Comments on: Why Bernanke’s not doing more A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: JohnTheLad Fri, 22 Jun 2012 01:20:13 +0000 “from money markets to insurance and from pension provision to suppliers of daily market liquidity, all of whom provide financial services to companies and individuals – has been undermined.”

Really. Because those markets have done SUCH a wonderful job not undermining the whole world. And the leaders of these industries have made it abundantly clear that they would cast the Earth into eternal fiscal chaos if it meant boosting the next second’s earnings by a penny. If it’s their job to supply the world with capital, they’ve done a terrible job of it.

There’s no point in keeping interest rates at zero or inflation at 2%. The only people that benefit from zero interest rates are lenders, and the only people that benefit from low inflation are banks. But this is to be expected, since the banker aristocracy runs everything.

And why the obsession with making a market where people can take on MORE debt? Debt means average pay is not meeting the cost of living. It’s fueled the last three bubbles, and given us the illusion that we can live like decadent demigods in the North Atlantic sphere. The fact that the Fed’s (or Congress’ for that matter) policies aren’t reflecting a need to reduce the risk of another debt bubble through stimulating demand and using the immense power of fiduciary diversification the Fed has to pop the liquidity traps and get that money flowing into the hands of those whose hands build our world, that they are content with a reserve army of unemployed, a finance-fueled plutarchy, subsistence wages and an increasingly anti-competitive and oligopolistic market in every industry thanks to endless mergers and billion-dollar political graft being legalized.

Burn the Fed down!

By: Woj Thu, 21 Jun 2012 18:51:27 +0000 @mwwaters – There is a good post yesterday at Bubbles and Busts about “the fallacy of monetary neutrality” (this site won’t let me add link.) QE is merely an asset swap of reserves for Treasuries (or MBS). Reserves, however, cannot be spent. Most “money printing” today is done by private banks in response to demand for credit. Demand is low because household debt and interest costs remain too high compared to incomes. Resolving that issue is necessary for sustainable growth. Fiscal policy does create distortions, but monetary policy does as well.

By: MrRFox Thu, 21 Jun 2012 17:38:57 +0000 @DetroitDan – With you every step of the way, awestruck that opinion leaders and those in power could even briefly entertain any such notion. These people – apparently including our leader – are drunk on a wicked combination of power, panic and melodrama. In its last 12+ years of its existence, EU unemployment rates never got below where US rates are now but for parts of 3 of them. Panic is never justified, and melodrama is not called for now – though it does get ink; gotta give them that.

But maybe it should be allowed to happen, and in happening accelerate the collapse of the system and of routine life in the US. Perhaps it has to happen to inspire the depth of change that needs to be made. After all, one can’t “pick up the pieces” until the object is first reduced to pieces. It’s a painful thing to contemplate, but –

Aren’t we past the point of trying to keep the system from disintegrating?

By: mwwaters Thu, 21 Jun 2012 17:36:36 +0000 Woj,

I mentioned the Swiss national bank to show that, even when your currency has extremely strong pressure to remain overvalued, a central bank has no real limit to depreciate their currency if they so choose.

In the case of the US, NGDP targeting does rely somewhat on the “money multiplier.” In simpler terms, it relies on the money printed actually being spent. The argument goes that both Japan and the US printed mountains of money in their crises but that money was not spent.

That is where the “expectations trap” comes in. If a central bank signals that they will tighten at the first sign of inflation and growth, then the market will rationally not spend or invest the new money.

However, the solution to expectations is not to use fiscal policy as an imperfect, distortionary way of moving existing savings to government spending. It is far better to actually change central bank attitudes to monetary policy at the zero lower bound.

For example, the Fed is nowhere near out of ammunition even if they do never resort to buying anything outside of Treasuries or agencies. For whatever asinine reason, they are paying 0.25% interest to people to not spend the money they printed. With the interest rate on excess reserves back at zero and with every last risk-free, government-guaranteed bond purchased, then the risk-free rate going out to 30 years becomes zero. Mortgage rates would go down to 1-2%. Even at that point, the Fed can still charge a penalty rate on excess reserves to further encourage the new money to be spent.

This is all very extraordinary, but its not like the trillions of dollars in necessary fiscal stimulus is not also extraordinary. If the central bank and congress could just sit on their laurels to raise AD, then it would have been done already.

By: DetroitDan Thu, 21 Jun 2012 15:59:59 +0000 The above link will work if you remove the dot after .html.

On the other side, Salmon and Atrios are in good company with Joseph Gagnon, a former Fed insider now at the Peterson Institute for International Economics.

Quoting Gagnon (from the above link): “Research I am doing suggests that it would be much more attractive for the Fed to buy a broad basket of U.S. equities to support the stock market than to try to push down bond yields from these already low levels. Sadly, the Fed is not authorized to buy equities, even though other central banks are allowed to do so…”.

So apparently even some of the folks at the small government Peterson Institute want the government to “support the stock market”. The mind reels…

By: DetroitDan Thu, 21 Jun 2012 15:53:11 +0000 Also, it’s illegal for the Fed to buy stocks, unless directed to do so by the Treasury (see discussion at 2012/06/mike-konczal-what-constrains-fed eral.html.

And the potential for political malfeasance (an administration directing the Fed to buy stocks in order to boost its popularity) is high.

Anyone else find their way here from Atrios’s link? I’m afraid this is another example of the stupidity of Atrios’s expressed desired that the Fed should do more. Here Atrios seems to be endorsing a proposal to have the Fed give more “free money” (Atrios’s favorite phrase) to the owners of large corporations.

Atrios is on the right track generally with his economic commentary, but would benefit by a full embrace of MMT, in my opinion…

By: DetroitDan Thu, 21 Jun 2012 14:59:57 +0000 Finally, here a post recommending more action by the Fed that provides at least one specific example the Fed might do — “I’d spend a trillion dollars buying broad stock-market index funds below a certain level”.

However, this seems like a terrible idea to me. Do we really want the government to give more money to the owners of capital while doing nothing for labor? Is this a good precedent to set? Would it result in wild asset price rises?

By: Woj Thu, 21 Jun 2012 14:45:11 +0000 Thanks dwj and realist50.

@mwwaters – How does the Swiss situation show anything about stimulating demand? Switzerland is currently experiencing deflation. Separately, the SNB having to buy massive foreign exchange to maintain the currency floor is a sign of weakness regarding the expectations channel. NGDP Targeting relies on the idea of the money multiplier, which simply doesn’t exist . Lastly, one other form of inflation is cost-push, but that requires incorporating credit into macro models.

By: breezinthru Thu, 21 Jun 2012 10:14:52 +0000 Bernanke can’t be persuaded to more now. He surely knows that monetary stimulus can’t put America’s economy back on track, not now and not later.

He also knows that when the impending economic calamity finally strikes, anxious Americans must see the Fed confidently take some kind of drastic action… effective or not.

By: Farcaster Thu, 21 Jun 2012 05:26:45 +0000 The Fed is waiting for Congress. The current fiscal policy path adds $10 trillion to the debt over the next decade; Obama’s budget would avoid $4T and Domenici-Rivlin for example would avoid $6T.

Until meaningful short-term stimulus and long-term austerity measures are taken, the Fed will make sure Congress feels our pain.

I’m embarrassed by our Congress. The President is doing exactly what post-Depression economic theory says he should do and Congress is stopping him.