The Fed

I am really Fed up with them. Maybe we can have an economic problem brought on by terrible fiscal irresponsibility, a misguided monetary policy, and some bad financial intervention and things will be fine because we can easy money our way out of it.

Fed up with the Fed…[Giggles]

almost the end of their expansionary policy… the market yawned

It’s really unbelievable that fed funds is at 2% considering where oil, gold and the dollar are trading. Let’s hope the fed knows what they’re doing and not just caving to the futures markets.

The Fed isn’t caving to futures markets; the Fed thinks that if they print money they will stimulate the economy and get everyone working hard for all the money that is around. That’s a fine solution to some different problems than we have now.

The fed doesn’t consider fuel or food prices in their inflation measures. Without these inflation doesn’t look too bad. The fed must be right: I mean, no one uses fuel or food! Insane.

JoeyDVivre Wrote: ------------------------------------------------------- > The Fed isn’t caving to futures markets; the Fed > thinks that if they print money they will > stimulate the economy and get everyone working > hard for all the money that is around. That’s a > fine solution to some different problems than we > have now. How does this equate to “printing money”. I always hear that little piece of hyperbole, but never really have had it explained accurately. I personally think they should have stopped. As I always ask people who advocate that this is the wrong way of doing things, how would you counter this current situation? Ignoring how we got into the position, how do you get out of it?

House prices are not going to stop falling unless they do something, and that is the big concern. Check out the S&P/Case-Shiller, down 2.8% last month. Hasn’t had an up month since June of last year and the anualized return for the last 3 months is -24.9%. Something needs to be done to stop the decline from overshooting majorly, although I don’t think anything can (barring the g’ment buy up some of the excess inventory to support prices).

It does seem that consumer spending is about 2/3 of US GDP, and consumers have been spending their houses lately. I can see that attempting to slow the fall of home prices might be a sensible priority, but this seems like a fairly indirect way of doing it. I’m very worried that this is going to be like Argentina and Brazil in the 1960s (hopefully without the military coups). The only real thing really standing in the way of this is the dollar as a reserve currency, but it’s only a matter of time before foreigners unwind and seek something else. The moment people figure out what that something else is… it’s gonna get ugly here in the US.

spierce Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > The Fed isn’t caving to futures markets; the > Fed > > thinks that if they print money they will > > stimulate the economy and get everyone working > > hard for all the money that is around. That’s > a > > fine solution to some different problems than > we > > have now. > > > How does this equate to “printing money”. I > always hear that little piece of hyperbole, but > never really have had it explained accurately. > Why do we think it’s hyperbole? Money is electronic now and the Fed caan make as much of it as it wants. > I personally think they should have stopped. > > As I always ask people who advocate that this is > the wrong way of doing things, how would you > counter this current situation? > Counter the current situation? That’s not their job. Their job is to pursue a responsible monetary policy, which doesn’t mean guessing at what they think interest rates ought to be to control “the situation”. If someone makes me Fed Chairman, I would care deeply about inflation. I would not bail out irresponsible investment banks. I woud develop sustainable monetary policies that might cause us some pain for awhile while we straighten out the over-indulgences from the previous bad decisions, and completely avoid trying to monetize away all the silly unproductive spending pf the Bush administration. > Ignoring how we got into the position, how do you > get out of it? 1) Stop fighting stupid wars 2) Forget borrowing money to send people tax checks 3) Stop genuflecting at the god of monetarism and recognize that other policy decisions are effective at creating economic growth 4) Focus governmental resources on productivity enhancements etc, etc.

I would not compare this to those two SA countries. They are just different entities from the US, i.e. annual double digit inflation has been considered normal in those economies for decades. This economic downturn was created by the housing market and housing prices will need to stabilize before we can make economic progress. The Fed has done nothing to address the housing crisis so far. They bailed out BSC and lowered interest rates, but both Bear and the CDS market are second round effects which will continue unless we get to the route of the problem. Housing is the route of the problem, and the bond and equity markets are going to realize this soon and come back from their delusional vacation. Wha should they do? Probably they are going to end up intervening in the housing market. What should they have done? They should have begun cutting rates earlier. Unless something can be done to prop up loan demand, it will get pretty ugly. Not 1960s Argentina, but pretty bad. just my 2

Joey - What are your thoughts on inflation being a lagging indicator, which should follow growth? I had been of that mind, but admittedly, energy/commodity prices are getting a little long in the tooth for me to hang on to much longer (I’m very unpopular at my office). Further, are we entering an era in which global growth demands more basic materials than it had before and the Fed doesnt have the repitoire (or the global reach) to keep things in line. Are we in for a permanent sea change?

