tool. And therefore by extension, Fiscal and Keynes need to be in the mix. Otherwise Monetary Policy is a joke, perhaps the most important slot-machine job in the works, raising and reducing numbers by fractions, gathering statistics post, and repeating to infinity. There's got to be more prof. Otherwise why not just outsource the entire useless exercise?
5
You obviously have not been reading Krugman since late 2008. He has constantly maintained that monetary policy is second best, but because of Republicans in Washington, DC, fiscal policy is off the table.
It isn't all or nothing.
"Raise interest rates" does not necessarily mean a restrictive rate of 8%.
The economy has needed the very low rate to prevent a disaster in 2008. But we are not moving forward. Not where we want to be, but moving forward.
Increasing the rate by 1/4 or even 1/2 per cent would not be a major shift in economic policy. It would be a move from "Emergency Stimulus" to "Full Stimulus."
Today, I think that this is a reasonable step to take.
"Raise interest rates" does not necessarily mean a restrictive rate of 8%.
The economy has needed the very low rate to prevent a disaster in 2008. But we are not moving forward. Not where we want to be, but moving forward.
Increasing the rate by 1/4 or even 1/2 per cent would not be a major shift in economic policy. It would be a move from "Emergency Stimulus" to "Full Stimulus."
Today, I think that this is a reasonable step to take.
3
I apologize for the typo.
Make that "But we are *now* moving forward."
Make that "But we are *now* moving forward."
The strangest criticisms of ZIRP, in my opinion, are the ones that insinuate somehow a small increase in rates can accelerate growth (rather than the opposite).
the Federal Reserve needs to be renamed the EVGC (the Equity Valuation Guarantee Commission). the ballooning equity market has been the primary beneficiary of Fed policy. And Fed policy is continued with whatever rationale is required to justify historically low rates.
Originally rates would be raised if unemployment hit the six plus percent range. no one in the general public thinks unemployment is anywhere near the five plus percent rate quoted.
then rates would be raised only if inflation ran two plus percent. no one in the general public thinks inflation is running anywhere near that low.
now rates will be raised only when the the international economic situation stabilizes. that will be NEVER.
due to the effects raising rates would have on debt rollover by the federal government, it is thought by the general public that raising rates will never occur since the federal debt is already out of control.
additionally, due to the effect raising rates would have on the debt instruments on Fed books, again the general public thinks raising rates will never occur.
now for the retiree, record low interest rates mean he has to participate in the wall street casino or accept essentially nothing for his savings at banks.
Originally rates would be raised if unemployment hit the six plus percent range. no one in the general public thinks unemployment is anywhere near the five plus percent rate quoted.
then rates would be raised only if inflation ran two plus percent. no one in the general public thinks inflation is running anywhere near that low.
now rates will be raised only when the the international economic situation stabilizes. that will be NEVER.
due to the effects raising rates would have on debt rollover by the federal government, it is thought by the general public that raising rates will never occur since the federal debt is already out of control.
additionally, due to the effect raising rates would have on the debt instruments on Fed books, again the general public thinks raising rates will never occur.
now for the retiree, record low interest rates mean he has to participate in the wall street casino or accept essentially nothing for his savings at banks.
5
I am surprised Krugman does not address the elephant in the room: was there a paradigm shift and was Piketty right about inflation and interest rates. Are rates low by long-term historical measures (looking back a century) or are they simply low by recent, post World War II standards? The truth is the run up in rates by Volker was the aberration. This "low-rate environment" has been going on for nearly a generation with rates trending lower since Reagan.
The other question we should ask is if supply & demand is the ordering mechanism, how will the increase in rates by the Fed really impact interest rates? Will investors simply shrug it off and ignore it? There is so much money on the sidelines with no place to be invested that competition for a few basis points in rate is likely to keep rates low. Those with money have no place to invest safely, so they put money in money market funds or take much more risk in the hope of getting a better return through the market with stock or hedge funds (even though we know hedge funds don't beat the market). The market is probably overvalued as a result, and will likely lead to more volatility as individuals are inherently irrational in their investment choices as we saw in the Great Recession. Reality blew the sheen off Greenspan's supposed control solely through the Fed, and many view this as the Emperor having no clothes.
We need to start fighting the right battle - and its not interest rates.
The other question we should ask is if supply & demand is the ordering mechanism, how will the increase in rates by the Fed really impact interest rates? Will investors simply shrug it off and ignore it? There is so much money on the sidelines with no place to be invested that competition for a few basis points in rate is likely to keep rates low. Those with money have no place to invest safely, so they put money in money market funds or take much more risk in the hope of getting a better return through the market with stock or hedge funds (even though we know hedge funds don't beat the market). The market is probably overvalued as a result, and will likely lead to more volatility as individuals are inherently irrational in their investment choices as we saw in the Great Recession. Reality blew the sheen off Greenspan's supposed control solely through the Fed, and many view this as the Emperor having no clothes.
We need to start fighting the right battle - and its not interest rates.
2
My thoughts resonate with a few other comments: Zero interest has had a devastating effect on folks like me who saved and retired on the assumption that we would safely have a modest and safe income from bank interest and bonds. We old folks are the ones paying the price for a supposedly healthy economy and we are being set up for more of a loss if the stock market tanks because that's where we had to put much of our money instead. And I really question the whole philosophy that very low interest stimulates innovation: If I had a great idea for a business, the notion that zero interest is much better than 3 or 4% and would be the difference between doing it and not is absurd.
10
Demand is low because too much wealth has accumulated into the hands of too few, who can find nothing better to do with their money than sit on it or send it to a Republican Super Pac.
One of the best aspects of Obamacare for America right now is it's tax on the rich, passed through to immediate spending on healthcare for the poor. It's having a direct stimulatory effect, much to the nation's benefit. We need something similar for highways and infrastructure and we'll "Make America Great Again!" (have I heard that somewhere?)
One of the best aspects of Obamacare for America right now is it's tax on the rich, passed through to immediate spending on healthcare for the poor. It's having a direct stimulatory effect, much to the nation's benefit. We need something similar for highways and infrastructure and we'll "Make America Great Again!" (have I heard that somewhere?)
102
Wrong. How can you not know that Wall Street is populated by Democrats, mostly liberal?
One would think that even rightwing conservatives, at least the ones who aren't members of Congress, might agree with Krugman's view that it is bankers' greed and flagrant self-interest which fuels the demand for higher rates of interest. After all, much of the populist rage on the right (at the peon level, not higher) is aimed at big banks and banksters generally.
13
Krugman is badly confused on this issue. Inflationistas have been calling for the Fed to "raise rates", but the rate that the Fed directly controls is federal funds interbank rate, the rate that banks pay each other for short-term loans - and other short term rates, including those on bank deposits, are closely tied to federal funds. If banks wanted to increase the spread between interest rates they pay and what they get on long-term loans they would presumably be calling for the Fed to reverse its recent policy and sell long-term bonds on the assumption that this would cause those rates to rise - which as a matter of fact it has been doing to some extent - and keep federal funds rate low.
Of course bankers may also be confused and not really know what will happen if "rates" are raised. It appears that the Fed was also confused about interest rates, since its actions have certainly not had the effects which Bernanke assumed.
Of course bankers may also be confused and not really know what will happen if "rates" are raised. It appears that the Fed was also confused about interest rates, since its actions have certainly not had the effects which Bernanke assumed.
The first "Supply Sider", Milton Friedman, preached his gospel of anti-Keynesian tools for acting to counter destructive national economic trends: Stop using fiscal tools, ie, taxes and spending to counter-act them.
Instead, Friedman advocated that the only valid tools for the government to use were monetary ones: Control of the interest rate and money supply. Ronald Reagan & Co preached this 35 years ago.
Now, it's a fact. The Fed has managed the economy and even (when necessary) offset irresponsible fiscal policies. And recession has been prevented for many years now by the ridiculously low interest rate. Conservatives have been warning that it will set off inflation for years, but it hasn't. They got what they wanted: Monetary policy dominates control of the economy, but now that it's limiting profit expansion, they are unhappy with it, regardless of whether it is good for the nation.
So they threw "Keynesian Economics" under the bus when it suited them, in favor of "Supply Side Economics". Now they want to throw "Supply Side Economics" under the bus as well.
Instead, Friedman advocated that the only valid tools for the government to use were monetary ones: Control of the interest rate and money supply. Ronald Reagan & Co preached this 35 years ago.
Now, it's a fact. The Fed has managed the economy and even (when necessary) offset irresponsible fiscal policies. And recession has been prevented for many years now by the ridiculously low interest rate. Conservatives have been warning that it will set off inflation for years, but it hasn't. They got what they wanted: Monetary policy dominates control of the economy, but now that it's limiting profit expansion, they are unhappy with it, regardless of whether it is good for the nation.
So they threw "Keynesian Economics" under the bus when it suited them, in favor of "Supply Side Economics". Now they want to throw "Supply Side Economics" under the bus as well.
7
The only way to get our economy back on an even track is to starve Wall Street of the $$$Trillions poured into 401ks by average Americans. There are not enough places to put the money so supposed "value" keeps going up when, in fact, it's a paper balloon waiting to pop - BIG. Time to reinstate company pensions and to form true employee-owed companies with no outside investors. OUR government must support these endeavors, and increase the minimum interest on deposits in local banks and credit unions, to stop wealth inequality and certain stock market crashes. The banks must get back to doing what they are intended to do - support good businesses - instead of simply being thieves.
20
How can the Fed affect unemployment by working to artificially keep the interest rates at lower that true market levels by printing currency (US Treasury bonds) faster and faster to use that currency to buy bonds at auctions when the interest rates (actually the discounts from PW) get above the level that the FED chairman wants?
Ask any small (non-financial business) businessman that produces products how much do interest rates affect his job creation activity.
Why did all the higher-paying manufacturing jobs in the USA relocate to foreign nations in the last twenty years?
Why are our cities that were once the home of the basic wealth-creating US industrial manufacturing factories that hired millions of US citizens at much greater than minimum wages are now referred to as the “Rust Belt”?
Productivity is not how many widgets a laborer can make per hour; productivity is the cost of labor to make each widget!
Ask any small (non-financial business) businessman that produces products how much do interest rates affect his job creation activity.
Why did all the higher-paying manufacturing jobs in the USA relocate to foreign nations in the last twenty years?
Why are our cities that were once the home of the basic wealth-creating US industrial manufacturing factories that hired millions of US citizens at much greater than minimum wages are now referred to as the “Rust Belt”?
Productivity is not how many widgets a laborer can make per hour; productivity is the cost of labor to make each widget!
3
This Dance of Fools is easy to understand when considered in the context of who the participants are: politically-motivated politicians, media types primarily searching for chatter to fill pages and air time, and greedy bankers in search of a more-profitable yield curve. And each of the dancers wishes to lead, but in constantly-changing directions.
Conservative politicians have always regarded the Fed similarly to how they treat President Barack Obama: damned if you do, and damned if you don’t; pundits and faux-journalists reporting on things they cannot understand are creating the panic among taxpayers and the investing public and lastly the bankers--those psychopaths who brought-on the global financial melt-down--are only in it to embellish their own compensation and, of course, the profits which lead to their personal pots of gold.
All three of these groups--the politicians, the media types and the greedy bankers--are reasonably well compensated, if not quite highly so. For the pols, however, their true payday comes when they leave office. So in the end, as a group, their mantra seems to be “What, me worry?”
http://thetruthoncommonsense.com
Conservative politicians have always regarded the Fed similarly to how they treat President Barack Obama: damned if you do, and damned if you don’t; pundits and faux-journalists reporting on things they cannot understand are creating the panic among taxpayers and the investing public and lastly the bankers--those psychopaths who brought-on the global financial melt-down--are only in it to embellish their own compensation and, of course, the profits which lead to their personal pots of gold.
All three of these groups--the politicians, the media types and the greedy bankers--are reasonably well compensated, if not quite highly so. For the pols, however, their true payday comes when they leave office. So in the end, as a group, their mantra seems to be “What, me worry?”
http://thetruthoncommonsense.com
4
Whether low rates cause bubbles and crashes depends on what is done with that cheap money. If it flows into speculation, then yes there are bubbles followed by crashes.
That in turn depends on who is able to borrow at those cheap rates.
Is it given to those who already are rich, hence good credit risks, who then use it to speculate?
Is it given to those who have investment proposals for new business ventures and job growth? Those involve risk. Often they are not already rich, having ideas and ambition rather than old money they inherited, and so they don't have independent resources to pay it back if the investment does not work out.
By bankers' rules, money should go only to those who don't need it, and be used only for things we ought not to do anyway.
We need to find ways to direct the money to those we want to get the cheap money the Fed provides.
Giving it to bankers to do with as they will does not seem to work out. Even they know that, but they just want to raise rates instead of doing the right things with the money to cause jobs and healthy economic growth.
We need to get money where it is needed, going around bankers. There are ways. One way we used for a very long time is the Small Business Administration. There are other agencies like that for specific communities, like Native Hawaiians.
The bankers don't want cheap money? Don't give it to them. give it to the rest of us who need it and will do something productive with it instead of what the bankers do.
That in turn depends on who is able to borrow at those cheap rates.
Is it given to those who already are rich, hence good credit risks, who then use it to speculate?
Is it given to those who have investment proposals for new business ventures and job growth? Those involve risk. Often they are not already rich, having ideas and ambition rather than old money they inherited, and so they don't have independent resources to pay it back if the investment does not work out.
By bankers' rules, money should go only to those who don't need it, and be used only for things we ought not to do anyway.
We need to find ways to direct the money to those we want to get the cheap money the Fed provides.
