Thank God Our Systems Protect Us From Idiots

[Buzz]

You asked what the job of the fed is. No one answered you, so I went and cribbed off of them:

Today, the Federal Reserve’s duties fall into four general areas:

•conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates

•supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers

•maintaining the stability of the financial system and containing systemic risk that may arise in financial markets

•providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

They haven't done such a great job in certain areas, and I think that our last chairman admitted that to congress.

For the fools that think that the risk right now is inflation, I wonder what they think of this curve? It's a trace of Japan's fall into deflation with the US situation superimposed over it. Glenn Beck and Sara Palin are dangerous. Sambo, your title says thank God our system protects us from idiots. I'm not as sure about that as you seem to be. How much you wanna bet that Sara Palin will be our next president? How about a nice dinner? I'll be happy to buy if I'm wrong.

[caryalsobrook]

Quantitative Easing (round 2 or QE2) actually involves "printing more money" to purchase private sector bonds. The theory (right or wrong) is that this will increase liquidity in the credit markets, thereby lowering interest rates, hopefully encouraging lenders to extend more loans, and producing an overall expansion of economic activity. It is not clear to what extent that will happen. It is also possible that lenders will simply use the new cash to purchase more treasury notes instead. Most economists believe that the economy needs additional stimulus. Normally, this would come by reducing the Fed Fund Rate and reduce the cost of the money loaned out by banks. Given that the rate is already almost zero, that arrow has lost its power. In fact, many banks are profiting by borrowing Fed funds at little to no interest and using the funds to buy treasury notes that pay a greater interest. The banks, and their shareholders, profit at the direct expense of taxpayers (sort of high end welfare). The more effective stimulus tool now would be to put money into the pockets of those who would immediately spend it on goods and services rather than use it to pay down debt or add to savings (neither of which does anything to stimulate the economy, even while making sense for the individual). There are two problems with that.

First, the elections have made it highly unlikely that anything further will be done to stimulate the economy, rightly or wrongly.

Second, the assumption implicit in further stimulus efforts is that the downturn is transitory and that spending will increase once the economy returns to "normal". If the downturn simply reflects the reality of what our economy will be if we live within our means, we should be learning to live with the pain rather than thinking of new band aids. We may eventually grow back economically, but it will be based on true increases in productivity and will likely take years.

While many recognize this possibility, no one wants to be the person who tells the American people that current housing prices reflect the real value of their homes and that those prices will remain depressed for years because the boom resulted in over supply. And no one wants the be the person telling the unemployed that they are likely to remain unemployed until American salaries, measured by value of economic output, are more competitive with salaries in other parts of the world.

Our own businesses are sending the jobs they produce to other countries because that is the best way to remain competitive and increase profits. What our own businesses are NOT doing is increasing investments in the US to improve the productivity of American labor. That is the real challenge that government needs to address. Over the next decade, I suspect that immigration will decline not because of improved enforcement, but because America will no longer be such an attractive destination for those wanting jobs. That is a trend that has already started.

PS: I doubt that Palin has the slightest notion of how the Fed operates.

you are right to say that by the FED buying treasury notes, the primary goal is to increase siquidity and thereby lower interest rates, making borrowing for investment more attractive. That is probably the only reason to take such an action during a recession, but alas, the interest rate is for all intent and purposes and still we have no investment and corresponding growth. WHY?? Could it be that investors are unwilling to borrow or invest is the political climate of today? With a 2000 page healthcare bill which no one knows the cost(surely you will accept the fact that all econimic forcasts are highly speculative (President Obama said that the American public would see their healthcare premiums go down but they have gone up at least 20% since the bill was passed). With a finantial reform bill of at least 2000 pages which Obama said that credit card interest and fees would go down(Credit card interest went up 11% after the bill passed). With a stimulus bill that he said had to be passed or unemployment would go up to 8.5%(now 9.6% and that does not count those who are no longer looking for a job), is it not understandable that no investors would be willing to expand their business. Why would you thnk that there would be increased investment by increasing the money supply would increase investment if the effective interest rate is alreade near 0%? If investors are unwilling to borrow and expand because of the massive uncertainty caused by the government. If the is no increase in investment and a corresponding economic growth, would you not expect to see more dollars chasing the available goods and services and as a result an increase in inflation?? I don't think you have to look very far to find the answer. You like statistics so I will give you some. Gold up around $100.00 per ounce since the the FED announcement. Soybeans up about $0.50 per bushel since. Crude oin up 11.5%. Corn up about $0.20 per bushel. Silver up at least $3.00 per ounce. What does that tell you about investment and what does that tell you about what will happen to interest rates befor there is any real investment?
Today Federal Governmentspending aproaches 15% of GDP, almost as high as it was during WWII but at that time people understood that the very existence ofthe country was at risk and were willing to tolerate rationing using coupons.

