Lake Erie Conservative

thoughtful discussion(s) about issue(s)

Posts Tagged ‘Federal Reserve System’

… Janet Yellen ‘ s Fed Nomination is …

Posted by paulfromwloh on Thursday,October 10th,2013

.. an absolute disaster . Clear and Simple …

.. Now that Janet Yellen has been named to lead the Federal Reserve , the global financial markets should factor out any possibility that the Fed will diminish their Quantitative Easing program anytime during her tenure . In fact , financial forecasts should assume that not only is a taper off the table, but that the QE program is now more likely to be perpetuated and expanded . That fact is in and of itself a disaster .

.. Unlike her predecessors,  Janet Yellen has never had a youthful dalliance with hawkish monetary ideas. Before taking charge of

In 1935, Cret designed the Seal of the Board o...

In 1935, Cret designed the Seal of the Board of Governors of the Federal Reserve System. (Photo credit: Wikipedia)

the Fed both Alan Greenspan , and to a lesser extent Ben Bernanke , had advocated for the benefits of a strong currency and low inflation . Both had warned of the dangers of overly accommodative policy and unnecessary stimulus. (Both largely abandoned these ideals once they took the reins of power , but their urge to stimulate may have been restrained by a vestigial bias against the excesses of Keynesianism). Janet Yellen , who has been on the liberal/dovish end of the monetary spectrum for her entire professional career, has no such baggage. As a result, we can expect her to never waver in her belief that stimulus is the answer to every economic question . When it is not .

.. Private Sector “stimulus” is the answer to our problems ; government “stimulus is not . Government stimulus means more taxation , more spending , more debt , and a fiscal disaster . Private sector “stimulus,” ie , a favourable investment climate , more favourable tax rates , and lower taxes , is what is needed most of all . The geniuses like Yellen think jobs can be invented out of whole cloth . It does not work that way . You will get demand , but you must have a strong currency ,  and supply – side investment incentives . The Keynesians have had their day . Their arguments have been a failure ,  every time they have they have been tried .

.. You look at things now , and we are somewhat lucky . Things overseas are much worse …

.. The Federal Reserve was originally charged with the single mandate of maintaining price stability . Along with it comes the stability of the financial system , and of the currency . Unfortunately , then came Humphrey – Hawkins Full Employment Act in 1977 . In recent decades that mission evolved into a dual mandate of seeking price stability and full employment . Eventually , H – H will have to go . Once it does , then the Fed can dip its toe (sometimes) into the arena of economic management . It does has some levers , but that stuff is best left to the remainder of the Government …

.. I believe that a Yellen – led Fed will return once again to a single mandate , but it will now focus only on employment . That could not be more wrong . Worse yet , it can and will be dangerous . Based on her clear beliefs in the ability of dovish monetary policy to relive human suffering she will be inclined to dig in her heels into the ongoing QE program more than anyone else President Obama may have appointed . This is terrible news for the U.S. dollar and the U.S. economy.

.. For now at least the crisis in Washington has squelched any immediate discussion of a taper in the remaining months of 2013. Any predictions that a Yellen-led Fed will somehow show more resolve towards responsibility in 2014 or 2015 should be looked at as delusional . Unfortunately , it will take a Burns – type collapse to get rid of her (with her resignation) ,  and then a Republican President can appoint a hard money hardcase to clean up the mess  …

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… I Disagree . It is not the Fed ‘ s Job to Worry about Whether the Economy is Strong Enough …

Posted by paulfromwloh on Saturday,August 17th,2013

.. The Federal Reserve cannot totally ignore what is going on in the economy . Howevery , they have to safeguard the system , not micromanage it .

.. The Federal Reserve ‘ s tasks are multi – faceted . Yes , they have to think about what is going on in the economy . It is , however , not the primary or principal job . They need to safeguard the stability and sanity of the system , namely the finanicail system itself .

.. They deal primarily with monetary policy . They focus on the means of exchange (gold , sometimes , most often , the currency) , ie, the dollar , and how the system operater. They can fine – tune the system , or tinker with it . They do have some say – so in fiscal policy . However , fiscal policy is the principal province of POTUS and Congress . The Fed can sometimes anticipate what they may or may not do , but they should not have to take the lead . When they do , it means the principal actors have failed at their job .

.. What caused me to comment on this is this article for moneynews.com . One of their commentators , Joel Naroff , does not think that the economy is strong enough for the economy to take “tapering” of Quantitative Easing . To Be honest , whether it is or not is not their concern . Whether QE is complete is the prime concern .

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… No , You Idiot . That Is Their Job …

Posted by paulfromwloh on Sunday,July 28th,2013

.. I am amazed at how many POTUSes do not understand what a central bank is , and what their job is . Barack Obama is , unfortunately , no exception .

