Two things leap out at me from that piece:
1. “First, it would remove the subsidy for banks to “borrow short and lend long” by investing their balance sheets in Treasury securities and housing bonds, thus starving small business of funding. With commercial and industrial loans now down 25% from their October 2008 peak, small business is starving for working capital at the same time as the banks make record profits.”
While I agree with the author, the removal of the subsidy-by-yield-curve would end up causing more problems in the financial sector that we’re clearly not dealing with. If we’re going to raise rates, then we have to confront the bank fraudsters head-on and get the crap on their books priced as crap, take the hit, clean up the balance sheets and go forward to achieve the lending the author wants. As it stands now, the banks don’t want to lend because they can’t take on more risk, and they’re happy to sit on the sidelines, borrow short and buy long risk-free paper to create profits out of nothing.
2. “Higher interest rates would also reduce stock market speculation, returning the market to its sustainable level of around 8,000 or below on the Dow. It would also, by reducing bank enthusiasm for housing bonds, begin to remove the excessive subsidization of housing, diverting capital back into more productive channels. “
(insert emulation of a blubbering politician here) “But, bbbbuuut... buut... if we bring down the start market, then the LEI comes down, and it looks like we’re going back into recession!”
I don’t see the Kenyan and his tribe goin’ for any of this anytime soon. Oh, and BTW — leveling the yield curve would also crunch the LEI in and of itself, and suddenly you’d have all stripes of economic idjits clamoring for another stimulus plan.
To be certain, I agree with the author and his aims. I’m just pointing out how the deck is stacked against any plausible sanity being introduced into the economy or markets just now. Just about any sane plan to restore the US economy has to start with a precondition that we’ve exiled all economists to a gulag in the frozen north to mine gold in their BVD’s, and that we’ve put all graduates of Harvard Business School into forced labor camps somewhere in Africa so we never hear from them again.
Absent that, we ain’t getting from here to there anytime soon.
and they’re happy to sit on the sidelines, borrow short and buy long risk-free paper to create profits out of nothing.
Can you show me this supposed risk-free profit trade I keep hearing about?