Reply With Quote
I've personally come to the conclusion that no manner of financial wizardry will prevent America from a monetary contraction.
I also have come to believe that if it were possible, I wouldn't trust our financial wizards to perform it.
US Treasury yields fall to record low on Fed's 'QE lite' plan
Yields on short-term US Treasury debt have fallen to the lowest in history on mounting expectations of extra stimulus from the Federal Reserve.
By Ambrose Evans-Pritchard
Published: 11:15PM BST 03 Aug 2010
Ben Bernanke needs fresh monetary blitz as US recovery falters Photo: GETTY IMAGES
Two-year rates fell to 0.52pc after a further batch of grim data hinted at a sharp slowdown in the second half of the year. Factory orders fell 1.2pc in June, while consumer spending fell flat.
The savings rate has risen to a one-year high of 6.4pc as Americans adapt to the new era of austerity and build a safety buffer against unemployment. "Households are repaying debt at a rapid clip," said Gabriel Stein from Lombard Street Research. "With an output gap at around 3pc, the US economy could move into outright deflation in 2011 for the first time since records began."
The latest figures follow a sharp drop in GDP growth to 2.4pc in the second quarter, prompting fears that the economy may stall altogether as the boost from fiscal stimulus and inventory cycle both fade.
The data has strengthened the hand of the Fed board led by Ben Bernanke as it pushes for a return to quan ative easing (QE), against fierce resistance from the Fed's regional hawks.
A closely-scrutinised article by the Wall Street Journal – described by some analysts as kite-flying by the Fed board – said the bank may announce some form of compromise at its crucial meeting next week, agreeing to roll over bonds purchased during the credit crisis rather than letting them expire gradually as previously planned. This would entail a slow shift from mortgage debt to Treasury bonds.
The Fed would keep its balance sheet steady at $2.3 trillion (£1.44 trillion). The effect would be neutral rather than adding any fresh stimulus. It has already dubbed 'QE lite' by Barclays Capital, as opposed to full 'QE2'. However, Fed watchers say it would be a crucial first step in a broader shift in policy.
The bank has bought $1.7 trillion in bonds. Experts say key governors have been mulling a net increase to stave off possible deflation, pencilling in a rise in the balance sheet to $5 trillion in extremis.
Mr Bernanke said on Monday that US states have been "battered" by a budget crisis, forcing them to cull staff. This is holding back recovery. "We need to be careful about tightening too quickly," he said.
Jan Hatzius, chief US economist at Goldman Sachs, said fiscal policy is turning contractionary, draining 1.7pc of GDP next year after adding 1.3pc in early 2010. This leaves the Fed as the last line of defence.
"The disappointing economic data has clearly taken a toll on the confidence of at least a few Fed officials," he said, citing warnings by James Bullard from the St Louis Fed that the US risks a Japan-style deflationary trap. As the keeper of the monetarist flame within the Fed family, Dr Bullard is usually viewed as a hawk.
However, the Fed presidents from Richmond, Philadelphia, Kansas, and Dallas fear that US monetary policy is moving into dangerous waters, stoking asset bubbles rather than letting the debt purge run its course. The risk of moral hazard is growing as markets assume they will be rescued. "I don't think there is any role for the Fed at least in the near term," said Philadelphia chief Charles Plosser last week.
Tim Congdon from International Monetary Research said the Fed has been wasting its powder by using the wrong mechanism to inject monetary stimulus. Instead of buying bonds from pension funds, insurance companies and other bodies outside the banking system, as the Bank of England did with its £200bn gilts purchase, it has been buying from banks. This method has different effects. It has gained less traction because banks have sat on "dead cash". This has not increased the deposits held by companies and households.
"A really powerful way for the Fed to boost the economy is to buy bonds directly from the public, which will increase the quan y of broad money. They won't do that because they have a totally different model and in my view they are confused about the transmission mechanism. If they bought say $1.5 trillion of long-dated Treasuries from non-banks I believe they would get the US out of its liquidity trap very quickly," Mr Congdon said.
I've personally come to the conclusion that no manner of financial wizardry will prevent America from a monetary contraction.
