by ilene - March 17th, 2011 3:45 pm
THE BANKS MUST BE RESTRAINED, AND THE FINANCIAL SYSTEM REFORMED, WITH BALANCE RESTORED TO THE ECONOMY, BEFORE THERE CAN BE ANY SUSTAINED RECOVERY – Jesse
I have long been a fan of Jesse’s Café Américain. Jesse is a brilliant writer and a deep thinker who uniquely transcends politics, easily seeing through lies and disinformation. He has a great feel for what really matters, and the courage to speak out about it. Jesse and I have spoken before about the economy, markets and politics, and being at a crossroads once again, it was a perfect time to catch up.
Ilene: Hi Jesse, since our last interview, I would guess that we’d both agree that nothing has been done to clean up the financial system – the banks and government interconnectedness, conflicts of interest, and out-and-out fraudulent activities. Are things better or worse, or in line, with what you were expecting over a year ago?
Jesse: I think things are progressing in line with what I had expected, with the Fed and the government trying to prop up an unsustainable status quo by monetizing debt. I am still a little shocked by the brazen manner in which the financial markets are being conducted and regulated, and the news is reported in the US. It is one thing to hold a theory that says something will happen, but it is quite another to see it actually happening, and so blatantly, almost without a word of protest.
Ilene: How do you view our financial system and the global financial system now, with no progress towards any kind of reform?
Jesse: The US is now being run by an oligarchy, with lip service being paid to the electorate in allowing the people to vote for the candidates that the parties and the powers will put forward. There will be no recovery for the middle class until they assert themselves. I know I have stated this often in my tag phrase, “The banks must be restrained…” But it is the case.
There are areas of resistance to this trend on what one might call ‘the fringes of Empire,’ those client states which have been ruled by powerful cliques with the support and the protection of the US. Although certainly not a great analogy, it does remind one of…
by ilene - January 18th, 2011 10:34 pm
Courtesy of Jr. Deputy Accountant
That’s not omnipotent, that’s impotent as in the f**kers are shooting blanks and don’t even know it. Well Chuck Plosser knows it but if he keeps this up they’re going to drag him off and sequester him in the bunker they reserve for bad central bankers who can’t keep their mouths shut.
See The Scope and Responsibilities of Monetary Policy from Santiago, Chile yesterday:
Most economists now understand that in the long run, monetary policy determines only the level of prices and not the unemployment rate or other real variables.2 In this sense, it is monetary policy that has ultimate responsibility for the purchasing power of a nation’s fiat currency. Employment depends on many other more important factors, such as demographics, productivity, tax policy, and labor laws. Nevertheless, monetary policy can sometimes temporarily stimulate real economic activity in the short run, albeit with considerable uncertainty as to the timing and magnitude, what economists call the “long and variable lag.” Any boost to the real economy from stimulative monetary policy will eventually fade away as prices rise and the purchasing power of money erodes in response to the policy. Even the temporary benefit can be mitigated, or completely negated, if inflation expectations rise in reaction to the monetary accommodation.
Nonetheless, the notion persists that activist monetary policy can help stabilize the macroeconomy against a wide array of shocks, such as a sharp rise in the price of oil or a sharp drop in the price of housing. In my view, monetary policy’s ability to neutralize the real economic consequences of such shocks is actually quite limited. Successfully implementing such an economic stabilization policy requires predicting the state of the economy more than a year in advance and anticipating the nature, timing, and likely impact of future shocks. The truth is that economists simply do not possess the knowledge to make such forecasts with the degree of precision that would be needed to offset the economic shocks. Attempts to stabilize the economy will, more likely than not, end up providing stimulus when none is needed, or vice versa. It also risks distorting price signals and thus resource allocations, adding to instability. So asking monetary policy to do what it cannot do with aggressive attempts at stabilization can actually increase economic instability rather than reduce it.
Geithner Politicizes the Fed, Warns Congress to Not do the Same; Idiocies and Ironies; Economist James Galbraith Unfit to Teach
by ilene - November 22nd, 2010 4:37 pm
Courtesy of Mish
The hypocrisy of treasury secretary Tim Geithner would be stunning except for the fact hypocrisy from Geithner is pretty much an every day occurrence.
Geithner is blasting Congress for politicizing the Fed, while doing the same thing himself. To top it off, the Fed itself is politicizing the Fed by interfering and commenting on Fiscal policy while bitching about Congress commenting on monetary policy.
