Fun stuff.
Posted on 11/01/2010 12:31:53 PM PDT by NormsRevenge
Much of the media's attention is focused on Election Day. But another event Tuesday could have a far greater effect on the one overriding issue that looks likely to lead to major Republican gains.
The Federal Reserve, at a meeting of policymakers Tuesday and Wednesday, is poised to take dramatic steps to jolt the economy awake. With Ben Bernanke and Company running out of conventional tools to address the slump, the moment is one of the most crucial since the downturn began nearly three years ago.
The Fed has already pumped money into the economy by buying over $1.7 trillion worth of Treasury bonds, but this week it's expected to announce an additional $500 billion purchase, ..
Some analysts see pitfalls to the move. "The greatest risk for the Fed in taking this action is that it could extend the economy's funk by giving a sense that either no one is in charge or that the people who are in charge can't get it right," David Shulman of the UCLA Anderson Forecast told the Washington Post. "The whole psychology of that could leak back into the economy."
And if the Fed overshoots, it could produce the same kind of bubbles that helped get us in the fix we're in now.
But the downsides of not acting may be greater. Unemployment is currently stuck around 9 percent, and the economy isn't growing fast enough to raise it. Meanwhile, inflation, at around 1 percent, isn't high enough to encourage consumers to spend money.
In fact, some think the Fed isn't thinking big enough. Larry Meyer, a former Fed governor now with Macroeconomic Advisers, recently argued it will take more than $5 trillion worth of bond purchases to jolt the economy. Fed leaders have said that's too risky.
(Excerpt) Read more at news.yahoo.com ...
Couldn’t agree more... Norm.
Fun stuff.
Well I know I feel much better knowing that.
REPEAL OBAMACARE
It is a secret, because the current Discount Rate is 0.75%.
And loans are not what you claimed.
With what? Anything the fed does is add to the problem.
Crash the real estate market, so that people have an idea of actual property value, especially in the commercial market. Stand back, let banks fail, then pick up the pieces.
Instead, it’s hide the property crisis, hide the value of the currency, hide fair loan values, hide .. Well, just about anything that’d give a clear picture of the economy. Oh, and publish more fluff numbers from the census to assure that everything’s just hunky dory.
“Meanwhile, inflation, at around 1 percent, isn’t high enough to encourage consumers to spend money.”
Well just raise inflation, duh!
Inflation. The dial to private spending levels. Who knew. Some one call this in.
</end sarcasm>
Consumers spend on themselves. A house for ME. A car for ME. An ipod for... ME. Consumers do not spend for State economic health.
Congress should be spending for us. An army for us. Highways for us. Ipods for .... us. Congress should not be spending for State economic health. (or votes)
End the Keynesian experiment.
The economic corpse has been zapped so many times that it is smoldering. Seriously, why would anybody risk their capital to start a business in such a hostile environment? Excessive taxation, endless regulations, environmentalism, unionism, legal liabilities, healthcare, dumbed-down workforce, etc. It is a miracle that any business still exists. Until there is a revolutionary change to the conditions I mentioned above, there will be no genuine improvement to the economy.
You are exactly right.
This is a very bizarre and complicated predicament. Those who follow Keynes suggest upwards of $10 trillion is needed. It sounds crazy.
Those who follow Friedman, though, have to recognize that we are in a situation where money is not circulating. Yes, government plays a large (but not the only) part for why it isn’t. BUT, and this is a big BUT, there is almost no practical difference between money supply shrinking and money supply being hoarded.
I don’t know if economists have ever really considered what could happen if the money supply is hoarded in private hands. But we do know what the solutions should be when the money supply shrinks.
This may be the one case where Milton Friedman and J.M. Keynes might agree. I am not sure, but possibly so. Either the money has to be forcibly dislodged from private hoarders, or, a cost for hoarding has to be imposed — that cost would be in this case inflation. Though that is a very broad solution that harms all savers not just hoarders, the Fed doesn’t have many other tools and Congress is just plain inconsiderate - they will not come up with any better solutions.
Though my fear is that, as you note, if they print another $500 billion, it will just get hoarded like the last round of QE did. The banks still have plenty of toxic assets and plenty more teetering on the edge. Which is possibly why some say it will require $5 trillion or $10 trillion.
What will Helicopter Ben do next if this $500 billion doesn’t work (and I think it won’t work)? More important is the question - how do you stimulate consumption/spending in a service based economy if the people don’t have money to spend on goods and services? The solution is probably not to be founds by giving money to banks. The problem itself may be rooted in the collapse of all bubbles. Can any more bubbles be created? If not, then what?
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