Hatzius raises the possibility of not rate hike till 2015 or maybe later http://www.zerohedge.com/article/go...rillion-models-do-not-see-rate-hike-until-201 I dont believe this is going to happen unless there is some kind of change in the attitude from the Fed. Over the last year the Fed published many forecasts showing they were going to miss their mandate on the UR and inflation for many years yet they did nothing, they only acted when iexpectations plunged. My explanation is that they are conservative with balance sheet risks and dont care much about the level of the UR. As a result at some point they will try to manage those risks by shrinking the balance sheet, which will send the EFF up and will have a similar effect as an actual rate hike. In fact all of the exit mechanisms of the Fed tend to act similarly in that they will soap cash from the short-term money markets and rates should rise
How do I balance that view with the other view that I have that the Fed might not ever exit their balance sheet? Well, its going to depend on how much QE they do. If they stop at QE2(Which I dont believe is enough given that future likely declines in M2) and never remove IOR I dont believe there will ever be an 'exit', they will just raise rates at some point and the balance sheet will be at a new normal, exiting would plunge M2 and lead to deflation If they over do QEs, then they will have to exit through all the programs they outlined. It hard to know exactly how much QE is needed but the variables I believe I know They are -How much in future delevering will occur(Including foreclosures) -How much velocity will rise/fall -How much of the QEs will be converted to M2 instead of excess reserves
Thats where Hatzius model might fail, perhaps he gives too much weight to the UR or GDP. I believe the Fed will be working with their model of 'how much inflation there is, what is our forecast(that takes into account the money supply and velocity) and what is the market forecast(iexpectations)' Of course, they would never admit in public(Barney Frank would flip) but lets remember that they did nothing for a long-time even though everyone knew the labor market would stay in the shit for a long-time
http://blogs.reuters.com/felix-salmon/2010/11/04/how-qe-works/ Salmon describes QE. He does a good job, unfortunately his conclusion is off the mark "In English, what that means is that the New York Fed has a direct line to the biggest banks in the world (Goldman Sachs, Morgan Stanley, Deutsche Bank, etc â 18 in all). And it gets all those banks to compete with each other, either directly or on behalf of their clients, for who will sell the Fed the Treasury bonds it wants at the lowest price. The winners of the auction get the Fedâs newly-printed cash*, and give up Treasury bonds that they own in return. The people selling Treasury bonds to the Fed, then, are big banks, who are told in advance exactly how many Treasury bonds the Fed wants to buy. As a result, theyâre likely to buy Treasuries ahead of the auction, with the intent of selling them to the Fed at a profit. " The 2 parts I put on italics are instances where typically excess reserves do not rise but rather the broader money supply(The M's) Here's he makes the mistake of doing understanding the system he just explained "The amount of money in the system has just increased by $50 billion, and the Fed hopes that somehow that increase will feed through into higher inflation. Whether it will or not, however, depends on the degree to which JP Morgan can take that $50 billion and lend it out into the real economy. So far, banks have been bad at boosting their lending. And thereâs not a lot of evidence that theyâre getting any better." As shown, no lending needs to take place. The fact that Primary dealers are typically trying to earn a profit will make the money supply(and likely inflation) rise. The Fed could purchase all outstanding USTs even though the dealers only own a fraction of it
Well, "Labels" (i.e. descriptive terms) are essential for describing anything, and are a critical part of language and communication. A thing is what it is, and refusing to use the commonly accepted definition used to describe that thing does not make it any different, all it does is cause unnecessary semantic confusion. You yourself are using many labels in your post here - "QE", "Labels", "the government", "Monetary policy". "Lbertarian" is a simple descriptive term with a clear meaning, that describes a clear-cut set of political beliefs i.e. the primacy of liberty, rights, opposition to aggressive use of force, and so on. A policy which violates those things clearly can't be libertarian. The draft is opposed by pretty much all libertarians, for exactly those reasons. I partly agree about fractional reserve banking, however the public are clearly misled as to the inherent instability of the system. Also, deposit insurance is clearly fraudulent because there is no way any government could pay out all claims in the event of a banking collapse. Legal tender forces the use of one currency, even when it is against one's interests to do so e.g. when it is being debased. This is not a trivial matter - inflation is basically theft. And since savings represent the yield of an entire lifetime of labour, theft is tantamount to slavery. Imagine for example a 65 year old retiree who has worked all their life to accumulate their life savings. Those life savings represent 44-47 years of hard work. Inflation combined with legal tender laws meant that the government basically steals 45 years of work from her - it is not different to if she had spent 45 years as an unpaid serf of the government. In North Korea that happens explicitly. In Weimar Germany or post-WWII Hungary, it happened covertly via inflation. But the effects were very similar - confiscating by coercive methods the yield of a lifetime of labour, and reducing innocent people to penury. It would not be morally acceptable to institute a 1 year slave labour policy to restore national GDP, and similarly it is not acceptable to institute a 3 year inflationary impoverishment and theft policy to do the same thing. Something being a "legitimate government function" does not affect its violation of an ethical principle. War and the police power are widely considered legitimate government functions, that doesn't mean that for example the bombing to death of huge numbers of Cambodians, or the internment of US citizens based on race in WWII were not flagrant breaches of ethical principles. Under libertarian ethics, rights and morality do not spring from the promotion of self-interest, and self-interest does not give any moral grounds to violate other people's rights - e.g. I do not have the right to kidnap and enslave someone and then force them to lose their life, just to protect my own. Majority support for actions also does not affect ethical judgements on that action - under ANY system of ethics, let alone libertarian ethics. This can clearly be demonstrated by considering that slavery was once popular and legal in democracies, that majorities in most societies in human history have taken part in pogroms against ethnic minorities, and so on. Do you consider those actions to be