Please consider Geithner Warns Republicans Against Politicizing Fed.
U.S. Treasury Secretary Timothy F. Geithner warned Republicans against politicizing the Federal Reserve and said the Obama administration would oppose any effort to strip the central bank of its mandate to pursue full employment.
“It is very important to keep politics out of monetary policy,” Geithner said in an interview airing on Bloomberg Television’s “Political Capital with Al Hunt” this weekend. “You want to be very careful not to take steps that hurt our credibility.”
Fed Chairman Ben S. Bernanke defended the monetary stimulus in a speech in Frankfurt today and in a meeting with U.S. senators earlier this week.
The best way to underpin the dollar and support the global recovery “is through policies that lead to a resumption of robust growth in a context of price stability in the United States,” Bernanke said in his speech.
The asset purchases will be used in a way that’s “measured and responsive to economic conditions,” Bernanke said. Fed officials are “unwaveringly committed to price stability” and don’t seek inflation higher than the level of “2 percent or a bit less” that most policy makers see as consistent with the Fed’s legislative mandate, he said.
Bernanke Comments on Fiscal Policy
Flashback, October 4, 2010: MarketWatch reports Bernanke calls for tougher budget rules
In a speech delivered at the annual meeting of the Rhode Island Public Expenditure Council and devoid of comments on monetary policy, Bernanke said that fiscal rules might be a way to impose discipline, particularly if those rules are transparent, ambitious, focused on what the legislature can control directly, and are embraced by the public.
“A fiscal rule does not guarantee improved budget outcomes; after all, any rule imposed by a legislature can be revoked or circumvented by the same legislature,” Bernanke said,
by ilene - November 18th, 2010 5:45 pm
What Could Trip Gold Up?
By David Galland, Managing Editor, The Casey Report
Can you visualize a possible scenario that could put a sudden end to the secular rise now underway in gold and silver?
In a recent conference call with the research team of The Casey Report, we once again collectively tried to imagine what situation… what scheme… what government manipulation… might finally put a stake through the heart of gold.
Setting the stage, I think it’s safe to assume that in order for the gold bull to decisively reverse direction, the following general conditions would have to be precedent in the economy:
- The financial crisis will have to have ended. Which is to say that…
- Unemployment would have to begin falling by significant numbers – with 300,000 jobs or more being added month after month, instead of being lost.
- The housing markets will be stabilizing. Foreclosure rates would have to fall to more normal levels (and not because banks are forced
by ilene - November 16th, 2010 9:51 pm
Courtesy of The Pragmatic Capitalist
The QE trade is unwinding in dramatic fashion as the market slowly realizes that QE is not in any way inflationary. As I mentioned last week the smart money markets (fixed income and FX) were foreshadowing this as early as last week. The air pocket created by Ben Bernanke created an incredible trading opportunity for investors who weren’t blinded by confidence in the Federal Reserve. Just two weeks ago I said:
“Would add (to shorts) into any move over 1200. Would LOVE to see 1220″
My position is that the market is misinterpreting the economic impact of QE in the long-term. My market position has always been that we could rally to these levels and that at these levels the market has become overly optimistic. If I am wrong I will lose some money and move on. It’s part of the business.
Like clockwork the market touched 1220, bounced and sold-off. The carnage across markets is broad. The only things rallying are volatility, USD and US treasuries. In essence, the leveraged QE inflation trade is collapsing. You can thank Ben Bernanke for this. When you create distortions in the market you get volatility, uncertainty and ultimately a collapse in prices. Keeping market prices “higher than they otherwise would be” is not a recipe for economic growth.
The most worrisome development is dissension inside the EMU. Austria is now threatening to withhold their contribution to the Greek bailout unless Greece can prove that they have fulfilled their requirements for aid:
“The cost of insuring against default by Greece and the premium investors demand to hold the country’ bonds rather than lower-risk German Bunds jumped on Tuesday after Austria said Athens had not met aid commitments.
Five-year credit default swaps were 100 bps wider on the day at 950 bps, according to monitor Markit, while the 10-year yield spread between Greek and German government bonds was 15 bps wider at 923 bps.
