Janet Yellen Risks Another Downturn

Real Clear Markets ^ | February 22, 2016 | Peter Morici

[expat_panama]

Washington policymakers - and their colleagues abroad - have pursued reckless and irresponsible economic policies. The chickens are coming home to roost, and the Federal Reserve could easily push America into another recession.

Prior to the 2008 financial meltdown, governments in the United States, Europe and Japan piled up debt to finance social programs they could not afford, and encouraged private individuals to borrow too much against real estate. All this to maintain consumer spending and modest growth, when government regulators meddling in virtually every business and hiring decision curbed private investment.

China, instead of implementing needed market reforms, artificially suppressed the value of the yuan, subsidized domestic industries with easy credit and protected them from foreign competition. Those boosted exports and accelerated the decline of manufacturing in Western economies.

When the credit bubbles burst, Western leaders uniformly scapegoated the banks. And they further expanded social spending, failed to reform oppressive business regulations and appeased China on currency manipulation and protectionism that together were holding up growth in the first place.

With the banks now constrained by examiners peeking over their every shoulder and less inclined to lend, central banks recklessly printed money to pump liquidity directly into credit markets. For example, quantitative easing has boosted Bank of Japan holdings to a whopping 75 percent of gross domestic product.

In Japan and Europe, monetary authorities have now pushed interest rates below zero - banks now charge large depositors for the privilege of stashing cash - and have joined China in pushing their currencies down against the dollar.

Cheap currencies boosted exports a bit but absent more fundamental reforms, those can't resurrect growth.

U.S. growth during the Bush-Obama era is about half that accomplished during the Reagan-Clinton years and again appears to be faltering. Jobs creation may still look good for now, but hiring decisions tend to lag changes in broader conditions and could quickly go south.

Right now, the U.S. economy is held up by consumer spending. Few private businesses are willing to finance new projects with credit remaining tight and Washington tagging them the villain for all of society's problems.

A year ago conditions were better, but the Fed missed the opportunity to begin raising interest rates to more normal levels, and finally increased those marginally above zero in December.

Now the Fed is between a rock and a hard place. If it raises rates further, it will suppress faltering business investment and sales of big-ticket consumer items, such as cars and appliances. But taking interest rates into negative territory in the style of the Bank of Japan and European Central Bank risks destabilizing financial markets.

Japanese and European monetary authorities are discovering banks face difficulties charging most depositors for the privilege of keeping money in their vaults, and negative interest rates don't encourage more lending when banks see mindless government regulation, not the cost of money, as the problem.

More importantly, negative interest rates drive down bank profits and stock prices.

The realization that central banks have it wrong - pushing down currencies against the dollar doesn't resurrect growth, and negative interest rates only serve to destabilize banks - is causing capital flight of all kinds. In China, investors are selling stocks and rushing into dollars, and in Japan and Europe, they are dumping stocks for government bonds.

During recent testimony before Congress, Fed Chairman Janet Yellen acknowledged deteriorating foreign economic conditions and stock market turbulence pose risks for the U.S. economic expansion - tepid as it may be - but paradoxically stated both her desire to raise interest rates and that she is considering negative interest rates.

Plainly, Ms. Yellen is clueless about what to do next, and won't call out the administration for spending and regulating business too much and making the Fed's job impossible.

Ms. Yellen hardly inspires confidence, and that is a prescription for disaster.

[expat_panama]

Some of us here will say they want to ban the Fed because well, they want to. Please tell us how you'd like the gov't to control the value of money w/o the fed. Others will say they want an "audit" of the fed. Please tell us what specifically you want to know that isn't already public.

[snoringbear]

A little something that the Fed wants to sneak under the radar being they’re out of other tricks to supposedly stimulate the economy; negative interest rates. How will it work? What are the alternatives? Well, the Fed is way ahead of you. They’re well into planing the elimination of $50 and $100 bills. Yes indeedie, our government, here to help us, sarc/

[VTenigma]

“Another recession” Kemosabee?

[expat_panama]

Happy New Week everyone!   Uncertainty returns as metals falter and stock indexes scrape up to test the "basement ceiling" it's been hitting for the past month.   Adding to the confusion is that this site says stock futures are solid upbeat and these say they'll be flat.  Gold and silver are off, but hey it's the roof they're trying to punch thru there.