Giving it to bankers to do with as they will does not seem to work out. Even they know that, but they just want to raise rates instead of doing the right things with the money to cause jobs and healthy economic growth.
We need to get money where it is needed, going around bankers. There are ways. One way we used for a very long time is the Small Business Administration. There are other agencies like that for specific communities, like Native Hawaiians.
The bankers don't want cheap money? Don't give it to them. give it to the rest of us who need it and will do something productive with it instead of what the bankers do.
16
I adhere to one theory concerning monetary policy. If it's good for the banks and corporations it's bad for America. If it's good for America, the banks and corporate America are against it.
4
Here's a theory for you.
The 0% Fed Funds policy has persisted so long that business men no longer trust the Fed.
The thinking then goes "Why should I stick my neck out and expand when I will be stuck with it and the Fed has no policy that works anymore?"
As a nation , we have become so Washington-centric that we have to check with Yellen if we want to do anything risky.
The 0% Fed Funds policy has persisted so long that business men no longer trust the Fed.
The thinking then goes "Why should I stick my neck out and expand when I will be stuck with it and the Fed has no policy that works anymore?"
As a nation , we have become so Washington-centric that we have to check with Yellen if we want to do anything risky.
and this opinion piece is not only a 'straw man' -(copyright: John) - it is actually a nice advertisment for the Investment Bankers who celebrated after Yellen didn't raise the rates.
They were so afraid that all the speculators would have left the market after a raise announcement. And stocks probably would have tanked another 8 percent?
So what did Yellen say? -
She pretented 'keeping its benchmark interest rate at or near zero, allowing job growth to continue unhindered' - as we all knew before - that the FED HAS to 'allow stock growth to continue unhindered.' - and that's an understandable strategie in these time where every little Bust in the market hits the Have-Littles hardest - while the Have-Lots are just holding out for the next Boom.
And so - as I somethimes suspect - are US economists just propagandists of Wall Street Gambling?
They were so afraid that all the speculators would have left the market after a raise announcement. And stocks probably would have tanked another 8 percent?
So what did Yellen say? -
She pretented 'keeping its benchmark interest rate at or near zero, allowing job growth to continue unhindered' - as we all knew before - that the FED HAS to 'allow stock growth to continue unhindered.' - and that's an understandable strategie in these time where every little Bust in the market hits the Have-Littles hardest - while the Have-Lots are just holding out for the next Boom.
And so - as I somethimes suspect - are US economists just propagandists of Wall Street Gambling?
3
"we shouldn’t be surprised to see institutions that cater to bankers, not to mention much of the FINANCIAL PRESS, spinning elaborate justifications for a rate hike that makes no sense in terms of basic economics."
In his critique, I am glad to see Mr. Krugman include the financial press. Much of the press coverage seems focused on elements that exclude basic economic principles.
In his critique, I am glad to see Mr. Krugman include the financial press. Much of the press coverage seems focused on elements that exclude basic economic principles.
2
And on the other hand...investors, especially the retired, have no safe bond investments that yield enough return to live on so they have to take unwanted risk or dip further into capital.
The effect is to wreck the business of Main Street banks that would issue CD's and enroll savers in "Treasury Direct" bond purchase programs and to enhance the business of Wall Street which sells stocks, stock mutual funds, ans stock ETF's.
It gets worse...interest income from safe bonds is highly taxed but income from the profits of selling stocks and stock dividend income is "qualified" for much lower tax rates.
The whole system stinks to high heaven. It conspires against the small investor in the age old process of lending money at interest to credit worthy borrowers. It forces the small investor to take much more risk by buying tiny part ownership shares in operating companies which have market risk, credit risk, and political risk.
The effect is to wreck the business of Main Street banks that would issue CD's and enroll savers in "Treasury Direct" bond purchase programs and to enhance the business of Wall Street which sells stocks, stock mutual funds, ans stock ETF's.
It gets worse...interest income from safe bonds is highly taxed but income from the profits of selling stocks and stock dividend income is "qualified" for much lower tax rates.
The whole system stinks to high heaven. It conspires against the small investor in the age old process of lending money at interest to credit worthy borrowers. It forces the small investor to take much more risk by buying tiny part ownership shares in operating companies which have market risk, credit risk, and political risk.
9
Useful money that has been channeled into credit unions no longer receives a decent interest rate. Folks who have saved all their lives are facing a seven year "interest free" return on investment. Thus the careening stock market, and the sad bond market. This country needs funds for mortgages and small business investments, but the folks who were the backbone of those funds, the small savers, have been put into financial penury by the actions of the FED. Krugman is wise, for sure, but his quote here ( " In particular, the Fed’s preferred inflation measure, which strips out volatile food and energy prices, has consistently fallen short of its own target of 2 percent, and shows no sign of rising" )tells me that he has not considered the price of food...which has skyrocketed in the past years...inflation hurts us all in many ways, but food prices hurt the most for the poor and elderly. A decent return on savings (five percent) would re-establish a middle class whose former returns created an uptick in consumer spending...
2
One solution for the bankers, and I'm looking down the road in terms of decades, is to bring back a well-grounded, free market with a leveled field for all. It's sad to think that bankers can only cater to large institutions. What happened to those small business owners? What happen to George Bailey's communities who were the heart and soul of his business loans? The economic situation is worse than it look on papers, because when you isolated the averages, factored in economic inequality, compound by futures (jobs not outsourced, full-time jobs not easily replaceable nor dispensable), you don't really see a free market. You see an oligopoly. It is not that the banks cater to the institutions, but because they are the ONLY ones left for the banks to go to. This was intentional with decades of trickle-down economics and Reaganomics. They knew this day would come, but it's delusional to think that you can have your cake and eat it too. Let's not forget that investment bankings also short the market, in essence driving out local competitions and making the free market worse. Truth be told, most Americans I know would go to George Bailey's bank any day rather than use votes to set central bank rates and apply private market pressure, but you've got to have a George Bailey behind the counter, you've got to be visible to the communities that you serve. Truth also be told, it's easier for the central banks to deal with a few large greedy bankers, from a perspective of policy-making.
4
Hector Lopez played left field for the Yankees in the 50's I believe. I think he could hit but he couldn't field, or vice versa. In any case, an announcer once said, "Hector giveth and Hector taketh away."
George W. Bush made Ben Bernanke the head of the Federal Reserve. Does Bush go to bed every night grinding his teeth over this decision? Do bankers shun him? Probably not. But G.W. giveth and G.W. taketh away.
George W. Bush made Ben Bernanke the head of the Federal Reserve. Does Bush go to bed every night grinding his teeth over this decision? Do bankers shun him? Probably not. But G.W. giveth and G.W. taketh away.
The Fed did the right move by not increasing rates last Thursday. What's wrong is that they continue to fudge the message on when should the markets expect the lift-off. A whole betting-casino is running wild on whether the Fed will do it in October, or in December this year, or maybe it is in January, March, June next year? This kind of wild speculation is hurting the economy by amplifying uncertainty and making everybody an armchair central banker.
With current conditions (inflation below target, unemployment still decreasing steadily without inflationary pressures, and a recent tightening of financial conditions around the world) the reality is that the Fed shouldn't move, not in months, but in significantly longer time. They should say it clearly. Right now is not the time to discuss monetary tightening, we should just get out of the whirlwind and pick up the conversation by this time next year.
And it's not just about the profits of the banks. More and more you hear no coherent argument about why the Fed should increase rates. It just should. Maybe because just like in any betting environment, many bets have been put to Red for no other reason than feeling... and now the roulette should just bring it to us.
With current conditions (inflation below target, unemployment still decreasing steadily without inflationary pressures, and a recent tightening of financial conditions around the world) the reality is that the Fed shouldn't move, not in months, but in significantly longer time. They should say it clearly. Right now is not the time to discuss monetary tightening, we should just get out of the whirlwind and pick up the conversation by this time next year.
And it's not just about the profits of the banks. More and more you hear no coherent argument about why the Fed should increase rates. It just should. Maybe because just like in any betting environment, many bets have been put to Red for no other reason than feeling... and now the roulette should just bring it to us.
3
Krugman doesn't explain why he dismisses the theory that zero interest rates create bubbles. The current era has been plagued by the repercussions of bursting bubbles. I believe we are currently having a stock bubble which was created by desperate savers and retirees taking on risk because they're getting zero interest on safe investments. Extremely low mortgage rates reinflated housing prices beyond where they would be if interest rates rose to "normal" rates.
Krugman didn't learn anything from the dot-com bubble or 2008.
Krugman didn't learn anything from the dot-com bubble or 2008.
5
If there was a stock bubble, it's been deflated substantially in the last few weeks. This is what should happen in over-priced markets. That is, participants either take profits or mitigate expected losses and prices sometimes plunge. Some people call this a correction. What goes up must go down eventually, and vice versa.
The fed is artificially inflating the stock market. Savers and retirees have felt themselves forced into stocks. If interest rates finally rise, the market may go down a lot more than it has in the last few weeks. Retirees used to count on a good 5% over inflation with government insured instruments. Read your (recent) history books.
Thoughtful financial types and economists have already written that with the rising dollar borrowing is more expensive thus doing what higher rates would do anyways. At any rate, can't understand financial types. So many of them were quoted in the press as stating "the Fed will raise rates". You would think that's since that's their career work, it would happen. I mean, fancily educated types whose mission it is to observe the market. Thankfully, they do have less influence on the Fed than one might suppose. It could change under a Republican Fed though.
Based on what I read, the people who want or expect the Fed to raise rates assume that long term rates will increase, as well, which will help the banks net interest margin. However, If you look at a 50 year chart of Japan's short and long-term rates, long term rates did not increase the last two times they raised short rates. In every other cycle they did. In the US, you did not see long rates go up the last time that the Fed raised rates. The question is why?
The banks hoping long rates go up with short rates may be disappointed. The net interest margin could be squeezed.
Listen to Jeff Gundlach's latest commentary.
BTW, I agree there was not much if any rage on Wall Street.
The banks hoping long rates go up with short rates may be disappointed. The net interest margin could be squeezed.
Listen to Jeff Gundlach's latest commentary.
BTW, I agree there was not much if any rage on Wall Street.
"ever-changing rationales for never-changing policy demands"
This is a great phrase. It's so much more explicative than "ideology." I wonder if it's really a greater sin of the right? They certainly seem less interested in scholarship and more prone to faith, but is it because they are just wrong about most things, or are they just less honest? Basically the left supports helping poor people even when it fails, or makes things worse, and never seems interested in changing the basic claim that it is morally justified. The right seems to come up with new justifications for harming poor people. In some instances the goal is to help the wealthy, but not in the south. Here the goal is clearly to hurt the poor. Things that are widely recognized as good for everybody (schools, roads, parks) are routinely opposed because poor people benefit.
This is a great phrase. It's so much more explicative than "ideology." I wonder if it's really a greater sin of the right? They certainly seem less interested in scholarship and more prone to faith, but is it because they are just wrong about most things, or are they just less honest? Basically the left supports helping poor people even when it fails, or makes things worse, and never seems interested in changing the basic claim that it is morally justified. The right seems to come up with new justifications for harming poor people. In some instances the goal is to help the wealthy, but not in the south. Here the goal is clearly to hurt the poor. Things that are widely recognized as good for everybody (schools, roads, parks) are routinely opposed because poor people benefit.
20
Just because there isn't inflation in consumables doesn't mean there isn't inflation. In everything from automobiles to houses to stocks and bonds, "inflation", i.e., price increases, have been running well above the Fed's 2% mark, at least until recently.
What Krugman and the Fed fail to acknowledge is that inflation is not necessarily indicated by rising consumer goods prices. If supply and demand metrics in the market would otherwise have propagated declining prices, then if prices don't fall or even rise just a little, there is inflation, which is a monetary, not a supply and demand, phenomenon.
Prices in the US should in fact be declining across the board, for a combination of monetary and demand reasons. The monetary aspects include the strength of the dollar and near-zero monetary velocity. The demand aspects include lessened demand for American made products because of the dollar and because of weak overall demand among our main trading partners.
True, the banks would like a higher interest rate. And true, the banks own the Fed. The banks created the Fed, so of course they own it. But it's not true that the interest rate issue is a simple matter of following the money to the banksters. The Fed wants off the zero bound so it can have room to act when this latest era of artificially-induced (by the Fed) price increases among asset classes inevitably ends, and the prices inevitably crash. Then the banksters will get theirs.
What Krugman and the Fed fail to acknowledge is that inflation is not necessarily indicated by rising consumer goods prices. If supply and demand metrics in the market would otherwise have propagated declining prices, then if prices don't fall or even rise just a little, there is inflation, which is a monetary, not a supply and demand, phenomenon.
Prices in the US should in fact be declining across the board, for a combination of monetary and demand reasons. The monetary aspects include the strength of the dollar and near-zero monetary velocity. The demand aspects include lessened demand for American made products because of the dollar and because of weak overall demand among our main trading partners.
True, the banks would like a higher interest rate. And true, the banks own the Fed. The banks created the Fed, so of course they own it. But it's not true that the interest rate issue is a simple matter of following the money to the banksters. The Fed wants off the zero bound so it can have room to act when this latest era of artificially-induced (by the Fed) price increases among asset classes inevitably ends, and the prices inevitably crash. Then the banksters will get theirs.
1
Does the fact we now have close to $20 trillion in government debt have anything to do with interest rates. With a borrow and spend mentality, what does a 1% increase in interest rates mean for federal spending? One percent of $20 trillion is $200 billion. Doesn't a 1% increase in interest rates mean the government has to come up with another $200 billion to pay the interest on the debt?