.. A central bank ‘ s job is very simple , yet , equally complex . One of a central bank ‘s simplest jobs is dealing with inflation . Inflation in any economy is a very bad idea . The total abscence of inflation (or deflation) is also a very bad idea . Maintaining it at a low level , and a stable level , would be the best idea .

The other principal task of a central bank is managing the stability of the markets . Oversight , some regulation , and some

Barack Obama

Barack Obama (Photo credit: jamesomalley)

intervention come to mind , but they are not exclusively the only things a central bank does .
Another is the stability of the currency . This one is separate from the above .
A modern economy cannnot exist , in reality , without a currency . A modern economy cannot really be successful without a stable currency . Boring with a currency is better than lively .

.. There are some tasks for which a central bank does bear some responsibility . One is government finance . It does not bear the direct burden , as the Treasury Department handles that . Indirectly , it does . If it does not do its other jobs , then the government cannot finance its spending , or its debt . Another is the economy itself . Many millions and tens of millions of actions , each and every second , are the lifeblood of the economy . A central bank can choose to have a great deal of influence over the economy , depending on how it uses the tools that it has at its disposal . The injection of $80 billion a month in cash from the purchase of mortgage – backed securities is a classic example . However , that gravy train is coming to an end . The economy will have to stand on its own two feet .

.. Unfortunately , Barack Obama is clueless about the economy . How it works , what capital is , how it is raised and spend , and a great many things . He has never held a job in the private sector , and has never had to deal with the headaches that government regulations can create , and the expenses that they cause . He is hardly one to champion the cause of “the little guy .”

.. Read thru this moneynews.com piece , and you will understand that we are headed for big trouble in the coming months . The markets will not like whomever POTUS chooses . The markets want and need a hard case . Obama wants a “softie.” …

President Barack Obama says his next Fed chairman should take ordinary people into account when setting monetary policy.

Obama told The New York Times in an interview on the paper’s website Saturday that he wants someone who won’t just work abstractly to keep inflation in check and maintain stability in the markets. He said he wants the next Fed chairman to also promote policies that will help make ordinary people’s lives better.

The president began a series of speeches last week promoting ideas for easing the burdens on the middle class.

Obama is considering replacements for Ben Bernanke, whose term as Fed chairman expires early next year.

Former Obama economic adviser Larry Summers and Janet Yellen, the Fed’s current vice chair, are among the leading candidates for the job.

A senior White House official told The Associated Press on Friday that Obama was not expected to announce a replacement for Bernanke before the fall. The official was not authorized to speak by name about internal White House deliberations over personnel decisions.

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… Our Economy is Hooked on Easy Money …

Posted by paulfromwloh on Thursday,July 18th,2013

.. Amazingly enough , much like a drug addict , the U.S. economy is hooked on the Federal Reserve’s easy money policies.

.. the Fed has pumped trillions of dollars into banks and financial markets since the last financial crisis  — first, by buying banks’ troubled real estate loans , and then by purchasing long-term Treasury and mortgage-backed securities to push down mortgage rates.

.. Foolishly , Congress passes a new bill [Dodd – Frank] that has caused the costs of doing business in the banking sector to soar . The effect of it has made the Sarbanes – Oxley bill (securities markets) , passed a decade ago , look puny by comparirison . This rescued Wall Street banks from near death experiences, while federal regulators shuttered more than 480 smaller banks. Unable to cope with more cumbersome regulation, many other regional banks sold out to bigger institutions.

.. The reduction in competion may be nice . It reduces the competition for deposits , and drives down interest rates , from the competitive side . Retired Americans who rely on interest from savings to help pay bills have taken an enormous loss. The result of this has impoverished millions of seniors , and those nearing retirement .

.. Those who are hungry for yields are going ga-ga for junk bonds . Which , by the by , is not the brightest move .  Should the Fed permit interest rates to rise, defaults would burn investors in a replay of the financial crisis.

.. The low interest rates have had a predictable effect on the real estate market . It has recovered ,  but only somewhat  . Homebuyers, farmers and speculators, armed with cheap mortgages, have bid up home and agricultural land values, and should the Fed let mortgage rates rise, many would not be able to sell properties as needed and ultimately would default on loans. Rerun time on the banks . Oops .

.. The disappearance of smaller banks has had a drastic effect on the small business sector . Smaller businesses can’t get credit from disappearing regional banks. Smaller real estate developers are selling out to big national builders, which can access the bond market to finance projects. Reduced competition pushes up new home prices, but when cheap money goes away, those mega-builders will be unable to sell options-ladened homes and some will default on their bonds. Talk about the Law of Unintended Consequences !

Like the first crack taken by the dysfunctional personality, easy money made the economy function somewhat better for a brief period. From the beginning of the recovery through September of last year, gross domestic product grew at a modest 2.2 percent. But like the addict, it needs ever-larger doses to stay on task. Last September, the Fed nearly doubled purchases of long-term securities, but growth has since slowed to about 1 percent  .

.. But , What can be Done ? More to Follow in another post  …

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