REAGANOMICS & PALINOMICS = FISCAL CONSERVATISM ~ OBAMANOMICS = CRASHOMUNDO
Posted on 11/07/2010 2:32:50 PM PST by Al B.
As President Obama prepares for the G20 summit in South Korea this week, Sarah Palin is challenging the Federal Reserve’s monetary policy, which will likely be a key issue at the talks. On Monday, in a keynote address at a trade-association convention in Phoenix, Palin will urge Fed chairman Ben Bernanke to “cease and desist” his “pump priming.” The United States, she says, “shouldn’t be playing around with inflation.”
I’m deeply concerned about the Federal Reserve’s plans to buy up anywhere from $600 billion to as much as $1 trillion of government securities. The technical term for it is “quantitative easing.” It means our government is pumping money into the banking system by buying up treasury bonds. And where, you may ask, are we getting the money to pay for all this? We’re printing it out of thin air.
The Fed hopes doing this may buy us a little temporary economic growth by supplying banks with extra cash which they could then lend out to businesses. But it’s far from certain this will even work. After all, the problem isn’t that banks don’t have enough cash on hand – it’s that they don’t want to lend it out, because they don’t trust the current economic climate.
And if it doesn’t work, what do we do then? Print even more money? What’s the end game here? Where will all this money printing on an unprecedented scale take us? Do we have any guarantees that QE2 won’t be followed by QE3, 4, and 5, until eventually – inevitably – no one will want to buy our debt anymore? What happens if the Fed becomes not just the buyer of last resort, but the buyer of only resort?
All this pump priming will come at a serious price.
(Excerpt) Read more at nationalreview.com ...
And they say Sarah isn’t serious.
She seems one of the only political people who get it.
Bernanke is selling us down the river.
You omitted the fact Congress is in control and has oversight of the Federal Reserve and the Treasury, you just don’t get it if you think the Federal Reserve and the Treasury can do whatever they feel like.
Example: There would be no bank bailouts or QE 1, 2 or more unless the Congress approves/d of it either by vote or by non-action. This would include the actions of any GSEs.
Any Congressional action, such as auditing the Fed, requires a statute passed by both houses and the President's signature. Meanwhile, the Fed can do as it wishes within its mandate, to include QE3, 4, etc. Obama recently appointed three Democrats to the Fed Board. Three regional Fed Presidents who will rotate onto the Fed Board in 2011 are generally opposed to further easing/printing. The Board is shifting back and forth.
I do agree with you that the underlying problem is spending. Without the ability to print money, the Treasury would be left at the mercy of the market to sell debt to finance the deficit. The market would ultimately exact a higher interest rate to reflect high current debt and future deficits. That is why the Fed must stop printing money, so that the market can enforce a limit on deficits, or what you call spending.
You and Gov. Palin agree.
You and Gov. Palin agree.
For the most part I agree with Palin except she is spotlighting the wrong area on the stage. It’s Congress behind the curtain that needs exposure.
Congress gives its approval to the Federal Reserve actions by raising the debt limits. Congress already exempted the Federal Reserve from a complete audit by law so using the chairman of the Federal Reserve as a whipping boy is pointless when it is in Congress’s power to amend, change or make new law concerning oversight of the Federal Reserve. So to the US Treasury. If Congress was dead serious on any matter, they wouldn’t even need a President’s signature.
They have no problem wasting time and money mandating health care when they should be concentrating on monetary reform.
Wrong!
I said “audit the Fed”!
Congressional oversight only provides “policy directions”. In fact, those idiots in the Oversight Committee are nothing but “stoogies”.
The thing is this: The public doesn’t know the “internals” of the Fed.
Fed has no accountability whatsoever to the people. Fed has become a tool of the corrupt establishment, both R and D.
I say: OPEN THE PANDORA’S BOX!
Geesh. You should know this.
Congress created the Federal Reserve. Congress can make the Federal Reserve disappear and has the power to do anything in-between.
If a complete audit shows the Federal Reserve along with its banks to be a criminal enterprise then you’d better have a backup plan for another banking system, forthwith.
--then next we need a complete audit of the national parks that will prove they've been harboring inter galactic galactic spies!!
Sorry. I know you're making a serious point but sometimes all this goofy conspiracy talk around here gets me a little light headed.
The House can prevent a higher debt ceiling by refusing to pass the necessary legislation. However, the Fed is already funding the deficit by printing money, to the extent of $75 billion of a total $110 billion per month. If the Fed is printing money, then the Treasury does not need a higher debt ceiling. The House is impotent on the Fed’s activities until, hopefully, 2012.