Some speak of government stimulus. Isn't the massive government spending on entitlements a form of stimulus? We are borrowing, printing money and spending ourselves into oblivion.
Why would banks lend money if they can't make money doing it? Despite the banks sitting on tons of money try to get a loan - very difficult. No loans, no business expansion. No business expansion and you have a sluggish economy.
I also wonder how much of business assets is being consumed by compliance with government imposed rules and regulations - health care and the environment are two examples.
Krugman's politics seem to get in the way of critical thinking.
Some speak of government stimulus. Isn't the massive government spending on entitlements a form of stimulus? We are borrowing, printing money and spending ourselves into oblivion.
Why would banks lend money if they can't make money doing it? Despite the banks sitting on tons of money try to get a loan - very difficult. No loans, no business expansion. No business expansion and you have a sluggish economy.
I also wonder how much of business assets is being consumed by compliance with government imposed rules and regulations - health care and the environment are two examples.
Krugman's politics seem to get in the way of critical thinking.
1
George, Too high debt, deficits or debt service has NEVER been a problem in all of US history. Surpluses sure have. In fact:
The federal government has balanced the budget, eliminated deficits for more than three years in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 36% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
Where does money come from?
First, the federal government. When it spends, it adds money to the private sector. When it taxes, it takes money out. The deficit measures how much it puts in net. When we have a surplus, we take money out net.
The other place is our trade balance. When it is positive, money is put in the private sector; when it is negative, money is taken out.
The net effect of these two sectors must be positive. If we have a large trade balance, we only need a small deficit or can even support a surplus like Germany. Today we have a large negative trade balance. We need a large deficit.
But when we get money into the Private sector, it must go to the right place. It does little good sitting in Scrooge McDuck's basement. It must go to the people who need it and will spend it. They way to do this is by deficit spending for worthwhile projects like fixing roads and bridges, grants for education, etc. Obviously this will also have long term benefits.
The federal government has balanced the budget, eliminated deficits for more than three years in just six periods since 1776, bringing in enough revenue to cover all of its spending during 1817-21, 1823-36, 1852-57, 1867-73, 1880-93, and 1920-30. The debt was paid down 29%. 100%, 59%, 27%, 57%, and 36% respectively. A depression began in 1819, 1837, 1857, 1873, 1893 and 1929.
Where does money come from?
First, the federal government. When it spends, it adds money to the private sector. When it taxes, it takes money out. The deficit measures how much it puts in net. When we have a surplus, we take money out net.
The other place is our trade balance. When it is positive, money is put in the private sector; when it is negative, money is taken out.
The net effect of these two sectors must be positive. If we have a large trade balance, we only need a small deficit or can even support a surplus like Germany. Today we have a large negative trade balance. We need a large deficit.
But when we get money into the Private sector, it must go to the right place. It does little good sitting in Scrooge McDuck's basement. It must go to the people who need it and will spend it. They way to do this is by deficit spending for worthwhile projects like fixing roads and bridges, grants for education, etc. Obviously this will also have long term benefits.
6
But we are not doing it the way you propose. The spending is going to entitlements and a massive bloated government which creates nothing of lasting value. You seem to be saying deficit spending will work if we just do more of it - one of Krugman's persistent themes.
To me, and probably to many of us, government spending (call it stimulating if you like) is certainly plentiful it's just being spent on the wrong things.
To me, and probably to many of us, government spending (call it stimulating if you like) is certainly plentiful it's just being spent on the wrong things.
George, read what I wrote about the flow of money. Spending it on SS, Medicare, etc. still gets it to people who will spend it thus providing more decent jobs for other. And what do you think the government does with its money?. Even government workers spend their money; few have enough to speculate with it.
And it is not enough. During the Obama administration with the help of Republicans, the deficit has been cut in half, just the opposite of whtr is needed. And the Republicans have prevented the best kind of spending, that on worthwhile projects.
And it is not enough. During the Obama administration with the help of Republicans, the deficit has been cut in half, just the opposite of whtr is needed. And the Republicans have prevented the best kind of spending, that on worthwhile projects.
Rarely would I have the guts to disagree with Mr. Krugman--so I'm probably wrong. Here goes--when interest rates are close to zero, you lose a tool to correct the next downturn. My advice to Yellen would have been to raise rates by .1 percent -- with similar minuscule increments probable in the future.
2
What is amazing is the usurious 39% interest rates that most people pay on credit cards. This should be illegal-- the benefit of low interest rates should go to the middle class and poor folk.
5
Obama doesn't want the banks to take large risks on poor credits. That is what the Dodd-Frank law is all about.
Why people don't complain about extremely high interest rates on credit card debt in spite of the long low interest rate period after 2008 financial crisis?
3
"if you think that rates are much too low, where’s the inflation?"
Rent, food, utilities, phone, internet, cable TV, public transportation, airfares, healthcare/health insurance, medicine, . . .
I don't know where PK lives, but here in NYC inflation is all around. Have you gone to the dollar store lately? Nothing less than $1.29 and the packages are smaller.
Rent, food, utilities, phone, internet, cable TV, public transportation, airfares, healthcare/health insurance, medicine, . . .
I don't know where PK lives, but here in NYC inflation is all around. Have you gone to the dollar store lately? Nothing less than $1.29 and the packages are smaller.
4
Where is the Rage of Retirees in this article?
Since years they are complaining that they want 'interest' for the money in their savings account. And the usual answer - that they can be ignored because they are a 'minority is not a sufficient answer - as there might be sufficient numbers of savers IF there would be sufficient interest for deposits in saving accounts.
And about the Bankers - it is true that they don't make enough money anymore with 'savekeeping money' as not even customers put their money anymore in savings account and instead gamble on Wall Street or in the market.
And if they lose -(like in the last months some 8 percent in the Stock Casino) they really get mad and rage at their Bankers. And their (small) Bankers rage at their Hot Shot Investment Bankers - as this 'Rage' actually is a Inner Banking conflict. - Your nice neighborhood Banker against his nasty Wall Street Investment Cousins who never ever want interest rates to go up - BE-cause it would show (again) - that they are just 'gambling'.
Since years they are complaining that they want 'interest' for the money in their savings account. And the usual answer - that they can be ignored because they are a 'minority is not a sufficient answer - as there might be sufficient numbers of savers IF there would be sufficient interest for deposits in saving accounts.
And about the Bankers - it is true that they don't make enough money anymore with 'savekeeping money' as not even customers put their money anymore in savings account and instead gamble on Wall Street or in the market.
And if they lose -(like in the last months some 8 percent in the Stock Casino) they really get mad and rage at their Bankers. And their (small) Bankers rage at their Hot Shot Investment Bankers - as this 'Rage' actually is a Inner Banking conflict. - Your nice neighborhood Banker against his nasty Wall Street Investment Cousins who never ever want interest rates to go up - BE-cause it would show (again) - that they are just 'gambling'.
4
It's good to hear the banksters howl. It assures me that the FED did the right thing. Low interest rates hurts me as a retired person because I get no return on my savings, even more hurtful as the stock market seems to have hit the wall. But I realize that low interest rates are good for the economy as a whole, especially one that still is in a precarious state.
1
Did the bankers actually howl? Did anyone hear the bankers howl?
The games the Fed plays with interest rates to fulfill a self-contradictory "dual mandate" turned the whole banking industry into Frankenstein's monster.
2
I like Jeremy Corbyn's proposal to nationalize the banks and run them for the good of the people--not for the good of the 1%.
But somehow his views rarely make the _Times_.
Perhaps that will change when he becomes Britain's next Labour prime minister.
But somehow his views rarely make the _Times_.
Perhaps that will change when he becomes Britain's next Labour prime minister.
4
Before anything what this world and country needs is to bring back the Glass-Steagall Act to regulated the fundamentally flawed economic system , has been proven time and again, does not work/
7
Following the 'natural' and least complex way in setting interest rates makes intuitive sense. Wasn't Einstein who said that what is best is the simplest (most natural) way of doing things...but not simpler than that? This way of thinking ought to be applicable to complex issues as well...but in its simplest form. That way, it may even be understood by those of us amateurs (and not only economists that appreciate empiric reality to base their predictions?).
Mr. Potter lives.
3
Poor, poor bankers...they don't make enough - just how DO they survive?
How can they afford to pay me a whopping .3% on my savings account when they're ONLY charging me 11-23% for my credit card ? Hmmm.....
How can they afford to pay me a whopping .3% on my savings account when they're ONLY charging me 11-23% for my credit card ? Hmmm.....
60
but as a demonstration that the clamor for higher rates has nothing to do with the public interest.
Name 5 actions, policies, decisions, plans that generated by by the banksters or the -1%ers that is in the slightest degree concerned with the Public Interest or the Common Good or the General Welfare of the planet,let alone humanity. O.K. name just 1 then.
Name 5 actions, policies, decisions, plans that generated by by the banksters or the -1%ers that is in the slightest degree concerned with the Public Interest or the Common Good or the General Welfare of the planet,let alone humanity. O.K. name just 1 then.
9
Krugman refuses to deal with reality. ZIRP favors the wealthy over the middle class. ZIRP is an enormous transfer of wealth from savers to wall street bankers. It is estimated 40% of current stock price is due to trillions in stock buy backs over the past several years financed by ZIRP. The wealthy own most of the stock in this country and is a prime reason for the disturbing wealth unbalance. The Feds zero policy has produced serious asset inflation. PK reluctantly says, "The justification du jour is “financial stability,” the claim that low interest rates breed bubbles and crashes.I suppose this latest excuse for raising rates could be right." There is no doubt the Fed's reckless zero rates has greatly increased the chances of this financial bubble deflating causing another major recession. Hard to understand how PK ever got a Noble Prize. Then again Pres. Obama did receive the peace prize. Seems like the Noble has become an oxymoron.
7
Reading through the comments, I am astonished how people "know" what is happening by just stringing together notions and "facts." Economics is a field where remarkably many people feel confident to offer definitive conclusions without understanding either the intellectual heritage or the evidence. It is as if everyone felt he could design a bridge. "Engineers? Bah, humbug; I am perfectly able to tell you how to span this river although I have never had an engineering course and know no math." When people deny global warming, against overwhelming scientific consensus, they are properly labeled ideologues or fools. When people confidently claim that inflation or prosperity is due to this or that, their absurd assertions are given undeserved respect. Neither most bankers nor most readers of Paul Krugman's columns have the background to offer intelligent counter claims regarding inflation. Much nonsense.
5
I think that all US citizens should all learn and understand that basic economics, the US trade deficit, the federal government spending deficit, jobs for Americans, and the buying power or value of the US dollar are all interrelated, very simple, very easily understood, and directly affects each US citizen’s life.
Each of these principles generally affects each of the others, and each is very important.
These subjects need to be understood by the general public.
Economics is not that complicated.
These economic principals are interlocked with simple and easily understandable cause-and-effect principals of various economic action options that can be totally understood by almost any high school graduate, and/or most high school dropouts.
Only a very simple high school mathematics is needed to learn economics.
No science knowledge is required either.
Each of these principles generally affects each of the others, and each is very important.
These subjects need to be understood by the general public.
Economics is not that complicated.
These economic principals are interlocked with simple and easily understandable cause-and-effect principals of various economic action options that can be totally understood by almost any high school graduate, and/or most high school dropouts.
Only a very simple high school mathematics is needed to learn economics.
No science knowledge is required either.
3
Your notion of who may or may not opine on matters involving economics is much too broad, bernard. As someone who generally agrees with Paul Krugman, including with his main point of today’s column, I strongly reject your suggestion that those of us whose field is not economics must sit back and blindly defer to the Federal Reserve, which is not of one mind, or to the academics who cannot agree among themselves.
Anyone can offer an opinion. That opinion, however, ought to be judged by its logic and by the current data and by the historical experience.
Anyone can offer an opinion. That opinion, however, ought to be judged by its logic and by the current data and by the historical experience.
1
"but rates on deposits can only go so low..." Paul, I am sure you are aware that rates on deposits have been near zero since late 2007/early 2008. Last time I checked (last week), my bank was still paying 0.25% on deposits, resulting in a net loss when inflation is factored in. My electronic mattress is nothing more than a box to keep money in these days. When is someone going to talk about this, in a serious way? How many dollars has the American public lost since rates fell to near zero? This is money we will never recover. And at the same time, I still hear bleating about how Americans need to "save more". What is the incentive? We have already given away massive sums of wealth for the last 7+ years. When will it stop?
Krugman claims that bankers exhibit "rage" when the Fed fails to raise the Fed Funds rate as expected.
But where is the evidence of "rage"?
Yes, he is correct when he says that bankers, and for that matter insurance companies, lose money when interest rates are kept low. He is right that an immediate response to no increase by the Fed last Thursday was a drop in value of banking stocks.
The reason is that banks, and insurance companies, and for that matter state governments, undertake obligations to pay some creditors at a fixed interest rate.
I have a relative who is quite poor. But she needed to retire. She could not afford to live on social security and what little savings she had accumulated over a lifetime. So she bought an annuity.
When she dies her heirs get zero, nada, nothing. But the company which issues the annuity is able to pay a HIGHER rate of interest on her small savings account because of the fact that she might die.
The bank in turn INVESTS her annuity. And now banks get negative real rates of return on the safest investments, say treasuries of short duration. So the bank takes greater risk with the money she saved.
The same happens to pension funds.
Such funds go into riskier investments because rates are low. And this can lead to instability, another crash like 2008, perhaps bankruptcy of pension funds (compare Illinois).
And banks do lose some profits.
But rage? Note not just banks, but many members of the FOMC call for higher rates!
