You can't fool the market. The feds are filled with incompetent losers.
Posted on 01/26/2009 7:09:49 PM PST by sickoflibs
The Federal Reserve is struggling to explain its plans for pulling the U.S. economy out of recession as it resorts to unorthodox policy tools while official interest rates are set near zero.
Since a rate-setting meeting in December, several U.S. central bank officials have tried to lay out what the Fed can do now that it has run out of conventional ammunition to support economic growth.
Usually, the Fed can focus its policy message around its interest rate target, but with federal funds already close to zero that capability has disappeared with no clearly discernible substitute on the horizon.
"It is very difficult to communicate the nature and effects of unconventional balance sheet actions," Glenn Rudebusch, associate director of research at the San Francisco Federal Reserve Bank said in a report earlier this month.
Rudebusch suggested the Fed needs to explain what it hopes to achieve with its various new programs to ease conditions in specific credit markets.
The Fed's next chance will come on Wednesday, when its policy-making Federal Open Market Committee issues a statement following two days of deliberations. It will be the FOMC's first meeting since it cut the overnight federal funds rate to a range of zero to 0.25 percent in mid-December.
Some Fed watchers expect a commitment to buying long-term Treasuries, word on an expansion of the efforts to buy securities in other asset classes, or even setting of an explicit inflation target as as a way to tackle worries about deflation.
Still, the reactive nature of many of the Fed's moves since 2007, with programs seemingly created on the fly as fresh crises erupted, has made crafting a clear policy message more difficult, and also devalued the currency of the FOMC statement.
"The Fed has been making up plays at the line of scrimmage, rather than taking them from a playbook," said Brian Fabbri, economist at BNP Paribas in New York. "Thus the relevance and drama of the FOMC meetings—where the markets would anticipate and react to each change in the Fed's target rate—has been reduced."
Helicopter Days
The Fed is now providing huge amounts of liquidity and credit to various segments of the private sector, massively expanding the size of its balance sheet in what Chairman Ben Bernanke terms "credit easing" policy.
It has attempted to distance itself from Japanese-style "quantitative easing," when the Bank of Japan in the early 1990s set an explicit numerical target for reserves, and expanded reserves accordingly.
"The Japanese experience suggests that simply expanding bank reserves—even by a very large amount—had little effect on bank lending or on the economy more broadly," Janet Yellen, San Francisco Fed President and an FOMC voter this year, said on Jan 15.
Still, the Fed risks a communications gap because its "alphabet soup" of programs can not be be distilled into a simple message on its policy bias—easier, tighter, or no change—or easily measured for signs of success.
Chicago Fed President Charles Evans has defined the Fed's current actions as a proxy for doing the impossible, or setting the fed funds rate at a negative level.
"The trick, no doubt, would be to print exactly the right amount of money to fix today's economic problems without generating another disaster via hyper-inflation," said Rory Robertson, interest rate strategist at Macquarie Bank in Sydney.
But fine-tuning policy around a theoretical negative funds rate is tough, as then-Fed governor Bernanke acknowledged in a now-famous 2002 speech on deflation.
"Alternative policy tools ... may raise practical problems of implementation and of calibration of their likely economic effects," Bernanke said.
Bets in the derivatives markets suggest the Fed could start lifting interest rates as soon as September. Many forecasters look for a much longer spell of near-zero rates, given their gloomy economic outlook.
Jan Hatzius, economist at Goldman Sachs, said that by the end of 2010 conventional monetary policy drivers such as the Taylor Rule, which suggests appropriate adjustments to interest rates based on factors such as inflation and the jobless rate, would imply a fed funds rate of negative 6 percent.
"Our forecast of a 9.5 percent unemployment rate by late 2010 implies the largest amount of slack of the postwar period," Hatzius said. "Fed (and Treasury) officials will need to expand their efforts to stimulate demand dramatically further."
"It's great to spend money when you have it. But first you have to earn it. It's great to have things, but first you have to make them."
"“The reason we were so rich was because we believed in capitalism. The government was small so people were big. And we had honest money and we had higher interest rates so people would save. We used to have a double digit savings rate in this country. People bought things when they had the money. They didn’t buy first and figure out how to pay for it later. ."
"Everytime government planning has been tried,all it's done is made things worse. It didn't work in communist China, it didnt work in the Soviet Union. Barack Obama is no smarter than Khrushchev or Mao. He may think he's smarter than everyone else..."
"The economy is not going to improve because of this plan. You don’t solve economic problems by printing money. You solve those problems by working hard, saving, producing, and the exact opposite of what we are trying to do.."
"One way the government could create affordable housing is to stop propping them up with very low interest rates."