No econ reports today (whew!).   In other news:

Countries Don't Go Bankrupt? 20th Shows Otherwise - Alex Pollock, RCM
Saudi/Russia Deal Gives Oil Politics New Twist - Liam Halligan, Telegraph
Fear and Loathing of Negative Yield Debt - Mnyanda & Nelson, Bloomberg
Why Are Republicans Avoiding Talk of Prosperity? - Ralph Benko, Forbes
Obama's Final Budget Proof Both Sides Agree - Roy Meyers, New Republic
What Explains the Appeal of Socialism? - Steve Moore, Washington Times
Why Millennials Love Bernie Sanders - Whitney Ross Manzo, USA Today
In 2016, Most Live Better than Rockefeller In 1916 - Donald Boudreaux,CH
Is Iran Really Ready For Foreign Investment? - Alireza Ramezani, Al Mon.
Pope Francis Gets Medieval Over Capitalism - Editorial, Investor's Business

[dennisw]

The Fed is a private bank. The gov’t such as it is does not control it. And interest rates have a life of their own...The Fed can only try to ride this tiger and steer it a bit. Or sometimes a lot depending on circumstances.
ZIRP and NIRP are degeneracy promulgated by degenerate, inside The Beltway “bankers” who run Da Fed. And mark my words they are degenerates, though Federal Reserve honchos and bankers didn’t used to be

[Zenjitsuman]

I have watched several Trump rallies, the American Spectator can’t Spectate this isn’t Trump’s position

He want to completely repeal and replace Obamacare. Trump must have said it 500 times by now.

Combo of Portable medical savings accounts, opening state lines so insurers don’t have monopolies in a state, and you can get the best quote. Medicare style coverages where you pick what is in your plan, a man doesn’t have to pay for pregnancy coverages in his personal insurance for instance.

Just like that WSJ poll was BS, this article is the GOPe throwing up crap to see if it sticks.

[zzwhale]

we are heading for a depression .....
already in a recession
the numbers are lies that say the economy is recovering.... its not and it won’t until tax raets on corporations are lowered, middle class jobs are brought back and there is more middle class disposable income....
economics 101
70% of the USA economy is consumer spending.... and it aint happening
how many stores are being closed and oil patch jobs lost with the ripple effect...
recovery is nothing but another obama LIE.......
with almost 8 years of this pompous commie idiot the economy hasn’t budged off of recession... the government numbers are published each month and then revised down the road... LIES lies lies

[palmer]

Please tell us how you'd like the gov't to control the value of money w/o the fed

Why should the govt control the value of money?

[The Sons of Liberty]

The chickens are coming home to roost

The TRUTH is that there was never really a recovery. People looked for jobs, found none and dropped out of the workforce, and the unemployment rate dropped. 0bama claimed credit for "recovery".

[Buckeye McFrog]

Mister we could use a man like
Andrew Jackson again....

[Lurkina.n.Learnin]

“Why should the govt control the value of money? “

Cause they are control freaks.

[painter]

China, instead of implementing needed market reforms, artificially suppressed the value of the yuan, subsidized domestic industries with easy credit and protected them from foreign competition. Those boosted exports and accelerated the decline of manufacturing in Western economies.

This is what Trump has been talking about.

[Ozark Tom]

Look up the withholding from wages being paid into the Treasury, and consider the trend line.

http://www.zerohedge.com/news/2016-02-20/alarm-goes-threatening-strong-us-jobs-myth-withheld-income-taxes-are-stalling

[Lurkina.n.Learnin]

You can put your money here...

The most expensive homes you can buy in 30 countries
http://www.businessinsider.com/the-most-expensive-homes-in-30-countries-2016-2

[expat_panama]

Why should the govt control the value of money?

It's from the U.S. Constitution, Article I Section 8:  "...Congress shall have Power To... ...coin Money, regulate the Value thereof...", but hey, if we can abolish the Fed then we can abolish the constitution too.
 

[palmer]

Did you miss this item just above the regulating money item?

To regulate Commerce with foreign Nations

That one is more important than the value of money. Also is the Fed the only way to regulate the value of money? The best way?

[SaveFerris]

correct

[expat_panama]

...is the Fed the only way to regulate the value of money? The best way?

Sounds like we agree that until we change the constitution we will want congress to regulate the value of money. 

As for that question of  whether the fed is the best way, I asked it first up in post #1.  What I say is that we don't want to abolish the fed unless we got some other way we like better. The fact that both you and I are asking suggests that neither of us can think of a better way. Yet.

[palmer]

There will always be markets for money even if it completely black. Thus the idea that anyone can regulate the value is kind of panglossian. The only real question is the mix of market and politics. Just recently the Fed printed up money and gave it to politicians to spend which is pretty dumb. Similarly they printed money and gave it to banks to incentivize the banks to churn mortgages and keep the economy moving that way. That’s all about regulating the value of credit and that’s not in the Constitution.

[Lurkina.n.Learnin]

Some say that that is Congresses job. Then I get flashes of Maxine Waters, Henry Waxman, Barney Frank, Sheila Jackson Lee and so many others. I think I’ll take the “FEDs” agenda over the agenda of 535 miscreants.