Germany tried to expand their money supply to pay reparations to England and France but the only thing the got was a currency that no one would accept as a medium of exchange for goods and services. FDR tried it to a lesser extent along with increased taxes and protectionism and we had a depression of almost 15 years.
Unfortunately if we continue with this political and economic policy, 15 years of depression will look good compared to what happened to Germany. I sincerely hope I am wrong.

[Franco]

you are right to say that by the FED buying treasury notes, the primary goal is to increase siquidity and thereby lower interest rates, making borrowing for investment more attractive. That is probably the only reason to take such an action during a recession, but alas, the interest rate is for all intent and purposes and still we have no investment and corresponding growth. WHY?? Could it be that investors are unwilling to borrow or invest is the political climate of today? With a 2000 page healthcare bill which no one knows the cost(surely you will accept the fact that all econimic forcasts are highly speculative (President Obama said that the American public would see their healthcare premiums go down but they have gone up at least 20% since the bill was passed). With a finantial reform bill of at least 2000 pages which Obama said that credit card interest and fees would go down(Credit card interest went up 11% after the bill passed). With a stimulus bill that he said had to be passed or unemployment would go up to 8.5%(now 9.6% and that does not count those who are no longer looking for a job), is it not understandable that no investors would be willing to expand their business. Why would you thnk that there would be increased investment by increasing the money supply would increase investment if the effective interest rate is alreade near 0%? If investors are unwilling to borrow and expand because of the massive uncertainty caused by the government. If the is no increase in investment and a corresponding economic growth, would you not expect to see more dollars chasing the available goods and services and as a result an increase in inflation?? I don't think you have to look very far to find the answer. You like statistics so I will give you some. Gold up around $100.00 per ounce since the the FED announcement. Soybeans up about $0.50 per bushel since. Crude oin up 11.5%. Corn up about $0.20 per bushel. Silver up at least $3.00 per ounce. What does that tell you about investment and what does that tell you about what will happen to interest rates befor there is any real investment?
Today Federal Governmentspending aproaches 15% of GDP, almost as high as it was during WWII but at that time people understood that the very existence ofthe country was at risk and were willing to tolerate rationing using coupons.

Germany tried to expand their money supply to pay reparations to England and France but the only thing the got was a currency that no one would accept as a medium of exchange for goods and services. FDR tried it to a lesser extent along with increased taxes and protectionism and we had a depression of almost 15 years.
Unfortunately if we continue with this political and economic policy, 15 years of depression will look good compared to what happened to Germany. I sincerely hope I am wrong.

Interesting observations.

I agree that the climate for major investments has never been worse. Major corporations have lost trust in our leadership, both sides of the isle. The smaller businesses are scared too and that is where many new jobs are created.

The old saying that Cash Is King may have passed with time. Put a bullet in me because that will always be my mantra! Seems like the only buisnesses and indivudals benefiting in today's economy are those that owe large chucks of money and can't pay it back! Therein lies the problem. I also agree with you that inflation is inevitable if we continue on the same course of mismangement.

The Fed's new proposed Shell Game is just that, a shell game and not a viable solution. More big government gone wild.

[Buzz]

All the prices you mentioned are commodity prices. Here are commodity prices over time, they are extremely volatile.