Greece has not fulfilled commitments for its European Union-backed aid package, Austrian finance minister Josef Proell said on Tuesday, adding that Vienna had not yet submitted its contribution for December.”
by ilene - October 18th, 2010 11:30 am
Courtesy of Tyler Durden at Zero Hedge
Just in case there is someone living in a cave who still doesn’t understand that the Fed’s one and only mandate (forget that crap about inflation and jobs) is to give everyone one last shove into the all inponzi before the diarrhea hits the HVAC, here is David Rosenberg explaining, for the cheap seats, what the Fed’s terminal intent is.
The Fed’s intent is not to create consumer inflation, but rather asset inflation — primarily in the equity market. By pulling longer-term bond yields lower, the Fed hopes that this will alter how investors value equities relative to the fixed-income market. Moreover, the Fed will be actively pushing up the value of bonds that exist in investor portfolios, and as such the intent is to induce these investors to rebalance their asset mix towards equities in order to maintain their current allocation. The Fed is also trying to incentivize fund flows into the equity market. This in turn would theoretically boost household wealth and as such make consumers, who now feel richer, to go out and spend more. So the theory goes — we shall see how it works in practice.
The Fed’s intent is also to lower both the debt and equity cost of capital so that companies will, at the margin, compare that to expected returns on newly invested capital and begin to spend more on new plant and equipment. The hope here is that the investment spending multiplier will kick in and that stepped-up job creation would occur in tandem with the renewed capex growth.
In essence, the Fed wants to avoid what happened in Japan over the last two decades — have a look at Japan Goes from Dynamic to Disheartened on the front page of the Sunday NYT. The comment in the article to the effect that back in 1991, the consensus was looking for the Japanese economy to begin surpassing the U.S. economy in size by 2010. Nice call. Instead, Japan’s economy has not expanded at all since that time whereas the U.S. economy, despite all its problems, has grown 65%.
That said, the U.S. has already experienced a lost decade in many respects, especially as it pertains to the labour market, while Japan has lost two decades. Also have a
by ilene - October 17th, 2010 5:48 pm
Courtesy of Yves Smith
A couple of articles in the Wall Street Journal, reporting on a conference at the Boston Fed, indicates that some people at the Fed may recognize that the central bank has boxed itself in more than a tad.
The first is on the question of whether the Fed is in a liquidity trap. A lot of people, based on the experience of Japan, argued that resolving and restructuring bad loans was a necessary to avoid a protracted economic malaise after a severe financial crisis. But the Fed has consistently clung to the myth that the financial meltdown of 2007-2008 was a liquidity, not a solvency crisis. So rather than throw its weight behind real financial reform and cleaning up bank balance sheets (which would require admitting the obvious, that its policies prior to the crisis were badly flawed), it instead has treated liquidity as the solution to any and every problem.
Some commentators were concerned when the Fed lowered policy rates below 2%, but there we so many other experiments implemented during the acute phases that this particular shift has been pretty much overlooked. But overly low rates leaves the Fed nowhere to go if demand continues to be slack, as it is now.
Note that the remarks by Chicago Fed president John Evans still hew to conventional forms: the Fed needs to create inflation expectations, and needs to be prepared to overshoot.
This seems to ignore some pretty basic considerations. First, the US is suffering from a great deal of unemployment and excess productive capacity. The idea that inflation fears are going to lead to a resumption of spending (ie anticipatory spending because the value of money will fall in the future) isn’t terribly convincing. Labor didn’t have much bargaining power before the crisis, and it has much less now. Some might content the Fed is already doing a more than adequate job of feeding commodities inflation (although record wheat prices are driven by largely by fundamentals).
From the Wall Street Journal, “Fed’s Evans: U.S. in ‘Bona Fide Liquidity Trap’”:
The Federal Reserve may have to let inflation overshoot levels consistent with price stability as part of a broader attempt to help stimulate the economy, a U.S. central bank official said Saturday.
“The U.S. economy is best described as being in a bona
by ilene - October 16th, 2010 4:16 pm
Courtesy of Gordon T. Long of Tipping Points
The critical issues in America stem from minimally a blatantly ineffective public policy, but overridingly a failed and destructive Economic Policy. These policy errors are directly responsible for the opening salvos of the Currency War clouds now looming overhead.
Don’t be fooled for a minute. The issue of Yuan devaluation is a political distraction from the real issue – a failure of US policy leadership. In my opinion the US Fiscal and Monetary policies are misguided. They are wrong! I wrote a 66 page thesis paper entitled “Extend & Pretend” in the fall of 2009 detailing why the proposed Keynesian policy direction was flawed and why it would fail. I additionally authored a full series of articles from January through August in a broadly published series entitled “Extend & Pretend” detailing the predicted failures as they unfolded. Don’t let anyone tell you that what has happened was not fully predictable!
