Protecting the rentier class

"The Most Important Line From the Just-Released Federal Reserve Meetings

By Matthew Yglesias
Posted Wednesday, July 11, 2012, at 2:40 PM ET

"This is really the only thing you need to know about the just-released minutes of the last Federal Reserve Open Market Committee meeting (PDF):

--Looking beyond the temporary effects on inflation of this year’s fluctuations in oil and other commodity prices, almost all participants continued to anticipate that inflation over the medium-term would run at or below the 2 percent rate that the Committee judges to be most consistent with its statutory mandate.--

"As I said earlier this week, just forget about jobs and growth. What you have here is the monetary policymakers deliberately adopting policies that they themselves believe would push the inflation rate below the 2 percent target. That's not a policy that's consistent with rapid growth in employment, and it's why we won't see rapid growth in employment. An elevated span of high joblessness keeps wages and commodity prices nice and low."

http://www.slate.com/blogs/moneybox...e_just_released_federal_reserve_meetings.html

 

Ricter, the original article you posted was complete crap, and so is this one. Neither you, nor Yglesias can show how monetary policy can affect unemployment, or even how inflation can.

We get back to the original question, which you dodged (as usual) in that there is a reason why there are no other Central Banks out there with a dual mandate, or even a mandate on employment.

 

This is also hilariously inept. Expecting Reuters to correctly explain why any given market move occurred on any given day is - at best - random chance. The MSM often has no real understanding of any market out there, much less why market moves are occurring.

 

Don't hold your breath. He's the economics Palooka of this forum.

 

The Fed faces a dilemma...

"Show some real audacity at the Fed"

By Sebastian Mallaby

"After the Lehman Brothers crisis, Ben Bernanke’s Federal Reserve demonstrated creativity and nerve. Unfortunately, that reputation is no longer justified. Today’s Fed confronts slowing growth, high unemployment and well-anchored inflation expectations. And yet it hesitates. Paradoxically, its image as a risk-taker inhibits its ability to be genuinely bold.

"Back in 2008-09, the Fed took real risks with its balance sheet – risks that private actors shunned. It bought portfolios of toxic securities. It lent to manufacturers. It backstopped money-market funds. But today the Fed’s supposedly audacious “unconventional policies” consist of buying Treasury securities. These are the safest possible instruments and there is no shortage of private actors lining up to buy them. Prices are screaming out this message. Interest rates on 10-year Treasuries are at a record low.

"Because of Mr Bernanke’s reputation for boldness, he is frequently accused of creating money wildly. When he appeared last week before Congress, he was rebuked by Republicans for his presumed recklessness, while Democrats appeared to feel he was pushing policy as far as he could. But there is nothing particularly wild about the Fed’s money printing. Its purpose is merely to effect a change in private balance sheets. Banks sell their Treasuries to the Fed in exchange for newly minted dollars (in the case of quantitative easing) or for shorter-term government securities (in the case of the current Operation Twist). Given that risk-free government securities are treated as cash equivalents by financial institutions, this is not radical.

"Most assessments of quantitative easing find that it has worked. In May, a paper by two Federal Reserve Board economists calculated that the Fed’s asset purchases had lowered 10-year Treasury rates by 1 percentage point. Last year the San Francisco Fed estimated, a bit heroically, that output might be 3 per cent higher at the end of 2012 than it would have been otherwise. But these positive verdicts conceal a less uplifting message. The first round of quantitative easing was most powerful – it was the largest, and its novelty inspired shock and awe. The second round, from November 2010 to June 2011, was less effective. The current Operation Twist is the limpest of all.

"Unless the Fed can rekindle the shock value of the first round, more quantitative easing is unlikely to work. Success depends on a whole range of actors deciding that the Fed is determined to accelerate recovery rather than repeat a tired trick that they have seen before. Banks, having sold Treasuries, must choose to reinvest the proceeds in riskier assets rather than just adding to their huge cash piles. Corporations, facing lower borrowing costs, must resolve that this is the moment to invest. Consumers, seeing rising stock and bond markets, must summon the confidence to spend. If the Fed won’t take the risk of going beyond what it has tried already, private actors won’t take risks either. Monetary policy is like faith healing. The patient must believe.

"Quantitative easing that fails to spark risk-taking could actually make things worse. A Fed that is both active and ineffectual is the worst thing for confidence, and indefinite purchases of Treasuries threaten to upset the way markets work. As the IMF’s Manmohan Singh argues, the Fed’s appetite for safe assets is draining the financial system of an essential lubricant. Traders use Treasuries as downpayments on derivatives positions; investment funds use them as collateral when they borrow. Because Treasuries circulate so rapidly through the financial system, Mr Singh suggests that $1m of them in private hands will stimulate more growth than $1m of cash.

"And so the Fed faces a dilemma. With inflation below target and unemployment far above the neutral rate, there is a clear case for stimulus. But the familiar tools of stimulus seem unlikely to work. So the markets expect next week’s Fed policy meeting to produce more equivocation. The better way forward would be to come up with new tools.