If you believe that hyper inflation is around the corner, you should be borrowing every penny you can latch on to and spend it like a drunken sailor.

Large corporations are sitting on HUGE, I mean f'ing HUGE cash reserves.

If they thought that hyper inflation was around the corner, do you think they would be stupid enough to do that? Do you think that saving in an extremely inflationary environment is a good idea?

[Franco]

If you believe that hyper inflation is around the corner, you should be borrowing every penny you can latch on to and spend it like a drunken sailor.

Why?

That would be the conditions under which I would cutoff all unneeded spending.

That is exactly the mindset in DC and the reason we have the economic problems we have. Big Gov has been spending money like drunken sailors, allowing Wall St to legally steal from tax payers, idiots & crooks in charge of the Fed and other gov institutions. No one in power either knows what the tough decisions are or they are too weak to make them!

[Buzz]

Why?

That would be the conditions under which I would cutoff all unneeded spending.

Because it would be the 1 chance in your lifetime to screw the banker. He's gonna lose has arse, and you're going to pay an effective negative rate on those loans. If you're smart enough to get a fixed rate that is...

[Franco]

Because it would be the 1 chance in your lifetime to screw the banker. He's gonna lose has arse, and you're going to pay an effective negative rate on those loans. If you're smart enough to get a fixed rate that is...

A business looking at a long term loan, fixed interest as you state, that's fine.

But for individuals, it is a disaster. Refinance you home at 4.5 APR but buy everything else with cash. Screw the Credit Card Companies and all the other money users/changers. Close your accounts and don't use short term credit!

[Buzz]

A business looking at a long term loan, fixed interest as you state, that's fine.

But for individuals, it is a disaster. Refinance you home at 4.5 APR but buy everything else with cash. Screw the Credit Card Companies and all the other money users/changers. Close your accounts and don't use short term credit!

I didn't mean use credit cards, I meant fixed rate credit.

I use cards, but I don't carry balances...

[depittydawg]

Interesting observations.

I agree that the climate for major investments has never been worse. Major corporations have lost trust in our leadership, both sides of the isle. The smaller businesses are scared too and that is where many new jobs are created.

The old saying that Cash Is King may have passed with time. Put a bullet in me because that will always be my mantra! Seems like the only buisnesses and indivudals benefiting in today's economy are those that owe large chucks of money and can't pay it back! Therein lies the problem. I also agree with you that inflation is inevitable if we continue on the same course of mismangement.

The Fed's new proposed Shell Game is just that, a shell game and not a viable solution. More big government gone wild.

I don't think political leadership has anything to do with investment. Their are many reasons investment is low in the US. Not the least of which is demand is diminishing. It has nothing to do with debt instruments. It has to do with wages. The fed, the administration, and congress are all barking up the wrong tree. The supply of money in the US is not the problem. It is all about DEMAND. Which equals JOBS and middle class wages.

[caryalsobrook]

All the prices you mentioned are commodity prices. Here are commodity prices over time, they are extremely volatile.




If you believe that hyper inflation is around the corner, you should be borrowing every penny you can latch on to and spend it like a drunken sailor.

Large corporations are sitting on HUGE, I mean f'ing HUGE cash reserves.

If they thought that hyper inflation was around the corner, do you think they would be stupid enough to do that? Do you think that saving in an extremely inflationary environment is a good idea?

If you think investors aresitting on their cash then why are there these record highs in commodities?? For the most part HUGE RECORD HIGHS!! I didn't mention cotton -$1.49 a pound and I don'tthink that I have seen it over a $1.00 a pound in my lifetime. All the commodities are at record highs for the most part and most of them ar at record highs. You are right they do fluctuate but not to such record highs and as I said huge record highs. Silver was less that $10.00 an ounce when Obama came to office which was quite high now it is over $26.00 an ounce. Just trying to put perspective on it. Also when there is inflation then commodities is the first place it shows up.. Maybe Paul Volker will live long enough to come back as head of the FED and institute 20 plus interest rates again. If I had borrowed money before that, I would probably have been broke now. Glad I didn't take your advice and borrow a lot of money then.