I also have come to believe that if it were possible, I wouldn't trust our financial wizards to perform it.
The deficit-loving, America-hating Repugs are rejoicing at the all the bad economic news they created and sustained. "It's the economy, stupid". They can't wait for the dubya-tax-cuts battle and then the November election.
God must really hate America.
Not rejoicing. Not loving the deficit. I think it's all kind of scary.
Yeah, there seems to be a sense of complacency and relief across the land. If anything, the problem we just kicked down the road is much worse, and of course the Fed is about to give it another kick.
All they are doing is delaying the pain, and keeping their rich banker buddies rich in the process.
the deficit. It's not a problem short term. It has to be addressed, but AFTER the economy and jobs are put back on sound footing.
Unemployment,
uninsured health costs of unemployed,
foreclosures of the non-sub-prime unemployed,
foreclosures of retail property,
etc
Drop $2T on more stimulus.
Stop awarding all contracts for small businesses that are now fraudulently awarded to subsidiaries of Fortune500 firms that create subsidiaries to steal contracts from legit small businesses.
That ship sailed. There's no political will for that, even in the WH. So the Fed will have to back door it.
Please try to keep up, b_d.
Keep up? I way ahead of you.
deflation is to solve, and Geithner/Bernanke don't have the balls to attack it.
Agreed. However, those businesses that create jobs are afraid to do so because we have people with redistribution agendas in power. We will be in a slump until the government stops their current course.
It's amusing how the deficit is always a short-term problem in the US of A. Kind of.
Really? You really think businesses that are able to expand and make more money are not doing so because of some sort of 'redistribution agenda'?
You really believe that?
We'll worry about that pesky deficit when we get to that proverbial tomorrow that always seems to be a day away.
Who needs deficits when you can have Tax Cuts! Yeah!
The deficit you people love to hate will get only worse and worse the longer the 20% of consumers are unemployed and under/unconsuming. Tax dollars flow out to help them, to pay for the medical bills, while they aren't sending back any income/payroll/property/sales taxes.
If no more stimulus, what is the conservative/Repug CONCRETE plan to get the economy going again? I know, that's an unfair question, and I don't expect an answer.
The stimulus failed. There's no reason to believe another one will work any better. All another stimulus bill would do is accelerate the decline in the American standard of living as more and more money must be taken from average citizens and given to banks and wealthy investors holding treasury bonds so that the federal debt can be sustained.
"stimulus failed. There's no reason to believe another one will work any better"
... because it was too small, as Krugman and others pointed out, not because the concept was wrong.
so what's the Repug/conservative solution for getting economy going? just wait it out, a Lost Deflated Decade like in Japan in th e'90s?
The stimulus wasn't too small. It was poorly conceived with not nearly enough money going towards things that would directly increase demand for goods and services like infrastructure, and way too much money going to a myriad of giveaway programs where the government just handed out money and then crossed their fingers that demand would magically create itself. Clearly that approach did not work. It didn't work when Bush & Co sent out those $600 checks. It didn't work in the stimulus bill. It didn't work when Obama cut everyone's income tax witholdings. It's a flawed concept that has failed every time it's been tried. If the government wants to put people to work, it needs to make people actually work for the money it wants to put out.
As long as the current crop of political assclowns continue to believe that the economy can be stimulated by just giving money away then any stimulus measure they propose is guaranteed to fail.
There are two way of looking at the ongoing deficit. At times, in percentage of GNP, or GDP, it actually is reduces. Just never in real dollars for more than 40 years.
the corps/wall st/capitalists have already ed over USA and skated free.
What's your solution? I know, unfair question.
Krugman envisions that the oligarchy will just accept 10% unemployed as "structural", unsolvable, like 4.5% used to be, and do nothing about it, the oligarchy being wealthy enough not worry or care about the lower 95%.
What's your solution?
btw, don't steal McConnel's fire. He says the Repug plans will be kept secret until late September. Everybody hold your breath.
Last edited by boutons_deux; 08-04-2010 at 04:14 PM.
There are currently 1 users browsing this thread. (0 members and 1 guests)
Posting Permissions