But where is the evidence of "rage"?
Yes, he is correct when he says that bankers, and for that matter insurance companies, lose money when interest rates are kept low. He is right that an immediate response to no increase by the Fed last Thursday was a drop in value of banking stocks.
The reason is that banks, and insurance companies, and for that matter state governments, undertake obligations to pay some creditors at a fixed interest rate.
I have a relative who is quite poor. But she needed to retire. She could not afford to live on social security and what little savings she had accumulated over a lifetime. So she bought an annuity.
When she dies her heirs get zero, nada, nothing. But the company which issues the annuity is able to pay a HIGHER rate of interest on her small savings account because of the fact that she might die.
The bank in turn INVESTS her annuity. And now banks get negative real rates of return on the safest investments, say treasuries of short duration. So the bank takes greater risk with the money she saved.
The same happens to pension funds.
Such funds go into riskier investments because rates are low. And this can lead to instability, another crash like 2008, perhaps bankruptcy of pension funds (compare Illinois).
And banks do lose some profits.
But rage? Note not just banks, but many members of the FOMC call for higher rates!
1
Agree that raising interest rates now will crush the recovery. The economy is stagnant because of low wages. In the 60's and 70's they told us there was just one economics commandment: "Thou must consume!" Not so easy to do now when so many can barely subsist on minimum wage salaries.
4
The only function of the too big to fail/jail banks is to make money out of money. And the only way they can do this is by constant plunder, extracting every last drop of natural wealth and labor from the planet whose death they seem bound and determined to cause.
Banks are parasites, and charging interest from their hosts is their main course. What they have done to Greece and Detroit and Puerto Rico is just how they roll. And to keeping rolling in the dough, they want interest rates to go up. It's the only way they can keep growing and growing and growing.
The banks have been allowed by our political class to grow to such an obscene extent that they have effectively become the entire global economy.
Another group that desperately wants a hike in interest rates are the pension fund operators. The banks, which act as the greedy middlemen handling these funds, look at them and see dollars in their own pockets instead of where they rightly belong: in the pockets of those who have contributed to them their whole working lives.
Naturally, the workers themselves bear the blame when these poorly performing pension funds dry up. Their choice is then between benefit and wage cuts, or losing their jobs to the next desperate person. CEOs continue making an average of 350 times as much as their workers. Oligarchs and bankers become "thought leaders" who want to privatize what remains of the government safety net.
Feeling the Bern yet?
http://kmgarcia2000.blogspot.com/
Banks are parasites, and charging interest from their hosts is their main course. What they have done to Greece and Detroit and Puerto Rico is just how they roll. And to keeping rolling in the dough, they want interest rates to go up. It's the only way they can keep growing and growing and growing.
The banks have been allowed by our political class to grow to such an obscene extent that they have effectively become the entire global economy.
Another group that desperately wants a hike in interest rates are the pension fund operators. The banks, which act as the greedy middlemen handling these funds, look at them and see dollars in their own pockets instead of where they rightly belong: in the pockets of those who have contributed to them their whole working lives.
Naturally, the workers themselves bear the blame when these poorly performing pension funds dry up. Their choice is then between benefit and wage cuts, or losing their jobs to the next desperate person. CEOs continue making an average of 350 times as much as their workers. Oligarchs and bankers become "thought leaders" who want to privatize what remains of the government safety net.
Feeling the Bern yet?
http://kmgarcia2000.blogspot.com/
111
Re: ' Monetary officials meet with them (bankers) all the time, and in many cases expect to join their ranks (after finishing their term at the Fed)"
This is a very serious problem, that needs attention.
When it is legal for regulators to join the very industries they regulated, at outrages salaries, you have a conflict of interest.
Mr. Bernanke, the former Fed Chairman is now working as an adivsor for a hedge fund (Citadel) and a bond fund (PIMCO).
Mr. Bernanke is a very well paid, tenured, Professor at Princeton University.
It is difficult to see a compelling financial need for this former head of the Federal Reserve to now work for the very industry he regulated.
Unless the revolving door is shut, the Federal Reserve increasingly will lose its credibility an impartial institution.
This is a very serious problem, that needs attention.
When it is legal for regulators to join the very industries they regulated, at outrages salaries, you have a conflict of interest.
Mr. Bernanke, the former Fed Chairman is now working as an adivsor for a hedge fund (Citadel) and a bond fund (PIMCO).
Mr. Bernanke is a very well paid, tenured, Professor at Princeton University.
It is difficult to see a compelling financial need for this former head of the Federal Reserve to now work for the very industry he regulated.
Unless the revolving door is shut, the Federal Reserve increasingly will lose its credibility an impartial institution.
24
We desperately need a lock on the revolving door between Washington and business. Whether it's DoD employees going to work for defense contractors or aides to Congresspersons on financial committees going to work for banks -- it's got to stop. Justice Kennedy, in Citizens United, made the tragically false statement that "“We now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.” The notion that allowing government employees to exit their government jobs and go straight into private jobs with the very people they dealt with before -- that it doesn't create "corruption or the appearance of corruption" is just as wrong.
53
Let's be careful with language in this discussion Paul. I've worked in "banking" for over 30 years. I may be "a banker" but I'm in favor of keeping rates low.
I know other "bankers" who feel the same way for, in my opinion, the right reason: U.S. and world economic conditions don't justify raising them. Wages are low, consumer sentiment unreliable, U.S. trading partners are not universally sharing the economic "growth" we have, and, including in the U.S., there is no inflation. We aren't yet close to target inflation which hopefully would be more than 2.0% a year
The federal list I looked at informs me that there are over 6,700 banks in the U.S. Paul. Hundreds of thousand labor away in these institutions all over the nation. They are "bankers." But most of us are simply employees. and the vast majority of those banks are regional and local community institutions. Between 2007 and 2015 over 500 such companies were "failed" by FDIC and states who took over their assets at quarters and merged what remained into larger banks.
So, when you say "bankers" who is it exactly you are talking about? I guarantee you that opinion about rate nation wide among "bankers" is not universally "rage" because they are so low.
On the other hand, JPMorgan, Bank of America, Citigroup and Wells Fargo control over $8.2 trillion in total assets, 154% more than the next top 50 banks combined. Most "bankers" aren't even in the top 50.
Maybe bankers too big to fail have the Fed's ear.
Most don't.
I know other "bankers" who feel the same way for, in my opinion, the right reason: U.S. and world economic conditions don't justify raising them. Wages are low, consumer sentiment unreliable, U.S. trading partners are not universally sharing the economic "growth" we have, and, including in the U.S., there is no inflation. We aren't yet close to target inflation which hopefully would be more than 2.0% a year
The federal list I looked at informs me that there are over 6,700 banks in the U.S. Paul. Hundreds of thousand labor away in these institutions all over the nation. They are "bankers." But most of us are simply employees. and the vast majority of those banks are regional and local community institutions. Between 2007 and 2015 over 500 such companies were "failed" by FDIC and states who took over their assets at quarters and merged what remained into larger banks.
So, when you say "bankers" who is it exactly you are talking about? I guarantee you that opinion about rate nation wide among "bankers" is not universally "rage" because they are so low.
On the other hand, JPMorgan, Bank of America, Citigroup and Wells Fargo control over $8.2 trillion in total assets, 154% more than the next top 50 banks combined. Most "bankers" aren't even in the top 50.
Maybe bankers too big to fail have the Fed's ear.
Most don't.
18
John, you interpret the word "banker" literally and personally. I think that Krugman would agree with you and his real reference is to the "concept" of bank. But as Romney would say, banks are people, too.
1
Krugman's language in his blog post was more specific. He referred to "commercial bankers."
It's an important distinction, but I suspect its a distinction most readers wouldn't appreciate. More convoluted language would likely blunt his message and the intended emotional impact on his readers.
It's an important distinction, but I suspect its a distinction most readers wouldn't appreciate. More convoluted language would likely blunt his message and the intended emotional impact on his readers.
cp-in-ct ° Newtown, CT
Frank ° Durham
I agree with both of you but persisted in my post for the same reasons that you point out: many readers might not make the distinction and it is an important distinction to make.
There is a very big distinction between "bankers" in the sense Paul intends it, i.e., a Jamie Dimon class banker who may, like Dimon, take home $20,000,000 in salary, as Dimon did in 2014, and bankers who are lucky if they take home 1/2 of average median income, and there are plenty in this nation.
"Bank Rate" puts it well in stating:
"In the years since the financial crisis, the nation's biggest banks have gotten bigger than ever. Together, the top 10 U.S. banks now hold $10.2 trillion in assets.
"For a sense of the vast scale of that wealth, it's nearly 12 times the value of all the real estate in Manhattan -- the Empire State Building, Freedom Tower, everything. In fact, four of the top 10 banks have more than a trillion dollars each in assets.
"To even get into this exclusive club, you need at least $282 billion in assets, enough to buy a fleet of 22 of the Navy's latest Ford-class aircraft carriers."
These banks are truly too big to fail. That makes it very likely that Janet Yellen and her board of governors are under a lot pressure from them.
.
Frank ° Durham
I agree with both of you but persisted in my post for the same reasons that you point out: many readers might not make the distinction and it is an important distinction to make.
There is a very big distinction between "bankers" in the sense Paul intends it, i.e., a Jamie Dimon class banker who may, like Dimon, take home $20,000,000 in salary, as Dimon did in 2014, and bankers who are lucky if they take home 1/2 of average median income, and there are plenty in this nation.
"Bank Rate" puts it well in stating:
"In the years since the financial crisis, the nation's biggest banks have gotten bigger than ever. Together, the top 10 U.S. banks now hold $10.2 trillion in assets.
"For a sense of the vast scale of that wealth, it's nearly 12 times the value of all the real estate in Manhattan -- the Empire State Building, Freedom Tower, everything. In fact, four of the top 10 banks have more than a trillion dollars each in assets.
"To even get into this exclusive club, you need at least $282 billion in assets, enough to buy a fleet of 22 of the Navy's latest Ford-class aircraft carriers."
These banks are truly too big to fail. That makes it very likely that Janet Yellen and her board of governors are under a lot pressure from them.
.
2
Janet Yellen has held the line against interest hikes, but the pressure to relent is now enormous. The financial industry clamors for a compromise that would begin to move interest rates higher, even though, despite low interest rates, profits have returned to the banks and investment houses; they're not hurting for money. What they are hurting for is the return of the big bottom lines that characterized the very boom/bust economy that impoverished millions.
My small retirement fund, which like that of so many other Americans crashed in the recession, has grown over the past few years due to dividends and other distributions, suggesting that low interest rates have not affected corporate profits. The value of that fund is now dropping, only because the Chinese economic woes and U.S. banks' pique -- i.e., greed -- are roiling the markets. If the Fed raises rates, my ARM payments will increase, offsetting any gains that I may make in the market. In other words, for a middle-class American, current rates are just fine.
BTW, my concerns with Clinton -- for whom I will vote anyway -- are that she is too chummy with Wall Street, too willing to accommodate the bankers and too much of a hawk. The rest (e-mail, et al) is hogwash, and I wish that the media would press her on the real issues. (Bernie posters: he can't win, nor can Biden, the better strategy is to push Hillary to the left.)
My small retirement fund, which like that of so many other Americans crashed in the recession, has grown over the past few years due to dividends and other distributions, suggesting that low interest rates have not affected corporate profits. The value of that fund is now dropping, only because the Chinese economic woes and U.S. banks' pique -- i.e., greed -- are roiling the markets. If the Fed raises rates, my ARM payments will increase, offsetting any gains that I may make in the market. In other words, for a middle-class American, current rates are just fine.
BTW, my concerns with Clinton -- for whom I will vote anyway -- are that she is too chummy with Wall Street, too willing to accommodate the bankers and too much of a hawk. The rest (e-mail, et al) is hogwash, and I wish that the media would press her on the real issues. (Bernie posters: he can't win, nor can Biden, the better strategy is to push Hillary to the left.)
4
Actually, America's number 1 banker, Lloyd Blankfein of Goldman Sachs, advised the Fed five days ago not to raise rates.
4
@ abo
Exactly so. This entire opinion piece is an invention by Krugman who needs stage villains to rail against.
Exactly so. This entire opinion piece is an invention by Krugman who needs stage villains to rail against.
4
Oh. GS makes its money by exploiting the net interest margin in its lending?
I thought that GS was primarily in a different side of the financial industry. The side that would benefit by people seeking other types of assets and creating both rising prices and greater volatility. Exactly what happens when low risk investments earn nothing.
I thought that GS was primarily in a different side of the financial industry. The side that would benefit by people seeking other types of assets and creating both rising prices and greater volatility. Exactly what happens when low risk investments earn nothing.
Dr G
"The side that would benefit by people seeking other types of assets and creating both rising prices and greater volatility."
This is equally true of most of the major traditional deposit taking banks like JPM, Citi, Welles Fargo or BoA. The commercial banking industry was on the whole either neutral or positive about the Fed decision to hold a while longer. Krugman is fantasizing about bankers rage.
"The side that would benefit by people seeking other types of assets and creating both rising prices and greater volatility."
This is equally true of most of the major traditional deposit taking banks like JPM, Citi, Welles Fargo or BoA. The commercial banking industry was on the whole either neutral or positive about the Fed decision to hold a while longer. Krugman is fantasizing about bankers rage.
