Comments on: The wrong sort of inflation Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 By: consideration Tue, 19 Oct 2010 17:12:54 +0000 Mr Hoenig is correct. QE caused the misallocation and waste of trillions of dollars. Most of it just increased speculation in the stock market, and prevented the market from correcting itself. It artificially inflated stock prices while increasing unemployment and reducing demand. It created an increased disconnect between the value of the real economy and the price of stocks. Further QE will further increase that disconnect. Sooner or later, that disconnect will correct itself. The longer the FED prevents the correction, the worse it will be when it happens.

The real economy suffers from a lack of demand. QE has devalued the US dollar in real terms and that increases the cost of products, further reducing the purchasing power of consumers in the largest consumer economy in the world. That reduces demand. It does not increase it. Reduced demand means businesses must lay off workers or shut down their businesses. That increases unemployment and reduces demand even further.

If that wasn’t bad enough, the FED has borrowed trillions of dollars to deflate the currency and that money must be repaid. And that is only the money that was borrowed “on the books”. Who really knows how much “off the book” money the FED has spent for “unnofficial” QE and government bailouts. The FED refuses to be audited.

Instead of all that money being available to grow the economy and increase employment in the future, it will have to be used to repay the debt. That means QE will slow the private sectors ability to regrow the economy and may even force it into recession.

If that wasn’t bad enough, we have the Government adding massive new entitlement programs we can’t afford and thousands of burdensome new laws that business will have to comply with. Not only does that force businesses to waste employee time and resources complying with thousands of new laws, it also reduces business efficiency and competitiveness in a global economy, increases the cost of doing business, increases government enforcement costs, and increases economic uncertainty. It’s hardly surprising businesses are reluctant to hire new workers under those conditions.

QE1 was a dismal failure in terms of the real economy. Now the FED wants to repeat it and make the problem a trillion dollars worse? It didn’t work on the real economy the first time. We can’t afford to repeat
Bernanke’s failure again.

By: minipaws Tue, 19 Oct 2010 10:24:38 +0000 Finally someone is realizing that Hoenig is the only smart one on the Fed. I am his biggest facebook fan!

By: pickaroonwyo Sun, 17 Oct 2010 13:56:06 +0000 The Fed doesn’t see enough inflation. Look at copper, precious metals, oil, grains, cotton and beef. The last QE has capitalized the emerging markets and is chasing hot assets.

I think the Fed really sees biflation or stagflation, but this diverges from their classic expectations. The analysis is dysfunctional….we are “fighting the last war”.

By: Pete_Murphy Sun, 17 Oct 2010 11:44:22 +0000 John, you are spot on in criticizing the Fed for its over-reliance on monetary economic theory. But you are also wrong to believe that this is nothing more than the low ebb of some economic cycle.

The problem with the Fed’s over-reliance on current economic theory and models is that economists have completely missed a critical parameter (perhaps THE most critical parameter) that drives today’s economy. They have missed it because they refuse to consider the effects of an ever-growing population. The effect they’ve missed is not a shortage of resources or environmental degradation – effects they dismiss with the belief that mankind is ingenious enough to conquer all such obstacles to further growth. Rather, the effect they’ve missed is declining per capita consumption and rising unemployment as a result of over-crowding.

Badly overpopulated nations are utterly dependent on manufacturing for export in order to sustain a decent standard of living for their bloated labor forces. No currency wars or QE is going to alter that fundamental economic reality. If the U.S. wants to restore a balance of trade, it needs to reject 18th century trade theories that never accounted for the effect of population density and undo the mistake it made in 1947 when it signed the Global Agreement on Tariffs and Trade. While free trade may work when the trade is between two nations roughly equal in population density, it’s a sure-fire loser for the less densely populated nation when dealing with others that are badly overpopulated. Until economists wake up to this reality, trade imbalances and high unemployment will persist.

This isn’t an economic cycle. It’s the logical outcome of never-ending population growth that continues to swell the labor force even as per capita consumption declines. Trade with badly overpopulated nations only exacerbates the effect. Our woes won’t end until that fundamental issue is addressed.

By: shivers1 Sun, 17 Oct 2010 09:48:51 +0000 fed policy of qe will unfortunately end up with higher cost push inflation (due to energy, commodities price hikes) but lower inflation of consumer goods (less money available to spend on these). so look forward to high PPI feeding through to high CPI but low or even negative core inflation -> result lower profits for companies and further cost reductions-> higher unemployment.

there is in the end no quick fix solution to the fact that unemployement in developed countries is bound to rise and employment in cheaper countries will fall. restructuring, reeducation, imposing austerity, lower living standards for the west takes a long time to achieve.

By: Lita7 Sat, 16 Oct 2010 15:12:53 +0000 How can money supply manipulation affect this?—Over 42,400 FACTORIES have been lost in the US since 2001…and all their suppliers and the technical jobs that it took to run the factories…and the materials suppliers, and the widget producers, etc etc.
—(Richard McCormack, The American Prospect, Dec 21, 2009)

Think: why is it that unemployment is likely to stay high?

By: benebene Sat, 16 Oct 2010 06:48:14 +0000 yep benanke has been a real disappointment. obama too. their thinly veiled hostility toward american society in the interest of a small elite is shocking.

ultimately this may be healthy because they have made obvious the self dealing, corrosive, parasitic behavior of our financial-government complex.

the power will eventually return to the citizens of this nation – the sooner the better.

@Butch_from_PA: reread your economics text book. there is no free lunch. inflation is not going to achieve the panacea you describe. quite the opposite, ‘monetary policy’ is mechanism for the power brokers you describe to establish greater control of the population. you think the team that came up with 100% payout of aig obligations to GS and the other parasites foreign and domestic had a sudden change of heart? now these all stars are going to determine what your money is worth?

i wish i had that kind of optimism.

By: yr2009 Fri, 15 Oct 2010 20:45:18 +0000 @jmjjmj1

“Clearly you do not understand that the Fed is isolated from the reach of the White House, it is it’s own entity. Obama has No say except to name the chief, who is a GOP guy?”

Do you wish to imply that Obama chose to let Bernanke keep his job because of bi-partisan considerations?
Interesting idea. I think it’s funny.
Bernanke is Obama’s guy now, IMHO.

By: Butch_from_PA Fri, 15 Oct 2010 18:42:27 +0000 Inflation is the key to solving many woes:
– printing money will make dollar drop and help exports
– will counter effect of China’s cheap yen policy
– will partly counter effect of cheap overseas labor
– will alleviate homeowners with underwater houses
– will spur more customer and corporate buying to hedge inflation
– will feel normal for financial power brokers who call the shots

Print baby Print!
This time give it to main street not wall street.
This time give it to our future not go nowhere jobs (higher education and huge reward/grants for technological achievements in manufacturing and green energy)

By: plange01 Fri, 15 Oct 2010 18:22:23 +0000 its become ridiculous for a incompetent like bernanke to be running the federal reserve.the US is in a depression and its growing unemployment is a national disgrace.its time to start making real changes.replace obama who has clearly failed to do the job he was elected for and clean out all of the people he brought with him…