In 1971 when Nixon divorced the financial printing business from gold, did he also divorce government policy from reality as well? There is a huge worldwide underclass of people who are unemployed, may live in mom's basement or with their parents (dependent on someone who will die one day), and really think protests will get them somewhere. The teaching profession helped create such by promoting people no matter what and inventing soccer games and relay races where everyone wins and the like. Jobs are going primarily to the baby boomers, not the ones who will pay for all the borrowing. If that group gets hungry, the late 1930s could re-appear. The productive class is aging, have most of the cash and in some cases have abandoned any responsibility for the political and financial messes we see before us. I don't know how all this ends, but it frightens me a lot when I think about implications. My advice to people I talk with about this, is to ensure that they enjoy life as much as possible today, because I think the switch will happen relatively overnight and in a couple of years we will wonder if these times were really just a vivid dream. Surprisingly, I have always been pretty positive, but reading the tea leaves has lead me to be concerned about the next 10 years. To me, it looks like the FED has failed by firing all its bullets and only managing to keep our head barely about the financial waters around us. Everything has an ending, and I look to what is beyond.
Great posts Ed! There is only one problem with the Fed's viewpoint on inflation. I agree with your argument that their actions are not currently causing inflation due to the mechanisms you cited. However, the other edge of that sword must be recognized. Just as their actions are not causing inflation, their actions cannot stop it once it catches hold. IOW, eventually the easy credit will find its way into the private credit markets. I believe it will be an accelerating event as opposed to constant velocity. If that is the case, there is literally almost nothing the Fed can do to prevent it other than to act preemptively. What I am suggesting is that your assertion that financial institutions are trading their income to the Fed right now is true, but only because the private credit market is still broken. Under a broken circumstance, the private institutions gladly pull the Fed into the mix, but under a "fixed" circumstance, the private institutions push the Fed back out of the mix. IOW, the Fed can act to prop them up in hard times, but can do very little to slow them down later. The private institutions can rely on their own private positive feedback loop to continue to expand credit. If this is the case, the only responsible argument is for the Fed to preemptively tighten the creation of credit.
Or just stop calling it a "science" and recognize it for what it is, whatever THAT is? It's no accident that in Universities you generally find the economics department ostracized by the true sciences. At UC Berkeley for instance you'll find the economists cavorting with the social "scientists" --social science not being a science either. You might even find economists slumming with applied mathematicians -- which also isn't science, in spite of some scientists being superb applied mathematicians. You can sometimes find the applied mathematicians playing well with the scientists for much the same reason that you'll find a Zerox machine in Science departments. But of course neither applied math nor zeroxing are sciences, though both are terribly useful to scientists.
In this thread, there are some fine posts showing great incite from both Epic and Breen --the latter is someone whom on some other matters I often disagree. If you have not read them it would pay you to do so. They require careful thought.
Buy it and then lease it. Again, you need to have the capital. A few months ago farm land near me sold for $30k and acre.
The biggest problem with the economics departments in 'elite' academia is that they are seperated from the finance departments at the university level and at the liberal arts college level, they don't even teach finance. That is amazing if you think about it...not including finance in your idea of economics? With appology to Marshall Mcluhan, 'the curiculum is the message.'
At times, one can learn the most from those we disagree with. If there arguments against one's position are sound, then a smart trader switches sides.
Great discussion, guys. Not so sure about that. Ultimately all this paper shuffling has one purpose, to let the US Government buy more stuff and hand out more "money" to people who presumably turn around and buy even more stuff. Presumably, if they accelerate that, then we'll have more money chasing fewer assets and bang! Inflation. OTOH, Japan's been trying that for years. They couldn't get inflation going again even if Jimmy Carter came over to show them how. So I guess my theory is wrong.
well Stardust, that's why I started switching sides. At first, Krugman sounds like a total nut case. But after listening to him for a while, he actually has a plan, unlike the republicans or democrats. It's a Keynsian plan, and we all know how that usually gets argued out. But I just got to thinking, what I tell my wife and children about sound money management might be quite different than how I run my business. I'm trying to teach my kids how to be sound long after I am gone. I'm trying to run my business while I am still alive. so there is an element of timing if you are a trader, you know, sometimes it's ok to be wrong if your timing is right and the worse thing is being right at the wrong time