2
If the Fed increased interest rates, the price that banks pay for Federal funds would increase and then banks would presumably increase the price that borrowers pay for loans. If the demand for loans is reduced because of the higher price, as would be expected (and also the Fed's point in raising interest rates) the aggregate amount of loans that banks make would decline, so the banks would get the same net spread on a lower pool, thereby decreasing their profits. This is what Professor K thinks banks want?? I don't think so. Banks are quite content to borrow from the Fed for next to nothing and lend for a 3%+ net margin with very little risk. 3% net margin on 0% cost is an infinite margin. Nice business. I fear that PK has fallen for the Br'er Bankers' gambit.
2
The point is that the inter-bank lending marketplace operates whether the FED exists or not, and it is charging much, much less than the FED charges for loans to banks.
Some at the FED are saying that they want the banks to charge higher interest rates to their customers, and in some way, this helps the FED to announce that their 'policy-rates' are higher, in part by paying the banks additional monies for excess reserves they own (and this mechanism is being questions too, how does this work?).
So - if the credit channels get an excuse to raise the interest rates they charge to people, it may have little influence on the inter-bank lending system's lower prices - so higher lending rates just increase bank profits, totally artificially.
But as I've noted before, this shift toward higher interest rates causes movements in the huge financial asset marketplaces, and this is where the major banks make tons of earnings (and they do this without taking on the risk of lending to a business directly, or to a consumer). Prof Krugman is right to be raising this concern - there is no reason to provide signals to the economy that produce such artificial changes and churning when as noted above correctly, the economy's own demands are not pushing rates to increase naturally.
Some at the FED are saying that they want the banks to charge higher interest rates to their customers, and in some way, this helps the FED to announce that their 'policy-rates' are higher, in part by paying the banks additional monies for excess reserves they own (and this mechanism is being questions too, how does this work?).
So - if the credit channels get an excuse to raise the interest rates they charge to people, it may have little influence on the inter-bank lending system's lower prices - so higher lending rates just increase bank profits, totally artificially.
But as I've noted before, this shift toward higher interest rates causes movements in the huge financial asset marketplaces, and this is where the major banks make tons of earnings (and they do this without taking on the risk of lending to a business directly, or to a consumer). Prof Krugman is right to be raising this concern - there is no reason to provide signals to the economy that produce such artificial changes and churning when as noted above correctly, the economy's own demands are not pushing rates to increase naturally.
PK confuses bankers and wall street "bankers". Blankfein urges Fed to delay rate rise www.newsjs.com/us/blankfein-urges-fed-to-delay-rate-rise/ I honestly can't fathom what's written here. The banks that don't lend to the real economy but speculate using fed largesse want low rates. doesn't Goldman Sachs represent the very financiers PK says want higher rates? It seems more proof the fed is controlled by the big wall street players and not main street banks. Last week PK advocated the BOJ give money directly to people to buy stuff in order to help the economy. Effectively admitting the loose monetary policy isn't working. Here, as happens rather often, PK spins pro wall street policy as being the opposite and about the real economy. after all we can't have PK saying one thing when advocating and pushing for what Goldman Sachs wants. I'm an independent, but this seems the fiction that operates for both parities when it comes to the public. doing wall streets bidding while pretending it's for our own good. Fed following Goldman Sachs wishes(again), that's a story PK seems to go to great lengths to avoid
2
This entire opinion piece is a straw man. The commercial banking industry didn't react with rage to the Fed decision to hold down rates for a while longer. In fact the reaction was mixed with if anything a majority leaning in the direction of approving Fed actions given global volatility. Then there's the FOMC. Eight of its 12 members are essentially representatives of banking and all of them with the exception of Lacker endorsed the Fed policy. The usual conservative critics may have expressed rage about continuing to hold rates down but on the whole the commercial banking industry didn't.
6
"Suddenly, a lot of what has been puzzling about the discussion makes sense: just follow the money."
Thanks, Dr. Krugman, for reinforcing my understanding of exactly which constituencies are clamoring the loudest for higher interest rates. As usual, it's the moneyed classes: bankers, as you point out here, who make money on the spread on bank deposits and loans, as well as hedge fund managers and any financier sitting on mountains of cash and wanting interest on said sums.
Of course, fixed income seniors also would benefit from higher rates, but not at the cost of destabilizing the economy. Right now, US consumers strongly benefit from low rates too for housing and car loans. In fact, I applaud Janet Yellen for doing what's in the best interests of the US economy as a whole over the desires of the financial industry.
They've already profited from their ability to make money in good times and bad, and even while creating economic disasters like the Great Recession. I'd be crying crocodile tears if I thought they were getting a bum rap because they're making less on the "free money" they like to play with.
Thanks, Dr. Krugman, for reinforcing my understanding of exactly which constituencies are clamoring the loudest for higher interest rates. As usual, it's the moneyed classes: bankers, as you point out here, who make money on the spread on bank deposits and loans, as well as hedge fund managers and any financier sitting on mountains of cash and wanting interest on said sums.
Of course, fixed income seniors also would benefit from higher rates, but not at the cost of destabilizing the economy. Right now, US consumers strongly benefit from low rates too for housing and car loans. In fact, I applaud Janet Yellen for doing what's in the best interests of the US economy as a whole over the desires of the financial industry.
They've already profited from their ability to make money in good times and bad, and even while creating economic disasters like the Great Recession. I'd be crying crocodile tears if I thought they were getting a bum rap because they're making less on the "free money" they like to play with.
6
There is a story about a hedge fund manager acquiring a drug company and raising the price of a drug from pennies to the stratosphere in today's paper. And a story about illegalities in the Bush administration that continue to go unpublished. Corporations consolidate and their power grows unchecked. Then this, bankers, my image of them shaped by the Jimmy Stewart movie lies in ruins.
Greed and avarice. Hubris. Mankind now faces a revolution bigger and more profound than the industrial revolution, and capitalism is incapable of dealing with it. Thank god we have the Republican Party ready to lead.
Greed and avarice. Hubris. Mankind now faces a revolution bigger and more profound than the industrial revolution, and capitalism is incapable of dealing with it. Thank god we have the Republican Party ready to lead.
16
You make a great point but, sarcasm, is not the way to do it. I'm sure, there are some Republicans who would read your last line and say, "right on!"
But, your first point about "It's a Wonderful Life" and banking, in the day, is more spot on. Of course, the Jimmy Stewart character (today) would merge his bank with the larger one and he would have simply retired with a Golden parachute worth a fortune. The towns people would be working at fast food places for minimum wages.
But, your first point about "It's a Wonderful Life" and banking, in the day, is more spot on. Of course, the Jimmy Stewart character (today) would merge his bank with the larger one and he would have simply retired with a Golden parachute worth a fortune. The towns people would be working at fast food places for minimum wages.
The only group of people who have a legitimate reason to complain about persistent low interest rates is the growing number of retirees who depend upon savings, typically in the form of certificates of deposit, as a large part of their monthly incomes.
That squeeze has been exacerbated in recent years by the disappearance of defined benefit pensions as corporations have steadily made 401(k) plans the low-cost fringe for their employees. Corporations have also reduced employer contributions, making the 401(k) plans even cheaper.
The banks, the financial markets and the general public have, perhaps, a single gripe with the Fed which is valid. The coy, mixed messages emanating from the Fed – where imminent rate hikes are hinted at by some and rejected as premature by others – are not helpful. They promote speculative moves by the bulls and bears which contribute to a roller-coaster market and instability.
The multiple voices from the Fed since the days of Ben Bernanke seem, at times, almost as much of a problem as the old inscrutable babble from the single voice of Alan Greenspan, a singularly untalented economist.
That squeeze has been exacerbated in recent years by the disappearance of defined benefit pensions as corporations have steadily made 401(k) plans the low-cost fringe for their employees. Corporations have also reduced employer contributions, making the 401(k) plans even cheaper.
The banks, the financial markets and the general public have, perhaps, a single gripe with the Fed which is valid. The coy, mixed messages emanating from the Fed – where imminent rate hikes are hinted at by some and rejected as premature by others – are not helpful. They promote speculative moves by the bulls and bears which contribute to a roller-coaster market and instability.
The multiple voices from the Fed since the days of Ben Bernanke seem, at times, almost as much of a problem as the old inscrutable babble from the single voice of Alan Greenspan, a singularly untalented economist.
6
What Dr. Krugman's article proves is that all of the hysteria over inflation we've been exposed to over the past few years was driven primarily by a desire for higher banking profits, and had little or nothing to do with inflation or the health of our economy.
Again- banking greed has driven the inflation hysteria, unfounded as it was and is. Not only were these chicken little clarion calls coming from the financial industry, but they were also being propagated by our elected officials as well. Again- elected officials who are supposed to serve all of their constituent citizens, not just the financial industry.
The greed of the financial industry has no limit and no shame. They will manipulate and twist any situation they can for further profit, regardless of the negative impacts on our economy and on average Americans. Not only do we need a full return of Glass-Steagall, the "too big to fail" institutions need to be broken up into smaller and more manageable and regulatable institutions. They wield far too much power, and are highly dangerous.
Again- banking greed has driven the inflation hysteria, unfounded as it was and is. Not only were these chicken little clarion calls coming from the financial industry, but they were also being propagated by our elected officials as well. Again- elected officials who are supposed to serve all of their constituent citizens, not just the financial industry.
The greed of the financial industry has no limit and no shame. They will manipulate and twist any situation they can for further profit, regardless of the negative impacts on our economy and on average Americans. Not only do we need a full return of Glass-Steagall, the "too big to fail" institutions need to be broken up into smaller and more manageable and regulatable institutions. They wield far too much power, and are highly dangerous.
10
Paul Krugman is late. Very late.
Two years ago, Bloomberg wrote, in his outlook for 2014
"Banks Want Higher Interest Rates"
explaining:
" ...the Fed’s low-interest-rate policy... limited what they can charge on loans and earn on other investments. The difference between the two—the net interest margin—has been declining since 2010. Brian Moynihan, chief executive officer of Bank of America, told analysts on a July 16 conference call that the “sustained low-rate environment” was hitting revenue and earnings. That’s why bankers and bank stock investors have a simple wish for 2014: higher interest rates."
They are not happy, but they will get their higher rates soon. Elections are coming up, and both parties are lining up at the trough of campaign contributions.
The Fed does not operate in a political vacuum. The members of the Board of Governors are nominated by the President and confirmed by the Senate.
And their is a career to consider when your Fed term is over. Mr. Bernanke is making a very nice living in finances working for Citadel, a hedge fund, and PIMCO the world largest bond fund.
You think twice of biting the hand that may feed you later.
http://www.nytimes.com/2015/04/16/business/ben-bernanke-will-work-with-c...
http://www.bloomberg.com/news/articles/2015-04-29/bernanke-joins-pimco-s...
Two years ago, Bloomberg wrote, in his outlook for 2014
"Banks Want Higher Interest Rates"
explaining:
" ...the Fed’s low-interest-rate policy... limited what they can charge on loans and earn on other investments. The difference between the two—the net interest margin—has been declining since 2010. Brian Moynihan, chief executive officer of Bank of America, told analysts on a July 16 conference call that the “sustained low-rate environment” was hitting revenue and earnings. That’s why bankers and bank stock investors have a simple wish for 2014: higher interest rates."
They are not happy, but they will get their higher rates soon. Elections are coming up, and both parties are lining up at the trough of campaign contributions.
The Fed does not operate in a political vacuum. The members of the Board of Governors are nominated by the President and confirmed by the Senate.
And their is a career to consider when your Fed term is over. Mr. Bernanke is making a very nice living in finances working for Citadel, a hedge fund, and PIMCO the world largest bond fund.
You think twice of biting the hand that may feed you later.
http://www.nytimes.com/2015/04/16/business/ben-bernanke-will-work-with-c...
http://www.bloomberg.com/news/articles/2015-04-29/bernanke-joins-pimco-s...
2
"Yet the Fed has faced constant criticism for its low-rate policy. Why?"
As always, Dr. Krugman points out the correct response to this question, but he does so in an argument that is not phrased as simply as it should be.
It is because bankers make more money when interest rates are high. Nobody goes into banking out of altruistic motives -- banking is PURE greed, and they will always argue in their own financial self-interest whether it would be a disaster for everyone else or not.
As always, Dr. Krugman points out the correct response to this question, but he does so in an argument that is not phrased as simply as it should be.
It is because bankers make more money when interest rates are high. Nobody goes into banking out of altruistic motives -- banking is PURE greed, and they will always argue in their own financial self-interest whether it would be a disaster for everyone else or not.
1
If a banker did nothing but bundle deposits and make loans, then that banker would be for inflation. Inflation raises interest rates, improves their interest margin, forces investors into the market
But banks and bankers take positions, and once they have an asset, they want deflation, to make that asset more valuable. Deflationary crashes are particularly advantageous to bankers -- who can buy up assets with the money the government creates for them to try to keep the economy afloat. Surfing the boom-bust business cycle is fun; engineering it to your advantage is more fun.
High interest rates AND deflation -- what more could a banker want? Particularly when they know the government will bail them out if they leverage up too high on paper of no value?
But banks and bankers take positions, and once they have an asset, they want deflation, to make that asset more valuable. Deflationary crashes are particularly advantageous to bankers -- who can buy up assets with the money the government creates for them to try to keep the economy afloat. Surfing the boom-bust business cycle is fun; engineering it to your advantage is more fun.
High interest rates AND deflation -- what more could a banker want? Particularly when they know the government will bail them out if they leverage up too high on paper of no value?
4
The "natural" level for interest rates is currently low for the simple reason that the financial world is awash in capital. If the supply of capital is too high, then the cost of capital (ie. interest rates) will drop. Econ 101 tells us so.
Why is there so much capital while at the same time demand for goods is weak? Well, obviously it is because wealth is too concentrated and so a few people have lots of extra capital while most people are short of spending money.