I think there is a permanent sea change, but how big it is is still difficult to see. The main change is that the US is no longer the only economy that really matters in the world, although it is still the most dominant one. As for Argentina and Brazil, it is true that double digit inflation was the norm for several decades, but the late fifties and early sixties is when it began in earnest. A lot of it was caused by Peron’s raiding gold reserves to buy off unions and the working class (good politics; bad economics) and Juscelino Kubicek’s debt financed import substitution industrialization (and building of Brasilia). For us, we’ve financed a war and a bunch of tax cuts by selling debt to Asians who want to keep their exchange rates low to maintain export competitiveness. The other issue is stagflation, which is aresult of supply shocks as opposed to overheated demand. When demand causes inflation; recession and inflation tend to be inversely related; when supply causes inflation, you tend to get both at once, as opposed to growth+low inflation which we have seen for the last 25 years, more or less, driven by productivity improvements in tech, marketing, business logistics and inventory management. One of the key questions moving forward is where the productivity improvements are likely to happen in the US. In emerging markets, there are probably plenty left to happen, but in the US, it seems likely that, even if there are still improvements to be had, the easy and obvious stuff is largely in place. If that is the case, then the US will need to compete by lowering labor costs, which is going to be painful. Add in a deflation of consumer home prices for people who are still quite indebted, then we are in for much wailing and gnashing of teeth. Anyone notice that crime is up in or around your neighborhoods?

an interesting note to the reserve currency debate is that the percent of all currency reserves during the 90s was, at some point, 50%. Now it is much higher even with the introduction of a competitor in the euro. I read this in the journal maybe 2 weeks ago. really, i don’t see the dollar losing reserve currency status at any point in the near future. the fastest growth is intra-asia trade. they all utilize the $. Moreover, this current economic situation is way overblown. notice treasury yields. they’d be much higher if we had serious issues. all this is just a blip in the path to world economic growth. In fact, this situation could have been much worse and therefore necessitates a revist of regulation (thanks for credit card regulation recently - way to be ahead of the curve). However, our institutions are great and we have a wonderful environment for intellectual firms in the US Credit will flow through best of breed firms (notice the jp morg led deal w/ berkshire - 23 B) and the cycle will begin again soon.

uh,dollar percent of all reserve currencies. maybe someone remembers the year ?

oh. and to the point about the fed not looking at the headline number of the CPI. please. Fed governors such as Fred Mishkin have noted that the core and headline numbers have been divergent for years. it is ridiculous to think bernanke doesn’t know that and it is that simple

What if the Asians started doing their trades in Yuan? I’m not saying it’s going to happen, and I guess it would require a lot of trust in the Chinese that isn’t necessarily there, but it’s something to think about. For now, the Yuan is sort-of tied to the dollar, so it wouldn’t be a huge difference, but down the line it could change things.

i’d be happy to give 100 to 1 odds if you lay at least 100 on the yuan becoming the world’s reserve currency in the next 75 years. moreover, asia doesn’t bring the types of productivity and institutions to be home to the world’s reserve currency in the next 75 years. i’d also add rf i% to your ‘deposit’ too. the euro would be the only market with depth and breadth enough to challenge. certainly japan would never settle in yuan just based upon politics. does anyone else feel like the chinese will run into difficulty as they attempt to move up the economic value added intellectual property type of economy. the first move toward land rights just occurred about a year or so ago. anyway, if someone reading this could provide insight into the differences of mzm vs. monetary base post from earlier today, that would be great. have a good night everyone.

I have a point and a question -more and more chinese exporters are invoicing in Euros now. -what happens when China reevaluates their currency basket? is the USD in more trouble ?

Don’t blame the fed. Blame the foreigners. Those foreigners using our greenbacks as reserve are, in effect, our enablers. We’re not guilty. It’s them that made us fat, lazy & stupid. I say we make them pay.