Thank you very much, Phil Dragoo!
The Federal Reserve doesn’t print money but requests it from the US Treasury then the Treasury sells bonds to the Federal Reserve and takes the newly printed money back in payment for the newly issued bonds (QE 1,2,more). It’s a complete circle jerk.
The real point is when the interest comes payable on the bonds that the new money is buying as low as the interest rate might be the the total volumes of printing leads to enormous interest payments due and up goes the debt ceiling to make room for payments or the US defaults.
It doesn’t make any difference if we have to pay ourselves for buying our own debt or pay foreign countries that hold our debt, a default is a default.
If you are saying the Congress lacks the votes to make the US Treasury and Federal Reserve behave then I agree. Forget about any presidential intervention.
The rest of world is seeing this clearly and are whining about it, I don’t blame them. Even some girl named Palin sees it.
People who believe the hype about hyperinflation from (Schiff, Zerohedge, Denninger etc) need to look at the actual data.
http://www.federalreserve.gov/releases/h6/hist/h6hist1.txt
note that m2 has increased less than 10% since the fall of 2008.
This article has a good summary of QE1, and basically summarizes my view.
http://pragcap.com/quantitative-easing-the-greatest-monetary-non-event
My reference to QE1 being reversed out is that the agency debt has been sold off.
http://pragcap.com/ben-bernanke-explains-fed-qe
Great links, thanks.
The M2 moderation likely has something to do with the money market accounts earning nothing? So maybe everything is in stocks or bonds for yield.
That seems to be what Bernanke wants. QE1 has not been reversed out. The money was printed, it was used by the banks to do the asset swap, as you suggest. But the money was a permanent expansion in the amount of dollars in existence. If the Fed ever tries to destroy dollars, now that would be something.
I don’t see any inflation in general, but the fact is we have seen huge increases in commodities prices over the last couple of years, in the face of a recession which should be suppressing these prices. Worrisome? Yeah, quite a bit.
But not as worrisome as Ben creating money out of thin air and using that power to the primary benefit of banksters and Wall Street.
Count me in the camp of “nothing good will come of this”. But we can’t make a specific call on timing and say that just because the bad thing hasn’t happened yet, that all is hunky dory.
My pleasure.
The long term US bonds are already starting to puke. Short term US paper is in vogue to avoid any near term inflation. When it becomes obvious, any day now, that inflation has taken hold (see oil price) in earnest then the bond bubble is over with a large, pop.
That's where most people live. Sometimes it makes me uncomfortable saying I'm sane and everyone else's crazy but for centuries people have said that things were getting worse and for centuries things got better. Rush says doom'n'gloom is the easy mindset and most people do what's easy, but my view is that we hate pain more than we like pleasure so we tend to focus on the bad.
So the bottom line here has to be that for making things work we need to set aside both pain and pleasure and just look at what is. Pain/pleasure's more fun at bedtime anyway but that's another thread...
Amen.
Excerpt from Is the Crowd Wrong on QE2? - This round of quantitative easing might surprise its critics - B, by Alan Abelson (a notable curmudgeon), 2010 November 06
By contrast, they reckon that during the next seven months of QE, it's conceivable that the combined Federal Reserve and commercial-system credit could increase by more than 5%, the most since March 2009. That wouldn't be enough to spark a boom in nominal aggregate demand, they concede, but it would "help prevent the economy from slipping back into a recession in the face of substantial headwinds emanating from the housing and state/local government sectors." Not a panacea for what ails us, but avoiding a double dip is no small thing, either. ..... < snip > < snip > ..... We don't have space enough to offer more than some snippets from the full report [by Northern Trust's Paul Kasriel and Asha Bangalore], but hope you'll get the flavor. Paul and Asha point out that QE1 covered the 16 months ended March 2010, during which stretch the Fed's outright holdings increased by a net of only $200 billion, while other elements of Fed credit shrank by a net $1.3 trillion, including an $875 billion contraction in the commercial-banking system's credit. The net change in credit in the first round of QE came to -$675 billion, which explains why its effect was so feeble.
By the way, the same article exposes how BLS played with "seasonal adjustment" numbers (lowered "expected jobs" numbers) to come up with employment payrolls expanding by 151.000 while the separate Household Survey showed an employment drop of 330,000.