ethical? After all, most people supported them at the time. Who can defend non-debasement of currency at the cost of GDP falling by 50%? Anyone who thinks that theft is wrong. I'm not what what part of this you don't understand, you seem to be completely unfamiliar with non-utilitarian ethical systems. Let me make it clear - any ethical system based on inalienable rights, would say that it is immoral to steal 1 cent from Bill Gates, even if stealing that 1 cent could abolish poverty, starvation, and disease for 3 billion people in the 3rd world overnight. Now, many people think that is a fatal flaw with rights-based systems of morality. Just as many people think pacifism is fatally flawed because it inevitably leads to military defeat. However, you were talking about "libertarian" philosophy, and I am simply point out what that actually consists of. I don't see any proof by you that it is irrational to view rights as more important than interests. You may disagree with it, but disagreeing with something is not the same as it being irrational. I could equally list apparent irrationalities in your own code of crass utilitarianism. For example, if you could increase world GDP by 10% overnight by torturing just one baby to death, would you do it? Or if a mad dictator with an irrational hatred of ginger-haired people demanded that all gingers in the USA be executed, otherwise he would launch a war, which the Department of Defense estimated would lead to 1 million US casualties - would you as US president or Congressman try to execute the gingers in cold blood to save 900,000 lives? If not, why not? Since your ethical system appears to value end consequences and net happiness above rights, you should surely do what will lead to the least harm occurring. IMO, most people would find both those actions beyond the pale, and would demand the execution or life imprisonment of anyone who did them. So whose ethical system is more "irrational"? Your proposed system of "the ends justify the means" clearly leads, if applied consistently, to the advocacy of barbaric moral outrages. In the specific case of QE, it is even worse, because not only is it not guaranteed to work (as the ginger executions or baby torture examples above WOULD be guaranteed to work), but it is - based on all current knowledge of economic theory and practise - almost guaranteed to fail. No society has ever inflated its way to prosperity, and the opposite has almost always been the outcome. So Bernanke and QE supporters are not only advocating something that violates moral principles on its face, but it won't even result in the "ends" that are supposed to justify the immoral means - it will most likely do the opposite.
If I understand you, you think QE is immoral because 'it would not be morally acceptable to institute a 1 year slave labour policy to restore national GDP, and similarly it is not acceptable to institute a 3 year inflationary impoverishment and theft policy to do the same thing.' Lets say a central banker needs to follow a policy choice. Either he can target a positive rate of inflation, a negative one or try to target 0%. But for many decades he had a positive rate so wage and debt contracts have a positive rate in their expectations therefore changing his target dramatically(specially with regards to the sign) would lead to a dramatic adjustment in the economy that would hurt a lot of people for a certain period of time If he targets a higher positive rate that might hurt net creditors to the benefit of net debtors, you claim this is theft. Problem is, if he targets a negative one, this will hurt net debtors to the benefit of net creditors, so either way someone is going to get screwed(The 'theft' will happen in any event). Matter of fact in the negative rate case the benefit to the debtors might not even exist because NGDP went down by 50% and how many people will get richer in that environment, the answer is not a lot(Your 65yo retiree might be hurt big time, its double 'theft') And I haven't even gone in the psychological consequences of such event. If monetary policy is a government function(Which I believe is it) then the way the government ought go about it is to try to maximize living standards to the entire society(even if one group will benefit more than another for a period of time), it is what makes sense. What doesn't make that much sense is to try to benefit one group to the expense of another to the detriment of society specially because the benefit might not even be there. I fail to see how the first way disrespects rights anymore than the 2nd way, specially given that people adjust to 'money printing' after a while and interest rates rise(which compensates lenders). Matter of fact, large changes in policy(in terms of inflation targets) is what really fools people and constitutes some kind of fraud.
Now, maybe some people disagree with QE on technical grounds(As I said I have no problem debating it on that level) so they would disagree with my assumptions(50% NGDP decline) but thats the assumption I'm making in order to say QE is right course to take from philosophical perspective If I thought QE was mindless inflation that would only hurt people I wouldn't support it but I'm not in that camp
I said that the QE didnt disrespect rights anymore than the hard money way. The truth is that the hard money way disrespect rights much more than the QE way because it puts the value of pieces of paper and electronic cash(and a small minority that will profit from it,, no baby killing or slavery here) above human living standards and most of the people. I can't see how this is a close one
http://blogs.ft.com/gavyndavies/201...from-a-big-week-in-the-us-economy/#more-12471 I agree with this "3. The Fed has delivered QE2, and there are now two-way risks on Fed policy. In the past few weeks, the market has been gradually adjusting to the likely arrival of QE2. In retrospect, this has been a one way bet ever since Mr Bernankeâs speech at Jackson Hole, and especially since the Fed Chairman started to tell us that US core inflation is âtoo lowâ, in italics of his choosing. The direction of Fed policy is no longer a one way bet. On Wednesday, the FOMC said that it would âregularly review the pace . . . and overall size of the asset purchase program in light of incoming informationâ. The market has not wanted to pay attention to this, but it could mean that the size and speed of QE2 could be reduced if the economy expands more rapidly than expected." I find it hard for them to default on the size but the speed they could easily do it
Kevin Warsh confirms the Fed doesn't give a fuck about the UR "Lower risk-free rates and higher equity pricesâif sustainedâcould strengthen household and business balance sheets, and raise confidence in the strength of the economy. But if the recent weakness in the dollar, run-up in commodity prices, and other forward-looking indicators are sustained and passed along into final prices, the Fed's price stability objective might no longer be a compelling policy rationale. In such a caseâeven with the unemployment rate still highâwe would have cause to consider the path of policy. This is truer still if inflation expectations increase materially."