Obama: You Need To Fire Everyone (Fed holding interest rates at zero for 4 years?!)

The Market Ticker ^ | 1/10/09 | Karl Denninger

[randita]

Obama: You Need To Fire Everyone

The Market Ticker

Saturday, January 10. 2009

Posted by Karl Denninger

at 11:57

Obama: You Need To Fire Everyone

..... involved in producing your "American Recovery and Reinvestment Plan".

Why? In "Appendix 1"

We considered multipliers for the case where the federal funds rate remains constant, rather than the usual case where the Federal Reserve raises the funds rate in response to fiscal expansion, on the grounds that the funds rate is likely to be at or near its lower bound of zero for the foreseeable future.

Please tell me this is a joke. Obama really believes that The Fed can hold interest rates at zero for four years and they can spend without bound, while the bond market will blithely look on at $1-2 trillion deficits annually and the economy will begin to recover?

You're kidding, right?

Unfortunately he's not kidding, yet that premise forms the foundation of his plan.

With it, the analysis his "team" performed gets a modest improvement.

If he is unsuccessful in convincing people to lend the government money at zero interest so it can expand the federal debt by 70% in one year (the $7 trillion already committed) and an additional 10-20% annually for the foreseeable future thereafter, the plan fails and worse, the money that could be spent on direct assistance to Americans for food, shelter and clothing (as I have repeatedly urged be held back for this exact purpose) is gone.

This plan is asinine in that if it "works" the flight out of Treasury debt that occurs with a recovering economy will guarantee rising rates (and thus torpedo the budget and government through radically increased borrowing costs) while if it fails we will have spent the money that is going to be necessary for that direct assistance to Americans.

I've seen stupid come out of our government before, but this takes the cake; it is, in fact, a "can't win" proposal.

Everyone with their fingers in this needs to be fired and some adults (who actually look at history, along with the math) must be admitted to the room to have a rational discussion on the choices we have as Americans, the paths we can take forward, and their consequences.

"Can't Win" scenarios must not be considered or enacted.

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[randita]

The devil is always in the details.

In "Appendix 1":

"We considered multipliers for the case where the federal funds rate remains constant, rather than the usual case where the Federal Reserve raises the funds rate in response to fiscal expansion, on the grounds that the funds rate is likely to be at or near its lower bound of zero for the foreseeable future."

[Cyber Ninja]

Zero times anything is zero. Do the math. (0) x (X) = 0

[muawiyah]

Just means that the "team" that put together the package thinks we are in the throes of a very serious deflationary cycle.

Check the price of homes ~ sure looks like it!

[pabianice]

First he’ll fire all Republican US attorneys.

[Pearls Before Swine]

It gets worse. Also from the Appendix (Item F) is this gem:

"The recovery plan is likely to create jobs paying a range of wages. Significant shares of jobs are created in sectors that pay above average, such as construction and business services, as well as sectors that pay below average, such as retail trade and leisure/hospitality (hotels, restaurants). Union representation is higher than average in some of the sectors in which the recovery package creates significant numbers of jobs. Union coverage in construction and manufacturing, which account for almost one-third of the jobs created by the package, are 14% and 11%, respectively, compared to 7.5% coverage for the private sector overall. Along the same lines, recent research by Robert Pollin and Jeannette Wicks-Lim (available at http://www.peri.umass.edu/green_jobs) suggests that investments in green energy will create jobs that generally pay well above the typical wage. For example, compared to the national median wage of $15 in 2007, some of the jobs created by these investments include: electricians (median wage, $21.50/hour), carpenters ($18/hour), operations managers ($43/hour), and production supervisors ($23/hour). The occupation-weighted average wage in green energy jobs is about 20% above the national average."

In other words, the US Government expects to borrow huge amounts of money at near-zero interest rates to fund jobs that are expensive, in part due to above average unionization. Moreover, some of these jobs, in particular the green jobs, are only high-paying because of previous government support. So this huge debt will fund uneconomic projects built by overpriced labor, and will only be possible if rates stay near zero. There is no way for that to happen unless US Bond auctions continue. If they fail, interest rates zoom -- or the printing presses roll and the dollar craters.

[screaminsunshine]

Obama does not want to “win” His mission is to finish the USA off. He has the assets in place to do it. Look at his background. Prepare for the Chaos.

[blam]

Nothing From Nothing

[PubliusMM]

0bama is way out of his league as POTUS. The masses enthralled by his (staged) eloquence throughout the campaign will, at some point, be forced to ‘pay the piper’ for their blind allegiance. They, too, will share in the misery that is to come. Sadly, they won’t likely be able to recognize his incompetence until it is too late.

And, his obvious reliance on the former Clintonites is truly scary. I can only think that Bill and the Hildebeast have video on him, or have a certified copy of his BC, maybe.

This would be laughable if it weren’t so sadly frightening.

[Churchillspirit]

If this man has any loyalty to anywhere it is certainly not the United States of America.

[mo]

Bambi has two choices...either to do a Reagan or do an FDR..if you’re starting with a lot of debt...ya can do a Reagan. IF not, you might get away with an FDR....in any event he and hence we are in over our heads.

[Brilliant]

If we’re all unemployed, then it might not be so hard to hold the fed funds rate at zero. Maybe that is what Obama has in mind.

[FBD]

perfect fit for the Zero. BTW, I loved that song.
RIP Billy Preston.

[randita]

It’s hard not to start throwing things.

[BfloGuy]

Capitalism-haters believe that charging interest is unnecessary and immoral.

[ritewingwarrior]

Me too. I am so outraged over this guys election, I can’t see straight. Our founding fathers would be appalled. How nice and visionary.

At first I figured they had no plan to get out of this, but it appears they want to ignore the need to curb inflation by keeping the interest rate fixed. Then they can pay off the debt later with trillions in devalued dollars. Brilliant. Just print more money. Never mind the huge damage that would do to our economy. They are setting us up to be forced to accept socialism. Digging ourselves out of the economic hole on a capitalist basis with so much government regulation would be impossible.

He is already talking about sacrifice, Which more people do need to do, but pretty soon it will be the ‘Greater Good’ when they seize all of our pensions.

Economics needs to be mandatory in high school with specific emphasis on capitalism being the only way to preserve the freedom we deserve in America.