So, we have two problems: (1) too much capital to usefully deploy in an economic environment where there is (2) too little wealth in the hands of the middle class to spend.
The solution to both problems seems relatively simple. Make taxes on capital gains, investment income, and um "carried interest" equal to taxes on employment income.
For decades, one-percenters have been saying that working folks don't know what is good for them economically (which is usually true), but paradoxically the same is now true in reverse. one-percenters are vying for short-term tax benefits to the detriment of their long term earning potential.
Why is there so much capital while at the same time demand for goods is weak? Well, obviously it is because wealth is too concentrated and so a few people have lots of extra capital while most people are short of spending money.
So, we have two problems: (1) too much capital to usefully deploy in an economic environment where there is (2) too little wealth in the hands of the middle class to spend.
The solution to both problems seems relatively simple. Make taxes on capital gains, investment income, and um "carried interest" equal to taxes on employment income.
For decades, one-percenters have been saying that working folks don't know what is good for them economically (which is usually true), but paradoxically the same is now true in reverse. one-percenters are vying for short-term tax benefits to the detriment of their long term earning potential.
89
It is very ineffective to try to push a string. Yet this is exactly what this solely monetarist approach to the Great Contraction is trying to do to stimulate demand solely by offering low interest rates. Since there is a lack of demand because the wealthy keep getting more and more Corporations are not investing in their own production but simply buying stock - ie financial chicanery. The reason there is no inflation is the same - when ordinary people's income and quality of life keeps declining then there is no demand because all the money is going to the plutocrats searching desperately for someplace to put it. What is needed is the Green Transition, for the Federal government to do what we need to do to survive with civilization intact in the age of Peak Oil and Climate Change: invest in Green Transit instead of Auto Addiction, human needs instead of $1 Trillion on endless Wars, solar and wind energy, insulating buildings and public schools, libraries, parks and healthcare. Last week the Dutch announced that while their extensive electrified Rail system is already 50% powered by renewable solar and wind energy that it will be 100% powered by renewable energy by 2018. Here in the US we cannot run the trains we have, let alone electrify them to run on renewable energy. Instead we waste billions and billions on more Auto Addiction and total wastes like the $7 Billion for the GSP and NJ Turnpike or billions for an autos only new Tappan Zee bridge...
47
I don't travel in financial circles so the "rage" of bankers is news to me. But I'm willing to take Mr. Krugman's word for it because it tracks with the more obvious rage of conservative Republicans over the Supreme Court's Obergefell v. Hodges and King v. Burwell decisions of a few months ago. The GOP was enraged that the Court handed down legal decisions on the Affordable Care Act and same-sex marriage when they were expecting/hoping for political decisions. Mr. Krugman describes the same dynamic at work in relations with the Federal Reserve: it keeps making economic decisions where a group of people expect its decision-making to be guided by politics.
6
I wonder. Wouldn't an increase in interest rates lead to inflation? The higher cost of borrowing would be passed on to others.
On another note; I would love to see higher interest rates paid on deposits to attract savers in FDIC safe savings accounts to transfer horded cash in equities over to bank savings that are ultimately invested in the local communities instead of foreign ventures.
On another note; I would love to see higher interest rates paid on deposits to attract savers in FDIC safe savings accounts to transfer horded cash in equities over to bank savings that are ultimately invested in the local communities instead of foreign ventures.
1
Are interest rates to lowe or are they still too high even at zero? Recalling the IS-LM model are we still in a period where the "natural" rate of interest is still negative?
We need to raise interest rates for the ordinary person, the elderly, the worker. Those of us who do not have much more than savings accounts or cds. Think of us.
4
@Dan Thom
Middle village, ny
90% of Americans (i.e. the ordinary persons of your imagination) don't have any cash denominated savings to speak off. However, they have lots of borrowings. Household debt (that's mortgages, student loans, car loans, etc.) is about $12.5 trillion and because of low rates they are receiving considerable debt relief. Then of course these same ordinary persons have pensions, IRA's, 401k's all of which have benefitted from stronger equity markets. In short raising rates would be bad news for ordinary persons. Compris?
Middle village, ny
90% of Americans (i.e. the ordinary persons of your imagination) don't have any cash denominated savings to speak off. However, they have lots of borrowings. Household debt (that's mortgages, student loans, car loans, etc.) is about $12.5 trillion and because of low rates they are receiving considerable debt relief. Then of course these same ordinary persons have pensions, IRA's, 401k's all of which have benefitted from stronger equity markets. In short raising rates would be bad news for ordinary persons. Compris?
4
I make no interest, I pay no interest. I pay cash for all my purchases and those I use a credit card for are paid off every month. And I won't borrow for projects but either put them off or wait until I have the money to pay cash.
Why enrich organizations that expect earnings from interest paid when they'll pay none for savings made?
Why enrich organizations that expect earnings from interest paid when they'll pay none for savings made?
1
I am 77. I have half of my retirement money in safe investments and half in the stock market. I think it is more important to keep the country out of recession than to satisfy those who are unreasonably risk adverse.
2
I would think that all the fees bank charge would enable them to profit. As it is, between the almost nonexistent interest rates Banks pay and the Bank's lax attitude towards security as evidenced by the numerous Credit/Debit card and account information internet breeches, that keeping ones money in the mattress is a more prudent place to safeguard one money.
2
If you do the rats of inflation will eventually eat it up. Even 2% inflation after 40 years will cut it by more than half.
This is no longer a textbook interest rate, inflation model. We import our goods and distribute them. Production is offshore and limited only by our ability to clear markets with wages. There is strong downward pressure on wages as the financial sector harvests equity and assets, in lieu of interest from growth. This places a cap on consumption and growth. The only game in town appears to be healthcare; harvesting the savings and wages of both patients, and future patients through insurance. We are living in a post-capitalist society. Large pools of excess savings seeking returns have distorted our national market economy through globalization, in ways the Industrial Age painfully distorted village economies.
We may be interest rate insensitive in the traditional sense, with all the squawk intending to initiate a (profitable) shift in assets. In 10 years we will be told to start flipping houses again.
We may be interest rate insensitive in the traditional sense, with all the squawk intending to initiate a (profitable) shift in assets. In 10 years we will be told to start flipping houses again.
5
Ten years? When the housing market bottomed out, I hoped that maybe that whole mentality had died along with it. Alas, no. I'm already seeing "courses in real estate investing!" which are basically house flipping schemes, advertised on late night TV.
It is already impossible in my modest Midwest area to buy a foreclosure, because the investors are lined up 3 deep to snatch up any such property that comes on the market. I see homes that were purchased for $30K and with very modest rehabbing (paint, etc.) put back on the market for $150K, after only 10 weeks.
It is shocking how fast it went from a glut of housing to a shortage. Prices in big urban cities are higher than they ever were. Nothing has changed. The same mentality of "get rich quick" is there.
I guess there is no possible way this can go wrong -- again -- is there?
It is already impossible in my modest Midwest area to buy a foreclosure, because the investors are lined up 3 deep to snatch up any such property that comes on the market. I see homes that were purchased for $30K and with very modest rehabbing (paint, etc.) put back on the market for $150K, after only 10 weeks.
It is shocking how fast it went from a glut of housing to a shortage. Prices in big urban cities are higher than they ever were. Nothing has changed. The same mentality of "get rich quick" is there.
I guess there is no possible way this can go wrong -- again -- is there?
Well, (I'm new), I doubt you will have inflation over this 2%, until the people who spend it, have extra money? So, the bankers will be stuck, until they support policies that put more money in the hands of the people. But, then if you get the inflation going, it will be hard on fixed incomes and those with little savings? I think we will all just have to learn to be content --- with so many of us, I doubt it would take much to rock the boat. So, what should the people do? (especially those, like myself, who didn't know anything, prior). Will a little inflation, that some have called for, bring about progress? But, how can the elderly, the poor, and those nearing retirement insulate themselves? (I should give it up, as my husband will never believe me!) Is the best advice still the best advice --- invest in oneself, whether it be a trade, or skill, or a specific knowledge. Determine what you can do, do it, and do it to the best of your ability?
10
The Banks own Washington.
Geithner and Bernanke bailed and were paid by Wall Street for their service to the 1%. Obama is packing and getting ready to get the thanks of Wall Street too, He'll be as rich as Bill Clinton, and we know how the Clintons got rich and are hoping to get richer.
Professor Krugman, you are trying to analyze a rigged 3 Card Monte game.
Geithner and Bernanke bailed and were paid by Wall Street for their service to the 1%. Obama is packing and getting ready to get the thanks of Wall Street too, He'll be as rich as Bill Clinton, and we know how the Clintons got rich and are hoping to get richer.
Professor Krugman, you are trying to analyze a rigged 3 Card Monte game.
64
"Professor Krugman, you are trying to analyze a rigged 3 Card Monte game."
Actually, he's running one.
Generating blather which sounds at least vaguely like he's critical of Wall Street and on your side but which is actually aimed at enabling the 1% to continue their plundering for a bit longer...
Actually, he's running one.
Generating blather which sounds at least vaguely like he's critical of Wall Street and on your side but which is actually aimed at enabling the 1% to continue their plundering for a bit longer...
Another reason to begin to raise interest rates is that it would benefit ordinary citizens in a direct way. Investing in government bonds and CDs was a safe way to save for retirement. For folks who disliked the stock market because of risk, or wanted to spread the risks between the stock market and interest based products now have no alternative but invest in stocks at an age when they should be moving retirement funds into safer CDs, a far riskier choice. I'm sure my mother would be quite happy with a 5% interest rate again, and put her money where it would feel safe.
I know that the retirees of our country don't count for much in the scheme of things today, especially banks, but it should at least it should be noted that it is important for the people who want to save their money, for college, for a down payment, or old age. They are losing ground steadily, the last few years it has been horrible.
Not macroeconomics I know, but very important to those involved, you know, the citizens.
I know that the retirees of our country don't count for much in the scheme of things today, especially banks, but it should at least it should be noted that it is important for the people who want to save their money, for college, for a down payment, or old age. They are losing ground steadily, the last few years it has been horrible.
Not macroeconomics I know, but very important to those involved, you know, the citizens.
11
Fallacy: Investing in government bonds and CDs hasn't been a good way to save for retirement since at least the runaway inflation of the 1970s. And before that it really wasn't such a great way either.
6
Carol,
Be that as it may, such investments were relatively secure.
No one, especially those whose situations dictate that their
investments be of a conservative nature should be forced into
the global casino/Ponzi scheme economy.
When emerging market corporate and government bond defaults start rolling, as is nearly inevitable, a lot of people are going to get hammered that have no idea that (through pension fund investments, mutual funds and such) they are even exposed to such risk.
Be that as it may, such investments were relatively secure.
No one, especially those whose situations dictate that their
investments be of a conservative nature should be forced into
the global casino/Ponzi scheme economy.
When emerging market corporate and government bond defaults start rolling, as is nearly inevitable, a lot of people are going to get hammered that have no idea that (through pension fund investments, mutual funds and such) they are even exposed to such risk.
2
Gene, you missed Carol's point. The investments you consider secure will get you in a pot of trouble in times of high inflation.
1
The blindness of some on the left is truly amazing.
You do release what has happened in any and every country that has cut rates to zero and even beyond, yes the rich and I mean the really ultra rich have got richer and the middle classes and the poor have got much poorer. This is the trickle down policies for the 21 st century.
The drivers of inflation have changed, goods and services that are traded internationally have come down in price as globalization means what was once made in Detroit or elsewhere is now made in India or Indonesia for less and this will continue until global capital finds somewhere cheaper, interest rates have nothing to do with it.
Of course purely domestic services are not getting cheaper but are inflating wildly, medical insurance and college costs and the like and that's where the paradox of thrift is kicking in. Ultra low interest rates means returns in savings are negligible so people end up saving more.
Which brings us back to why these policies are helping the ultra rich. They're the ones who can actually borrow at close to zero, they are the ones that see the stock market propped up by the fed or the ECB every time it sneezes.
The banks have done very well out of zero interest rates, after the 2008 crisis they are now capitalized as they haven't been in living memory. Zero interest rates are the voodoo economics of today, no one explains how they help the poor and unemployed it is just assumed that they do.
You do release what has happened in any and every country that has cut rates to zero and even beyond, yes the rich and I mean the really ultra rich have got richer and the middle classes and the poor have got much poorer. This is the trickle down policies for the 21 st century.
The drivers of inflation have changed, goods and services that are traded internationally have come down in price as globalization means what was once made in Detroit or elsewhere is now made in India or Indonesia for less and this will continue until global capital finds somewhere cheaper, interest rates have nothing to do with it.
Of course purely domestic services are not getting cheaper but are inflating wildly, medical insurance and college costs and the like and that's where the paradox of thrift is kicking in. Ultra low interest rates means returns in savings are negligible so people end up saving more.
Which brings us back to why these policies are helping the ultra rich. They're the ones who can actually borrow at close to zero, they are the ones that see the stock market propped up by the fed or the ECB every time it sneezes.
The banks have done very well out of zero interest rates, after the 2008 crisis they are now capitalized as they haven't been in living memory. Zero interest rates are the voodoo economics of today, no one explains how they help the poor and unemployed it is just assumed that they do.
6
This is a direct result of governments relying entirely on monetary stimulus, when fiscal stimulus is also indicated. Governmental borrowing at these interest rates provides us with the ability to fund needed infrastructure repairs at little cost (despite the GOP's insistence that deficit increases are simply "kicking the can down the road"), which would, as you imply, put that money into the hands of the workers who will spend every penny.