Excerpt from another (must-read in full) article:
Enjoy the Good Times While They Last | An interview with Scott Minerd, chief investment officer of Guggenheim Partners - B, by Lawrence C. Strauss, 2010 November 06
There is no doubt that the chairman of the Federal Reserve, Ben Bernanke, is a student of history himself and is very aware of the monetary accidents of the 1930s. And as the chairman of the Federal Reserve during this period, his worst nightmare would be for the United States to fall into a debt-deflation spiral. Therefore, he is engaging in a series of policies that are creating excess liquidity in the system, relative to the mistake that was made in the 1930s. That will probably be sufficient to keep the United States from falling back into a recession. ..... < snip > < snip > ..... Mark Twain said that history doesn't repeat itself, it just rhymes. And the events we are experiencing today look a lot like the same experiences that we had in the 1930s. There are lessons to be taken away from the 1930s that are useful in evaluating both policy and markets today. The lesson that we learned in the 1930s was not to run a restrictive monetary policy and not to allow protective barriers to go up against trade. Those have been the two things that I have kept my eye on throughout the ongoing financial crisis.
Bernanke and the Fed didn't create the fiscal structural problems (deficit spending by Congress and Administrations) and monetary policy never can and should not be expected to fix the problems that arise from irresponsible, reckless and destructive fiscal policies. The Fed simply "can't make a silk purse of a sow's ear."
This mindless bashing of the Fed and Bernanke only serves to help Democrats and opportunistic politicians who would like to blame their mistakes on someone else or some other law to divert attention from their outlandish deficit spending and restrictive regulations and failures of their attempts at command-and-control economy (like "home ownership society" and CRA / Fannie-Freddie-FHA-HUD) - just as Barney Frank tried to do by pointing fingers at repeal of Glass-Steagall as a source of financial meltdown.
Why the conservatives / Republicans keep falling for these ploys and take their eyes off the real problems and the real targets, I don't understand. That's how they allowed Clinton to "redefine" himself and look like kooks when they were constantly negative on anything and everything, instead of taking credit for things that were done right and went right (especially due to their own efforts with Contract With America) and thus letting Clinton take credit for the good and getting blame for the bad. Hard to take credit for doing good while bashing anything that's going on and having a doom-and-gloom attitude on everything just because the President is from another party. Instead, take the credit where it belongs (due to your efforts) and "invite" the opponent to join you and "share" in your success. Then the voters will know who really "owns" it.
The "competitive devaluation" of the USD$ started shortly after George W. Bush became President despite feeble pronouncements of keeping "the policy of strong dollar". And most other developed and emerging industrial economies (with the exception of possibly, Australia and Canada - natural resource-rich-exporting countries) were engaging in the same behavior (China's yuan/renmimbi, Japan's yen, British pound, even Euro, etc.) - that's the simple explanation for rising prices of commodities (oil, precious and industrial metals, etc. etc.).
Taking into account the government's fiscal tax-regulate-borrow-and-spend-everything spree of the last "lost decade," QE2, in and of itself, doesn't do anything special in that regard and it had been leaked and "advertised" by Bernanke since late July. The Fed has been more transparent in the last decade than at any time in its history, and is being "audited" at least twice a year, every year, before both chambers of U.S. Congress.
Not only conservatives are getting it wrong on what Bernanke and the Fed are doing (sorry to see Rush in that category, again, and unfortunately he seems to be leading a "parade") but focusing so intensely on the Fed / Bernanke as the "source of all evil" but they are allowing, even inviting, politicians and political opportunists to have a convenient scapegoat for the and avoid their own responsibility for budgets, taxation and regulation policies - the real problems and growing uncompetitiveness of the U.S. economy currently and and in the future. Blaming the Fed for this is like blaming the IRS for setting income tax rates.
To increase competitiveness, it's better to look at, attack and repeal the stupid legislations and regulations of the last decade - (ObamaCare, Finreg / Dodd-Frank, Sarbox / SOX / Sarbanes-Oxley, education financing and gov't takeover of student loans etc.) If people keep taking their eyes off the ball and keep looking at the scapegoats provided to them by scheming politicians and some opportunistic "financial / economic gurus" then they will keep falling into the same trap they fell in during the Clinton era, again and again.
CutePuppy, agree completely.
Rule #1 is do not invest your politics, ever, ever ever !
I invest to make money, not to validate my politics.
There is an economic cycle. It is very powerful. It can overwhelm both good and bad monetary and fiscal policy in the short run. You can fight the cycle to some extent, but, it makes sense to get monetary policy and fiscal policy right for long run growth.
Monetary policy cannot cure all the structural problems of the US economy, and it is surely not the source of them.
In order for the USA to prosper long term, it needs entitlement reform, cuts in govt spending, competitive tax policy, regulatory reform, education reform, higher savings rates... the problems are known, and so are the solutions.
But the solutions are not easy, so it’s easier to blame Bernanke...
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