"One possible measure is to cancel interest on excess reserves. At present, the Fed pays 25 basis points to banks that deposit cash with it, a perverse reward for keeping money inert. Eliminating that incentive might steer cash into the real economy. But it would also drive cash into the money markets, where returns would soon fall to zero or lower. Money market funds would be hard-pressed to avoid breaking the buck again. Panic might follow.

"That leaves a second option: the Fed could couple more quantitative easing with a formal announcement of a higher inflation target. Some Fed leaders are open to this. Charles Evans, the Chicago Fed president, has floated the idea of a 3 per cent target, effective until unemployment falls below 7 per cent. A higher inflation target would lead markets to understand the Fed is committed to quantitative easing of game-changing magnitude, inducing the behavioural shifts needed to make the policy succeed. Financiers would embrace risk assets rather than safe ones with real returns that would be clearly negative. Companies, expecting more growth, would step up investments. Consumers, seeing the real value of their debts eroding, would probably spend more.

"The Bernanke Fed has been pilloried for pursuing wild quantitative easing at the risk of inflation. The truth is that it has pursued cautious quantitative easing without risking inflation. The time has come for some fresh thinking. A Fed that can escape the myth of its audacity might be able to do more."

http://www.ft.com/intl/cms/s/0/72845f10-d4d2-11e1-bb88-00144feabdc0.html#axzz21dtLTOJ9

 

Interesting piece. Mallaby recently wrote a very good book on hedge funds recently. Worth reading.

 

This article is infested with errors and half-truths. The author is obviously of your economic religious cult and a follower of your High Priest, the Reverend Krugman.

Where to begin...

In the second paragraph, the author implies that "unconventional" policy is not really unconventional at all when the Fed buys Treasuries, since they are low risk. He recalls a better Keynesian day when the Fed bought up toxic MBS crap and anything that wasn't nailed down from the banks willing to toss it their way. Perhaps the author would like the Federal Reserve to go out an buy up more motel properties?

The Fed knows that toxic junk is worthless. In giving the banks cash for that shit, it was an overt bailout and got a lot of flak for it. it also knows that it takes a loss every time it does that - and it's balance sheet can't take much more of that.

Oh really? Whose assessments were those again? The banks? OPEC? What did QE succeed at again? It did absolutely nothing for the real economy. Show me one piece of evidence, anywhere, that it did anything but distort markets, give money to banks, and create inflation. If you're going to call on the fact that interest rates hit all time lows and that this was good for people stuck in high mortgage rates, you could possibly be right - but only if those people were able to refinance. Most people who could did so in the first few months. The rest of QE was a worthless, erosion of the US dollar, and an overt bailout to the banks. QE Twist was a covert one, but accomplished essentially the same exact nothing. Mortgage rates have been at historic lows for two years now. Where's the housing recovery? Where the employment burst? Horseshit.

What? The majority of the public has no vested interest in the market. They just get hit by the rising commodities. Go down to the local grocery store and ask people what the S+P closed at. Riiight. There is something to the 401k effect that the upper middle class reacts to, but the malaise in the economy at the present time is just to severe to overcome that. People aren't fooled anymore and are getting wise to the aspect that the market is manipulated and inflated, and it won't last. This is why you're seeing record insider liquidation of vested stock, and outflows in equity markets. They don't see the value.

Whose inflation rate? The joke Core CPI? What a laugh.

Can't argue with any of this. The ECB did precisely that, and it resulted in the death toll to their money markets. If the Fed did the same...well, I shudder to consider it. This is probably precisely why the Fed hasn't done this. Not to mention if trillions of dollars flew into the system, who knows what real inflation would behave like?

What planet has the author been on in the last few years? Financiers can't handle taking on more risk! That's why they've shunned it. Their balance sheets are crap. As for the markets, they've taken on all the risk they can handle - look at junk bonds! And consumers seeing the real value of their debts eroding? You must be joking. The fool is advocating inflating our way out of debt by devaluing the currency outright, and announcing our intent to do so. Does anyone else but me see the catastrophic consequences of such an action on the world's reserve currency?

These two sentences sum up the Keynesian view of the last few decades. A miserable failure.

 

The comments under the article are hilarious. My fav:

"The stupidity on display in this article is stunning.....period. "

"What you mean is show me even more stupidity than you have already shown. "

"We can't debase our way to prosperity. I wish that we would stop trying. "

"I find this editorial so full of holes it's difficutl for me to give a civil reply. But to quote federal reserve studies about the effectiveness of their own programs is something my teachers most likely wouldn't have allowed me to get away with in high school. Congratulations, I can also find studies from tobacco companies showing smoke does no harm. There is absolutely no intellectual merit behind any of the thoughts presented here, plus if the best you can find are the feds own studies you can be rather certain QE doesn't work. "

"Idiocy."

"If you ever wondered what the first lemming looked like, look no further than the authro of this article.... " (LOL!)

 

Can't see the reply. Is it ad hominem?

 

LOL! Ricter put me on ignore

Complete inability to debate any topics whatsoever results in an "I quit" response. I love it.