11
This analysis is demonstrably flawed. First, there is no evidence that savings by middle or lower income people have increased because of low interest rates. Rather, middle and low income savings have decreased significantly as all their income goes to meeting the basic cost of living. Savings have increased only for the wealthy, who are essentailly hoarding money rather than re-investing, just as Krugman points out. The argumernt turns reality on its head- the wealthy don't need to borrow even at these low rates-- they're already wallowing in excess money that they refuse to invest. Which is why, according to Keynesian theory, government should be stepping in to be the borrower and spender of last resort in these economic conditions. Tax the wealthy and borrow at low rates to increase revenue, spend it to imporve infrastructure and to get money into the hands of people who will spend it, and create a vitruous cycle. Duh.
14
As an economic ignoramus I never thought of zero interest rates as helping anyone at all, except as a sort of caffeinated amphetamine to keep inflated asset values from crashing. The percentage of wages going to housing costs went up up up and hasn't come down because people can still borrow themselves into oblivion. So real estate owners benefit and the rest suffer.
Excellent, great, column. "When you see ever-changing rationales for never-changing policy demands, it's a good bet that there is an ulterior motive" is standard operating procedure for the suiciding Republican party. Yet "the clamor for higher rates has nothing to do with the public interest" persists as a political strategy. Public interest? What's that? Not what politics is about.
7
Our economic system depends on businesses being able to obtain credit. Mostly banks supply the funds that make up that credit. When a particular bank holds a substantial debt from a large debtor that is not being paid, or appears to never be repaid, people who have funds in that bank will rush to pull their funds from that bank and deposit those funds in another bank, perhaps one across the street. Unfortunately the assets of the new bank are in large part shares in the bank with the loan defaults. Faced with this house of cards about to explode, regulators force the solvent banks to prop up the one with the loans in default. Hence the moaning and groaning of the banksters for higher interest rates (profit margins) and hatred for those opposed.
1
How much I care that the bankers are enraged: . After trashing the economy, then getting bailed out when nobody else did but the car industry which finance was in bed with anyway, giving gobs of money to the basically criminals in Washington who are taking bribes to sit on their hands . . . and NOW they want to make more money without having to work for it?
I want a pony!
OK, I don't want a pony. I want a real job that allow me to plan how I'm going to grow old. I have better chances of getting a pony.
What would happen if everybody who wanted what I do, a decent job, got as enraged as the bankers? What's so special about bankers that they can get mad when they don't get what they want? Greed, laziness and a sense of entitlement so oversized they think their greed and laziness should come first.
Its time there was more rage: at bankers at congress at corporations who are stealing my salary and giving it to the bankers and congress.
I want a pony!
OK, I don't want a pony. I want a real job that allow me to plan how I'm going to grow old. I have better chances of getting a pony.
What would happen if everybody who wanted what I do, a decent job, got as enraged as the bankers? What's so special about bankers that they can get mad when they don't get what they want? Greed, laziness and a sense of entitlement so oversized they think their greed and laziness should come first.
Its time there was more rage: at bankers at congress at corporations who are stealing my salary and giving it to the bankers and congress.
156
"For banks make their profits by taking in deposits and lending the funds out at a higher rate of interest" That may have been true in the past, but the new banking model (as well as the new corporate model) is one based on buying and owning politicians and then paying lobbyists to rewrite laws that used to protect the public to now enrich banksters.
71
For banks make their profits by taking in deposits and lending the funds out at a higher rate of interest. That actually not true, even the bank of England has pointed that out. "In March 2014, the Bank of England release a report called “Money Creation in the Modern Economy”, where they stated that:
Bank of England - Money Creation in the Modern Economy
“Commercial [i.e. high-street] banks create money, in the form of bank deposits, by making new loans.
http://positivemoney.org/how-money-works/how-banks-create-money/
Bank of England - Money Creation in the Modern Economy
“Commercial [i.e. high-street] banks create money, in the form of bank deposits, by making new loans.
http://positivemoney.org/how-money-works/how-banks-create-money/
1
dcb, obviously Krugman has not read that important paper.
There is no "natural" level - not with a central bank. So long as a group of politically appointed central planners are arbitrarily deciding what the rate should be, the "natural" level of interest is completely and totally unknown.
The "natural" level can only be set by actual, natural factors: this would require a return to gold as the standard of value for our money. But politicians - as well as their cheerleaders like Krugman, and politically appointed bankers like Yellen - hate the gold standard, because it doesn't let them evade the reality of having to pay for what they want. A central bank is why inflation exists - it creates it, so that politicians can spend more today and pass the costs on to future taxpayers.
The basic principles of interest rates - not "policy" - are simple: When banks have lots of gold to loan out, interest rates are low; when they don't, interest rates are high. No central bank is needed to figure this out - because it truly is Natural.
The "natural" level can only be set by actual, natural factors: this would require a return to gold as the standard of value for our money. But politicians - as well as their cheerleaders like Krugman, and politically appointed bankers like Yellen - hate the gold standard, because it doesn't let them evade the reality of having to pay for what they want. A central bank is why inflation exists - it creates it, so that politicians can spend more today and pass the costs on to future taxpayers.
The basic principles of interest rates - not "policy" - are simple: When banks have lots of gold to loan out, interest rates are low; when they don't, interest rates are high. No central bank is needed to figure this out - because it truly is Natural.
2
Gold is an inert metal which we value at arbitrary rates. it's not magical.
5
There is nothing natural about digging rocks out of the ground and basing your economy on them.
7
Left out an interesting point from the blog: since the banks are holding net excess reserves–the low interest rates are on those reserves, not on loans from the FED to the banks. I assume PK has the data to back this up.
As usual Krugman prefers class warfare to a focus on the crux of the matter. The real problem with this epoch of low rates is that low rates have been astonishingly unsuccessful in stimulating growth of the labor force and incomes. So any risk of bubbles and volatility is not offset by benefit to the degree anticipated. It would appear that what's lacking is an adequate driver of demand in an economy that teeters at the edge of deflation. The logical solution would appear to be stimulating capital investment and, since the private sector won't do it in a low demand setting, heavy governmental capital investments in repairing and expanding our common goods (railroads, public transport and highways, digital environment and healthcare system(but NOT single payer) would seem a better rationale for printing money.
5
Ummm... that's exactly what Krugman IS recommending.
8
Why not single payer?
All other industrialized countries have some form of universal government run health care, mostly single payor. They get better care as measured by all 16 of the bottom line public health statistics, and they do it at 40% of the cost per person. If our system were as efficient, we would save over $1.5 TRILLION each year.
www.pnhp.org & www.oecd.org, especially
http://www.oecd.org/els/health-systems/oecd-health-statistics-2014-frequ...
All other industrialized countries have some form of universal government run health care, mostly single payor. They get better care as measured by all 16 of the bottom line public health statistics, and they do it at 40% of the cost per person. If our system were as efficient, we would save over $1.5 TRILLION each year.
www.pnhp.org & www.oecd.org, especially
http://www.oecd.org/els/health-systems/oecd-health-statistics-2014-frequ...
8
If we had Glass Steagall, if we had a real Finance-reform bill - not the paper tiger called Dodd-Frank, if we had a true sheriff in town that prosecuted the high level Wall St criminals, and if we broke up the bank monopolies (Too Big to Fail) on Wall St., we won’t have to worry about the “Rage of the Bankers”.
Unfortunately, with none of the above elements in place, so the American people will be on the hook to bail them out – again. At which point, the bankers would have to worry about the rage of the people who don’t like holding the bag when things go south.
Unfortunately, with none of the above elements in place, so the American people will be on the hook to bail them out – again. At which point, the bankers would have to worry about the rage of the people who don’t like holding the bag when things go south.
19
If it hurts a bankster's bottom line, I can think of no better reason to leave interest rates low. There are currently lots of very valid economic reasons to maintain low rates as Dr. Krugman points out but the best one he mentions is it hurts banksters take home pay. Yippeee!!!
The old joke used to be what do you get if you tie an anchor to a lawyer and throw it in the ocean, a start. If you substitute bankster, you get a fine from the EPA for polluting the ocean.
The old joke used to be what do you get if you tie an anchor to a lawyer and throw it in the ocean, a start. If you substitute bankster, you get a fine from the EPA for polluting the ocean.
2
Maybe interest rates need to be low because there is too much money and not enough work demanding for payments?
4
Nations should encourage savings at reasonable levels, in order to reduce dependency of individuals on government during old age or bad times. Now, we haven’t been very good at that -- in decades past we granted tax exemptions on debt, in order to spur consumption at the expense of savings, something we still do with the deductibility of home mortgage interest, unless the AMT affects you. But, until recently, we haven’t explicitly DISCOURAGED savings.
Encouraging savings is not an explicit charge of the Fed, as management of inflation and unemployment are. That’s a pity, because by artificial means – keeping rates at very low historical levels for years – the Fed has destroyed incentives first to save at all, then to invest savings in safer instruments, such as bonds, forcing millions to place those savings in far riskier instruments, such as stocks. The movement of trillions from bonds to stocks in order to earn has created what many analysts agree is a bubble in equities, one that can burst really at any time, as bubbles tend to do. If and when this happens, it will destroy the retirement savings of millions of Americans, making them MORE dependent on government.
But, frankly, I don’t understand bankers’ rage at the decision not to raise rates for now. They’ve been making billions borrowing money at the Fed’s discount window at very low rates and in effect lending it out via credit cards to people at very high interest rates. Without that delta, where would they be?
Encouraging savings is not an explicit charge of the Fed, as management of inflation and unemployment are. That’s a pity, because by artificial means – keeping rates at very low historical levels for years – the Fed has destroyed incentives first to save at all, then to invest savings in safer instruments, such as bonds, forcing millions to place those savings in far riskier instruments, such as stocks. The movement of trillions from bonds to stocks in order to earn has created what many analysts agree is a bubble in equities, one that can burst really at any time, as bubbles tend to do. If and when this happens, it will destroy the retirement savings of millions of Americans, making them MORE dependent on government.
But, frankly, I don’t understand bankers’ rage at the decision not to raise rates for now. They’ve been making billions borrowing money at the Fed’s discount window at very low rates and in effect lending it out via credit cards to people at very high interest rates. Without that delta, where would they be?
5
Low interest rates were one thing. They were around 3% for a long time. That's historically low.
Today we have ZERO interest rates. I have savings on deposit at the bank earning 0.10%. That is not a typo. ONE TENTH OF ONE PERCENT. How long until they pay actual zero? or charge people to keep their money in the bank?
Everyone here has nicely forgotten that most seniors planned their retirement to have income from savings -- usually from safe, simple CDs that did not require an MBA to understand and which had NO risks whatsoever. Today it impossible to get a fair interest rate on your savings, no matter how much you have.
Meanwhile, the SAME BANKS are charging 4.2% on mortgages (historically low, but 4 times the savings rate, which is an unusually large spread) and 29% on credit cards, the usual usury. The banks got a huge break, but I thought the REASON for that in 2008 and 2009 was that without it, they were going under. They had lost a fortune in a dying housing market on bad bets.
But today that is definitely no longer true. Housing markets in the big cities are booming. Some are well over their 2006 highs. So the bankers are being coddled and protected...for what exactly? An artificial "boost" to the economy, so that the Obama Administration looks good on paper, or in falsely inflated "unemployment rates"?
Today we have ZERO interest rates. I have savings on deposit at the bank earning 0.10%. That is not a typo. ONE TENTH OF ONE PERCENT. How long until they pay actual zero? or charge people to keep their money in the bank?
Everyone here has nicely forgotten that most seniors planned their retirement to have income from savings -- usually from safe, simple CDs that did not require an MBA to understand and which had NO risks whatsoever. Today it impossible to get a fair interest rate on your savings, no matter how much you have.
Meanwhile, the SAME BANKS are charging 4.2% on mortgages (historically low, but 4 times the savings rate, which is an unusually large spread) and 29% on credit cards, the usual usury. The banks got a huge break, but I thought the REASON for that in 2008 and 2009 was that without it, they were going under. They had lost a fortune in a dying housing market on bad bets.
But today that is definitely no longer true. Housing markets in the big cities are booming. Some are well over their 2006 highs. So the bankers are being coddled and protected...for what exactly? An artificial "boost" to the economy, so that the Obama Administration looks good on paper, or in falsely inflated "unemployment rates"?
2
“The Rage of the Bankers” is only relevant when they are too Big to Exist.
If they are too Big to Exist, they weld too much power and we all know how that story ends.
Someone, let’s say their name is Bernie and/or Elizabeth, breaks up these institutions so that can’t take down our economy when they crash. Why should they always dictate the terms at the expense of the people?
We shouldn’t be talking about the “Rage of Bankers”, but the rage of the people who will ultimately pay the price for their greed and corruption…
If they are too Big to Exist, they weld too much power and we all know how that story ends.
Someone, let’s say their name is Bernie and/or Elizabeth, breaks up these institutions so that can’t take down our economy when they crash. Why should they always dictate the terms at the expense of the people?
We shouldn’t be talking about the “Rage of Bankers”, but the rage of the people who will ultimately pay the price for their greed and corruption…
56
Banksters, private equity dealers, hedge fund managers, rentiers, and everyone making vast sums of money off of investment income have always sapped life from the economy by profiting at the expense of those earning their livelihood through productive employment. Banks can not only profit but thrive in any environment, but by raising rates and further depressing an economy feebly recovering from the last financial crisis that they caused, they would not only profit from a larger spread between deposits and loans, they would also make extraordinary profits from bad debts and foreclosures.