Now after the charade of Extend & Pretend has run out of momentum and more money printing is again required through Quantitative Easing (we predicted QE II was inevitable in March), the responsible US politicos have cleverly ignited the markets with QE II money printing euphoria in the run-up to the mid-term elections. Craftily they are taking political camouflage behind an “undervalued Yuan” as the culprit for US problems. Remember, patriotism is the last bastion of scoundrels
An unusual Wall Street Op-ed piece appeared Wednesday October 13th , written by Yiping Huang, a Professor of Economics – China Center for Economic Research at the prestigious Peking University. He called for common sense from Americans and the G20 regarding the potential for destructive currency wars:
“The upcoming Group of 20 summit in Seoul could become a battlefield of this new conflict. But it doesn’t have to be. Rather than focus on currency manipulation, all sides would be better served to zero in on structural reforms. The effects of that would be far more beneficial in the long run than unilateral U.S. currency action, and more sustainable. … it would be much better for the G-20 to focus on a comprehensive package centered on structural reforms in all countries. Exchange rates should be an important part of that package. For instance, to reduce the U.S. current-account deficits, Americans have to save more.
by ilene - October 16th, 2010 2:05 pm
Courtesy of Charles Hugh Smith, Of Two Minds
Positive feedback loops soon reach the runaway/self-destruction stage. Concentrations of wealth and gaming-the-system are reaching just such levels.
Positive feedback loops lead to runaway scenarios. The classic example is global warming and the Arctic ice cap. As temperatures rise, the the ice melts, exposing more land or seawater. Ice reflects solar radiation, and so as it shrinks then more solar radiation is absorbed, raising temperatures more, which melts the ice faster, which then leads to more solar radiation being absorbed, and so on.
The runaway feedback loop leads to the disappearance of the Arctic ice and a much warmer planet.
Nature has multiple feedback loops, and so the solar radiation flux may be acting to reduce temperatures as the positive feedback of melting ice raises temperatures. But the point is that positive feedback is self-reinforcing and it speeds up processes as it gathers momentum.
We can see runaway feedback loops in the economy and society, not just in Nature. One of the key runaway feedbacks in the U.S. is the concentration of wealth and political power.
As wealth has become concentrated in the top 1/10th of 1%, then the political power that can be purchased with that wealth also rises, which then enables the wealthy to increase their wealth via "Federal entrepreneurship" and other means.
The political process--once potentially a force resisting or moderating wealth--has been completely captured by an ever-expanding army of lobbyists, the fast-spinning revolving door between the Central State and corporations and unprecedented levels of corporate/Elites campaign contributions.
The judiciary, theoretically a force which could have resisted this concentration of wealth and political power, has also been co-opted by a marriage of ideology and wealth/power. Thus the courts have gutted every attempt at limiting corporate/insider influence over the processes of governance; the courts have enabled corporations to have the "right to free (paid) speech" unburdened by the obligations that go with such rights.
The wealth/power feedback has reached runaway levels. "Reforms" are gutted in backroom deals, votes to benefit the banking/mortgage/foreclosure industry are done on voice calls to evade public scrutiny, and a thousand other games and tricks are played daily to subvert the common good for the benefit of the few and their armies of technocrat toadies.
by ilene - October 9th, 2010 1:43 am
Courtesy of JESSE’S CAFÉ AMÉRICAIN
The September Non-Farm Payrolls report was not good news.
This is a remarkably unnatural US economic recovery, with gold, silver, and other key commodities soaring in price, the near end of the Treasury curve hitting record low interest rates, and stocks steadily rallying as employment slumps and the median wage continues to decline.
The US is a Potemkin Village economy with the appearance of prosperity hiding the rot of fraud, oligarchy, and political corruption.
As monetary power and wealth is increasingly concentrated in fewer hands, the robust organic nature of the economy and the middle class continues to deteriorate.
This is what is happening, and monetary policy cannot affect it. The change must come from the source, which is in political and financial reform. And the powerful status quo is dead set against it.
The long term trend of employment has not yet turned lower which would make the second dip ‘official’ from our point of view. But the prognosis does not look good.