"The government can't fix the economy, it can only move our property from person to person, by taxing, borrowing, or printing more currency."
"The total cost to society is what the government spends, not just what we see it tax us"
"If devaluing currency made countries richer, the third world nations could just print themselves to a world power"
"We don't want work for the sake of work. We want work for what it produces"
"The (US Treasury)bond market is the next to collapse. The current buyers are like condo flippers looking to sell to someone else". "It's just another ponzi scheme as each buyer buys to sell until there are no buyers and it collapses"(this is because the government always needs NEW lenders for them to pay the interest and principle back to last set of lenders plus more to for new spending.)
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Mish Shedlock pretty much dismantles the Schiff mystique today. Read it if you have not already.
http://globaleconomicanalysis.blogspot.com/
Peter Schiff/Redistribution Watch Ping List. (Washington Spending your past, present and future money!)
Fine tuning inflation by printing money . Tells you what to do with your money! Why go to Asians for new fed loans when fed can just print it?
I am aware of all those predictions of his that missed the current deflation. He predicted the rest of the world would carry on without us after our crash.
But the fundamentals are pointing to commodities long term as he predicts ,we are headed to inflation. Democrats are going to try to create inflation on purpose, printing money, unions, green energy, halting drilling. Add that to increasing world population and industry creating demand in previously poor countries. In fact this current crash is halting investment of commodities, why open new mines and oil wells if the price is low now? So his message is relevent to future. But that future may not be this summer.
More-so than investment, I love the conservative messages of his. If I could find an articulate republican with a conservative message relevent to Washington increasing power/redistribution grab, I would use them. We hear his witty stinging lines and he rings a bell that we havent had in a long time.
sorry..that should read President Reagan
http://research.stlouisfed.org/fred2/series/AMBNS?cid=124
link works just paste inot browser. Shocking how much the money supply has increasedin the lat 2 months.
What i don’t get is $2 trilion dollar deficit, 33% increase in the monetary base and 2.6% 10 year treasuries.
won’t last for long.
Democrats are going to try to create inflation on purpose, printing money, unions, green energy, halting drilling.
I’m surprised they havent put raising the min. wage on
their list
The world economy right now, is a game of musical chairs.
You can't fool the market. The feds are filled with incompetent losers.
RE “I’m surprised they havent put raising the min. wage on
their list”
GWB caved on that one so that is put on later priorities, I am glad you reminded me, next time I repeat the list LOL
Sorry-—When you are investing/trading—losing 60-70% (most commodities) requires a 100-300% gain just to get back to even. Schiff has had a worse investment year than the general market which was awful. About the only thing he got right was the US economy. Deflation is far more likely than inflation. You will NOT get inflation unless wages/demand go up and the very opposite is happening. Unless they can re-ignite the credit bubble it’s not happening. Last year we had $10 trillion in wealth disappear with another roughly 1-2 trillion in January at current equity prices. Even if the fed doubled physical currency to around 1.5 trillion, that isn’t even close to inflation. At some point in the LONNGGGG future that extra money could lead to inflation but right now we still have 3-5 years (or more) or deflating the credit bubble of the last 12 years which was the largets credit bubble in the history of the US (and probably the world).
I saw Harry Dent on FNC yesterday Saturday warning of a long american depression because of slowing of boomer spending for retirement. He said stocks will go up a short time from stimulus but you need to get out then and buy gold and commodities for inflation protection. After that I saw Rogers clip saying similar.
3-5 years with the inflation tools they have?
They inflate enough to get investors buying on the up boom, and keep savings interest low, inflation high and it promotes itself,
The fed cannot inflate enough without sending treasury yields soaring... Sorry—deflation over the next 5 years is about 95%+ likely. The fed is almost out of bullets. They only have 2 left and only one of which could work — buy US Gov’t long bonds. The next is printing but there are a lot of issues there—even if they ran the presses 24/7 on nothing but $100s they couldn’t hyperinflate with the wealth, job, and wage destruction going on right now. We’d have to introduce like $1000s, $500s and $250s to even think about hyperinflation right now. Unless you can push wages and demand up and reignite the credit bubble we are on the path to deflation—just like during the great depression. As was posted by Mish in a rebuttal to Schiff, the money supply soared ridiculously in 1931 also but was followed by the worst deflation in the history of the US.
Stocks went up from 7500 to 9500 with the stimulus. It already had it’s bump. I don’t think we breach 9k again for a long, long time. We’re more likely to see the 6 handle before 9 again.
Well for those of us who are debt free and have piles of cash, serious deflation is actually an intriguing prospect.
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