Nobody knows better than a banker that few Americans have either the capital or the collateral to satisfy the terms that they arbitrarily set for loans, but they lack the character or capacity to apply their own principles to themselves. We'd be far better off if banks were nationalized and if their racket were shut down before the next financial disaster of their creation, and with Glass-Steagall gone and nothing to stop commercial and investment banksters from colluding, another crisis will come as sure as night follows the day.
Nobody knows better than a banker that few Americans have either the capital or the collateral to satisfy the terms that they arbitrarily set for loans, but they lack the character or capacity to apply their own principles to themselves. We'd be far better off if banks were nationalized and if their racket were shut down before the next financial disaster of their creation, and with Glass-Steagall gone and nothing to stop commercial and investment banksters from colluding, another crisis will come as sure as night follows the day.
128
The question isn’t whether the Fed will raise rate, but when? The bark is worse than the bite.
Certainly economic conditions are changing: The dollar has strengthened and oil prices have dropped, but core inflation is steady. There isn’t much wage pressure. China’s economy is projected to grow between 6-7.5% next year, but slower than the past.
So bankers are unhappy. How many people feel sorry for them? Don’t raise your hands all at once. Wall St. - investment firms and traders don’t want higher rates to kill their Golden goose. Liquidity is their bloodline and elixir for speculation and profits.
What’s disturbing are the market gyrations every few months because investors, pensions, traders and speculators keep gyrating the stock market based on the FOMC’s decision or lack thereof. When the average person sees 200-600 daily point swings in the Dow, they start to panic and wonder – here we go again.
Make no mistake though. No matter when it happens, the American people will pay more for loans and goods and services as business pass on their costs.
Certainly economic conditions are changing: The dollar has strengthened and oil prices have dropped, but core inflation is steady. There isn’t much wage pressure. China’s economy is projected to grow between 6-7.5% next year, but slower than the past.
So bankers are unhappy. How many people feel sorry for them? Don’t raise your hands all at once. Wall St. - investment firms and traders don’t want higher rates to kill their Golden goose. Liquidity is their bloodline and elixir for speculation and profits.
What’s disturbing are the market gyrations every few months because investors, pensions, traders and speculators keep gyrating the stock market based on the FOMC’s decision or lack thereof. When the average person sees 200-600 daily point swings in the Dow, they start to panic and wonder – here we go again.
Make no mistake though. No matter when it happens, the American people will pay more for loans and goods and services as business pass on their costs.
22
"it’s interesting to ask why the economy seems to need such low rates."
The world needs to forget about trivial nonsense like too low of interest rates. The world needs to go totally liberal to save ourselves. Governments the world over, esp in the US, need to pour money into infrastructure, education and alleviating poverty.
The world needs to forget about trivial nonsense like too low of interest rates. The world needs to go totally liberal to save ourselves. Governments the world over, esp in the US, need to pour money into infrastructure, education and alleviating poverty.
276
Please add to your list human caused climate change, many solutions to which involve better infrastructure, housing, education, Solving climate change is a key underpinning of our progressive movement.
5
The Great Depression, the S&L crisis, and the Great Recession all had the same lesson, don't trust bankers.
Highly regulated banks worked great until the the Reagan Revolution began deregulating them with acquiescence from Wall Street Democrats.
Tax Wall Street to Fix Every Street (and bridge, levee, power system, water system etc..) A 0.1% financial transactions tax should be used as a perpetual revenue stream for our infrastructure. Finance has robbed this county 3 times in the last century, it's time finance worked for us.
Highly regulated banks worked great until the the Reagan Revolution began deregulating them with acquiescence from Wall Street Democrats.
Tax Wall Street to Fix Every Street (and bridge, levee, power system, water system etc..) A 0.1% financial transactions tax should be used as a perpetual revenue stream for our infrastructure. Finance has robbed this county 3 times in the last century, it's time finance worked for us.
598
"The Great Depression, the S&L crisis, and the Great Recession all had the same lesson, don't trust bankers. "
Sort of but more to the directly, don't elect republicans.
Sort of but more to the directly, don't elect republicans.
20
India has the transaction tax of 0.15% now for many years. It is not only generating good revenue but is also dampens the speculative profit making activity on the stocks market. India also abolished the tax on dividend in the hands of stockholder but replaced it by tax on dividend at source. Indian Fed Reserve (RBI) saved the country from disaster in 2008 by not permitting private derivatives market and bankers had no interest in publicly transacted derivatives.
4
And yes, Hillary is a Wallstreet Democrat.
The public interest...how old-fashioned.
259
The Fed is just doing its job.
Their mandate is to control inflation and promote employment.
Inflation is low because demand, in relationship to supply, is low.
Turns out demand comes from wages: Wages come from employment.
Demand is low because employment (demand for labor) is low (and even though it's growing there's latent surplus slack, so much so that wages are low). The only way to fix this is through government spending.
Banksters see theFeds everyda, but they can't be had. They're raging against the wrong people.
Why don't they rage against the people responsible for the low demand instead: Congress.
After all WallStreet owns most of congress.
We have surplus capital. We have surplus labor. We have badly aging infrastructure in need of $3 trillion in investment (that will generate a return for society).
Where's the responsible action by congress to pass a bill to fix all of this?
Who owns Congress? The Banksters do!!!
Admittedly theres tension there. The GOP broke the economy (and set the whole world afire in the process, much is still burning).
After breaking the economy the GOP doesn't want a Dem President being seen as having fixed it. So in an act of moral treason the GOP has done everything they can to prevent recovery of employment, demand, America, & the world - simply because they won't get enough credit.
If WallStreet leans in on Congress, I'm sure MainStreet would be glad to too. Then, just maybe, something'd get done. Focus the rage on them!!
Their mandate is to control inflation and promote employment.
Inflation is low because demand, in relationship to supply, is low.
Turns out demand comes from wages: Wages come from employment.
Demand is low because employment (demand for labor) is low (and even though it's growing there's latent surplus slack, so much so that wages are low). The only way to fix this is through government spending.
Banksters see theFeds everyda, but they can't be had. They're raging against the wrong people.
Why don't they rage against the people responsible for the low demand instead: Congress.
After all WallStreet owns most of congress.
We have surplus capital. We have surplus labor. We have badly aging infrastructure in need of $3 trillion in investment (that will generate a return for society).
Where's the responsible action by congress to pass a bill to fix all of this?
Who owns Congress? The Banksters do!!!
Admittedly theres tension there. The GOP broke the economy (and set the whole world afire in the process, much is still burning).
After breaking the economy the GOP doesn't want a Dem President being seen as having fixed it. So in an act of moral treason the GOP has done everything they can to prevent recovery of employment, demand, America, & the world - simply because they won't get enough credit.
If WallStreet leans in on Congress, I'm sure MainStreet would be glad to too. Then, just maybe, something'd get done. Focus the rage on them!!
914
If this isn't an incentive for Banksters to do something to force Congresses hand then consider this: the more families/employment/wages suffer, the more likely BigMoney, Corporations, & the Banksters (the Trifecta) are likely to see a Socialist President in the White House with an army of grass roots followers waiting for him to call on them to march on Washington & the halls of Congress to pressure Congress to do something.
At that point Congress will finally do something responsible. But from the Trifecta's point of view their massive influence on gov't/society will be broken by a political revolution.
The day after the Socialist President is inducted into office the drive to make all campaigns subject to public spending is on. The amendment to reverse Citizens United & end gerrymandering will be on its way to the states for ratification. The day a GOP appointee steps down from the Supreme Court, a nominee seeking to reverse Citizens United will be made.
Soon taxation on top earners will double. Sales tax on stock transactions will be instated to reduce speculation. Glass Steagall will be reinstated. BigPharma will be subject to bargaining. Public Option to buy into Medicaid begins as a stepping stone to Universal healthcare & workers bargaining power strengthened.
All this will fix demand & so GNP will grow 40-50% in 10 years.
In short the party known as the 2nd Gilded Age will be over. All bc they raged at the wrong people. On 2nd thought keep raging at theFed.
At that point Congress will finally do something responsible. But from the Trifecta's point of view their massive influence on gov't/society will be broken by a political revolution.
The day after the Socialist President is inducted into office the drive to make all campaigns subject to public spending is on. The amendment to reverse Citizens United & end gerrymandering will be on its way to the states for ratification. The day a GOP appointee steps down from the Supreme Court, a nominee seeking to reverse Citizens United will be made.
Soon taxation on top earners will double. Sales tax on stock transactions will be instated to reduce speculation. Glass Steagall will be reinstated. BigPharma will be subject to bargaining. Public Option to buy into Medicaid begins as a stepping stone to Universal healthcare & workers bargaining power strengthened.
All this will fix demand & so GNP will grow 40-50% in 10 years.
In short the party known as the 2nd Gilded Age will be over. All bc they raged at the wrong people. On 2nd thought keep raging at theFed.
198
The fundamental problem with our economy is we no longer have the widespread wealth creation that comes from manufacturing. Understand money is a representation of tangible goods - what do we give the Chinese for iPhones?
Poodle grooming, custom cupcakes, food truck food and yoga studios redistribute wealth, they don't create it.
Poodle grooming, custom cupcakes, food truck food and yoga studios redistribute wealth, they don't create it.
15
Believing that "an army of grass roots followers waiting for him to call on them to march on Washington & the halls of Congress" will actually accomplish anything is sheer political fantasy. Such "armies" accomplish nothing. What does make a difference is an army of volunteers in red and purple states getting unmotivated registered voters to the polls to prevent Republicans from gerrymandering the congressional districts and then getting an army of volunteers to get those same unmotivated registered voters to vote in congressional elections.
10
We should be talking about breaking up the banks.
We should be talking about how much profit is reasonable. We should be talking about how much tax is far, in exchange for all of the things corporations use that we all pay for collectively. At this point in time, it is those who earn the least who shoulder a disproportionate portion of the burden while those who should definitely shoulder more are given a free ride in exchange for the hope that they will create more jobs. It hasn't happened.
Like those angry bankers, what the .001% wants is more money, at the expense of Americans. They want more inequality. They want to squeeze more out of the rest of us.
Businesses that claim American citizenship should be forced to do at least some percentage of their manufacturing in the US. This applies to fridges, as much as it does to cars, building supplies, frozen fried chicken, garlic, and the clothes we wear.
Banks need to be broken up.
Businesses that claim American citizenship should be forced to keep at least a certain percentage of their money in the US.
Banks need to be broken up.
Banks must lend a percentage of the money they use for that purpose to small and mid-sized businesses, over and above what they've been doing since the start of the recession.
Did I write banks need to be broken up?
Paul, you really need to discuss the proposals of Bernie Sanders. He's not beholden to raging bankers or plutocrats.
--
Bernie Sanders news roundup
http://tinyurl.com/oyz65d6
We should be talking about how much profit is reasonable. We should be talking about how much tax is far, in exchange for all of the things corporations use that we all pay for collectively. At this point in time, it is those who earn the least who shoulder a disproportionate portion of the burden while those who should definitely shoulder more are given a free ride in exchange for the hope that they will create more jobs. It hasn't happened.
Like those angry bankers, what the .001% wants is more money, at the expense of Americans. They want more inequality. They want to squeeze more out of the rest of us.
Businesses that claim American citizenship should be forced to do at least some percentage of their manufacturing in the US. This applies to fridges, as much as it does to cars, building supplies, frozen fried chicken, garlic, and the clothes we wear.
Banks need to be broken up.
Businesses that claim American citizenship should be forced to keep at least a certain percentage of their money in the US.
Banks need to be broken up.
Banks must lend a percentage of the money they use for that purpose to small and mid-sized businesses, over and above what they've been doing since the start of the recession.
Did I write banks need to be broken up?
Paul, you really need to discuss the proposals of Bernie Sanders. He's not beholden to raging bankers or plutocrats.
--
Bernie Sanders news roundup
http://tinyurl.com/oyz65d6
396
All true, Rima,so keep an eye on that Horse at the back!!
15
Other than my Bernie news round up, here is my open letter:
http://www.rimaregas.com/2015/09/open-letter-to-sensanders-pick-a-runnin...
Contrasting and comparing the candidates on the left:
http://www.rimaregas.com/2015/08/freaky-friday-politics-gender-and-race-...
An incredible interview with veteran reporter Greg Palast by Thom Hartmann: Bernie Sanders - The Only White Guy to Show Up...
https://youtu.be/ayqmhfwEURY
For those of you who missed it, here is Sanders at Liberty University, including the Q&A
http://www.rimaregas.com/2015/09/bernie-sanders-at-liberty-university-am...
http://www.rimaregas.com/2015/09/open-letter-to-sensanders-pick-a-runnin...
Contrasting and comparing the candidates on the left:
http://www.rimaregas.com/2015/08/freaky-friday-politics-gender-and-race-...
An incredible interview with veteran reporter Greg Palast by Thom Hartmann: Bernie Sanders - The Only White Guy to Show Up...
https://youtu.be/ayqmhfwEURY
For those of you who missed it, here is Sanders at Liberty University, including the Q&A
http://www.rimaregas.com/2015/09/bernie-sanders-at-liberty-university-am...
12
Thanks Rima, I knew that I could count on you. I attended Bernie's presidential campaign launch at the end of May at Waterfront Park in Burlington. There was palpable electricity in the air. It is slowly but surely coming as long as people like you and others keep banging the drum. So please, please keep on banging.
5
On Bankers you must keep an eye,
There isn't a more greedy guy,
In Westerns, you know,
He'll abscond with the dough,
Keeps a Horse in the back always nigh.
There isn't a more greedy guy,
In Westerns, you know,
He'll abscond with the dough,
Keeps a Horse in the back always nigh.
147
Don't let us down!
Sincerely,
A Loyal Reader