Fed official: Stop asset buying, raise interest rates [Archive]

coyotes_geek

10-12-2010, 05:02 PM

"Right now the economy and banking system are awash in liquidity with trillions of dollars lying idle or searching for places to be deployed," he said.

Dumping another trillion dollars into the system is not likely to change the fact that businesses and consumers are opting to pay down debt and save up, rather than increase their spending, he said.

Instead, Hoenig suggested the Fed start to "normalize" its monetary policy, by gradually backing away from asset purchases and raising interest rates slightly from their near-zero levels.

Thoughts? His premise makes sense to me. But he sure is alone on an island with this idea.

ElNono

10-12-2010, 05:07 PM

How are raising interest rates going to make people spend more?
If anything they'll move from the savings into bonds, or encourage more savings...

coyotes_geek

10-12-2010, 05:23 PM

If the asset buying isn't going to work, and the second sentence I quoted certainly seems like a good reason to believe that it wont, then why do it given the inflation risk?

And who knows, maybe if people start to see their savings accounts actually start earning them some money again maybe they'll start to feel a little better about things.

boutons_deux

10-12-2010, 05:31 PM

Here's a take on cheap US credit, aka QE2, aka flooding the planet with cheap dollars.

Why the U.S. Has Launched a New Financial World War -- and How the Rest of the World Will Fight Back

On the deepest economic lane, the present global financial breakdown is part of the price to be paid for the Federal Reserve and U.S. Treasury refusing to accept a prime axiom of banking: Debts that cannot be paid, won't be. They tried to "save" the banking system from debt write-downs in 2008 by keeping the debt overhead in place. The resulting repayment burden continues to shrink the U.S. economy, while the Fed's way to help the banks "earn their way out of negative equity" has been to fuel a flood of international financial speculation.

http://www.alternet.org/module/printversion/148481

CosmicCowboy

10-12-2010, 06:29 PM

Great article Boutons. Thanks.

EVAY

10-12-2010, 06:59 PM

I know that this is unpopular thinking, but I believe that the public generally has the right idea, i.e., do NOT start buying things again until it looks like we can AFFORD to start buying things again. Right now, we are still too fragile to do so.

Thus, I believe that it is good that the economy is slow to recover this time, because I fear that if we came back too quickly, we would repeat the same behaviors that got us into this mess. Paying down debt is what we should be doing, and we need to take however much time is required to get our personal and national balance sheets back in balance.

Of course, politically, not having a 'v' shaped recovery is fatal. I just think it is the right thing in the long term.

CosmicCowboy

10-12-2010, 07:07 PM

It's absolutely the right thing in the long term. We had a good binge and the hangover hurts. Another bottle of Tequila isn't the cure for a hangover. All they are doing is delaying the bigger pain if they do QE2.

CosmicCowboy

10-12-2010, 07:11 PM

MannyIsGod

10-12-2010, 07:14 PM

great article boutons. Thanks.

gfy, cc.

LnGrrrR

10-12-2010, 07:17 PM

This is really weird for the political forum.

We are all involved political thinkers even though we may be radically and passionately on the opposite side of some issues.

This one seems to be unanimous from B_D on the left all the way to the far right.

QE2 sucks. The only people that are gonna benefit from it short term are the predatory big banks with their foreign arbitrage deals.

Long term, Average Americans will pay for their ridiculous profits through inflation and seeing their dollar savings and wages devalued.

I'd say it's because the general public sees that the stimulus DID save some jobs, but bankers still seemed to be stupid as fuck and careless with taxpayer money, saving their own hides first.

Given that, the average American is probably getting his own house in order first. Given all the fraud the financial industry's been spewing up, I wouldn't want to take out a big-time loan now.

ElNono

10-12-2010, 07:19 PM

Good read. Thanks for posting.

CosmicCowboy

10-12-2010, 07:21 PM

I'd say it's because the general public sees that the stimulus DID save some jobs, but bankers still seemed to be stupid as fuck and careless with taxpayer money, saving their own hides first.

Given that, the average American is probably getting his own house in order first. Given all the fraud the financial industry's been spewing up, I wouldn't want to take out a big-time loan now.

On the contrary, I'm trying to refinance and go long with the debt I have.

ElNono

10-12-2010, 07:23 PM

I wouldn't bet the house on a devalued dollar though. Could happen? Yes.

CosmicCowboy

10-12-2010, 07:30 PM

I wouldn't bet the house on a devalued dollar though. Could happen? Yes.

Actually, that's exactly what I'm gonna do. I think I'm safe. I've got probably 50% equity and want to refinance about 200K at 30 fixed. That will be like free money if we hit 5% inflation rate which is lower than I anticipate.

ElNono

10-12-2010, 07:33 PM

Actually, that's exactly what I'm gonna do. I think I'm safe. I've got probably 50% equity and want to refinance about 200K at 30 fixed. That will be like free money if we hit 5% inflation rate which is lower than I anticipate.

I figured you meant betting on inflation and paying back with a cheap dollar.
It's a plan, but make sure you can pay it off regardless. Should China decide to actually revalue their currency, the dollar will shoot up. So have your bases covered.

Wild Cobra

10-12-2010, 07:45 PM

CosmicCowboy

10-12-2010, 07:52 PM

I figured you meant betting on inflation and paying back with a cheap dollar.
It's a plan, but make sure you can pay it off regardless. Should China decide to actually revalue their currency, the dollar will shoot up. So have your bases covered.

Short term the dollar might get squirrelly but I'm pretty confident of the long term trend. I'm OK. I'll basically have a 200K 30 year mortgage at 5-6% on house/property that's pretty unique (2 acres, huge oaks, reasonably nice totally renovated 100 year old rock home with horse barn and riding arena 5 minutes from the med center) that I could probably short sell for $350K in this shitty economy.

boutons_deux

10-12-2010, 07:52 PM

hey, full of shit, they line up at the Fed window, suck out the billions, then turn around and buy T-bonds, absolutely no risk, sucking more wealth out of the taxpayers. They won't lend to The Real Economy. Do you have Internet access?

CosmicCowboy

10-12-2010, 07:54 PM

Slightly off topic, but I heard on the radio today that banks will be buying US debt. I just wonder if they are doing this with the zero interest loan money congress is giving them to loan to businesses?

Oh hell yeah. That's free money for them. Borrow at basically 0% and make 150 basic points on the spread.

Wild Cobra

10-12-2010, 07:55 PM

Oh hell yeah. That's free money for them. Borrow at basically 0% and make 150 basic points on the spread.
Gotta love what the liberals in congress do for their banker buddies.... NOT!

CosmicCowboy

10-12-2010, 07:59 PM

Gotta love what the liberals in congress do for their banker buddies.... NOT!

Sadly WC, it's not just liberals. I don't really expect much change even if the Republicans take the house and senate.

ElNono

10-12-2010, 08:02 PM

Hello TARP!!!

GOP and Dems are both in bed with these guys.

Does anybody even buy at this point that these predators really needed liquidity?

Wild Cobra

10-12-2010, 08:10 PM

Sadly WC, it's not just liberals. I don't really expect much change even if the Republicans take the house and senate.
Well, anyone, including republicans who play these power plays with our money need to be ousted. I know some republicans are involved too, but most are democrats. Most from both parties I bet are liberal, meaning democrats and RINO's. I can see some just being misguided, but I'll bet the bulk of them who vote for such policies are corrupt. In both parties.

You have seen me state on numerous times I am not affiliated with either party, right? I generally vote 3rd party, republicans 2nd, and on a rare occasion I will vote for a democrat.

Wild Cobra

10-12-2010, 08:11 PM

Hello TARP!!!

GOP and Dems are both in bed with these guys.

Does anybody even buy at this point that these predators really needed liquidity?
I think they need to fail if they cannot stay alive by merit.

CosmicCowboy

10-12-2010, 08:21 PM

Well, anyone, including republicans who play these power plays with our money need to be ousted. I know some republicans are involved too, but most are democrats. Most from both parties I bet are liberal, meaning democrats and RINO's. I can see some just being misguided, but I'll bet the bulk of them who vote for such policies are corrupt. In both parties.

You have seen me state on numerous times I am not affiliated with either party, right? I generally vote 3rd party, republicans 2nd, and on a rare occasion I will vote for a democrat.

WC, sadly you still don't get it. Virtually every politician in the US is talking "jobs" and the only bullet they have left is QE2. Then QE3. Etc... I fear the tipping point has been reached.

Wild Cobra

10-12-2010, 08:25 PM

WC, sadly you still don't get it. Virtually every politician in the US is talking "jobs" and the only bullet they have left is QE2. Then QE3. Etc... I fear the tipping point has been reached.
No, I agree. I do think there remain a few good ones. Maybe it's my wishful thinking. I seriously hope that we get enough new people in congress to break the cycle we have had for years.

Hope for the best, and expect the worse... Right?

maybe the 112th congress will start shaping up. We can at least cross our fingers, right? Get enough good people in there and maybe the bad ones will fear showing their colors.

ElNono

10-12-2010, 08:34 PM

No, I agree. I do think there remain a few good ones. Maybe it's my wishful thinking. I seriously hope that we get enough new people in congress to break the cycle we have had for years.

Hope for the best, and expect the worse... Right?

maybe the 112th congress will start shaping up. We can at least cross our fingers, right? Get enough good people in there and maybe the bad ones will fear showing their colors.

You're still stuck in the partisan bickering... the system is built so only those willing to be complicit will get the funding to get up there. What party they're from or idea they have is truly irrelevant.

Wild Cobra

10-12-2010, 08:37 PM

the system is built so only those willing to be complicit will get the funding to get up there. What party they're from or idea they have is truly irrelevant.
Yes, but wouldn't it be nice if that changed for once?