Guest post by Peter Tchir.
Today I will be attending Ben’s talk in NY. I’m curious to see him speak in person, but can’t help but think of the questions I would ask if I could.
- Do you think that low rates are hurting savers, allowing big established businesses to make money while stopping new entrants, and do you finally admit your wealth effect theory is totally wrong since the wealth isn’t well distributed and has failed to produce results?
- At one point will you admit that the ultimate exit strategy is to just forgive the debt? That for all the talk about fiscal cliff, it would still leave us with a large annual deficit and really no end in sight to a ever growing pile of debt, making debt forgiveness the logical next step since you already pay back all the coupon income?
Okay, those are the questions that I would like to ask, but if I was given a chance to ask those questions, I would probably be too nervous. They seem obnoxious, even by my standards, and as much as I’d like answers to them, here are some more likely questions I’d ask.
Guest post by Azizonomics.
A number of economists and economics writers have considered the possibility of allowing the Federal Reserve to drop interest rates below zero in order to make holding onto money costlier and encouraging individuals and firms to spend, spend, spend.
Miles Kimball details one such plan:
The US Federal Reserve’s new determination to keep buying mortgage-backed securities until the economy gets better, better known as quantitative easing, is controversial. Although a few commentators don’t think the economy needs any more stimulus, many others are unnerved because the Fed is using untested tools. (For example, see Michael Snyder’s collection of “10 Shocking Quotes About What QE3 Is Going To Do To America.”) Normally the Fed simply lowers short-term interest rates (and in particular the federal funds rate at which banks lend to each other overnight) by purchasing three-month Treasury bills. But it has basically hit the floor on the federal funds rate. If the Fed could lower the federal funds rate as far as chairman Ben Bernanke and his colleagues wanted, it would be much less controversial. The monetary policy cognoscenti would be comfortable with a tool they know well, and those who don’t understand monetary policy as well would be more likely to trust that the Fed knew what it was doing. By contrast, buying large quantities of long-term government bonds or mortgage-backed securities is seen as exotic and threatening by monetary policy outsiders; and it gives monetary policy insiders the uneasy feeling that they don’t know their footing and could fall into some unexpected crevasse at any time.
This week’s episode features a “must hear” clip from “Dr. Doom” Marc Faber, the outlook for stocks and bonds headed into year-end, the incredible dangers of high frequency trading, the Obama camp’s latest outrageous move, and more!
Full interview click here.
Biderman on the famous Bernanke Put.
Is the Bernanke Put dead or alive? That is the most important question for the stock market today. And the reason is that all those bullish on the market firmly believe that Mr. Bernanke will stop this stock market from going down anytime soon. In other words without the Bernanke Put this stock market would be lots, lots lower.
Since the August 2010 low, right before QE2 was announced, the value of all US stocks is up by 40%, $6 trillion, to $19.6 trillion today. Since the start of QE2 the US government has run a $2.5 trillion deficit and the Federal Reserve has printed about $1 trillion, or say $3.5 trillion combined.
Guest post by Gold Silver Worlds.
It’s easy not to see the fundamental developments because of the day-to-day news streams and information overload (we tend to call it “noise”). So it can take some time to start connecting the dots and clearly see a red line. In this article, people who are not seeing it clearly yet, get some hints. As far as the link with precious metals is concerned, it’s very simple in our view: could there be a link between the warnings described in this article and the price of gold? “Oh … so it’s not the gold price going up, but something else coming down?”
November 21, 2002: Bernanke gave his “helicopter” speech in which he made reference to a “helicopter drop of money.” But the critical point in his speech was:
“U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in term of goods and services, which is equivalent to raising the prices in dollars of those goods and services.”
Currently the “helicopter drops” are primarily fed into the reserves of the banks and to cover the increasing deficits between government expenses and revenues. There is no end to how many dollars the Federal Reserve can create. At the time of Bernanke’s speech, an ounce of gold was worth approximately $320. As of September 2012, that same ounce of gold is worth over $1,700. The gold has not changed, but the value of the dollar has declined. As more dollars are created or “dropped from helicopters,” all existing dollars become less valuable. We have been warned.
Guest post by Azizonomics.
Here in the West, we have lived through a striking period of peace, prosperity and growth. Since the end of the Second World War, the major powers of the world have lived in relative peace.While there have been wars and conflicts — Vietnam, Afghanistan (twice), Iraq (twice), the Congo, Rwanda, Israel and Palestine, the Iran-Iraq war, the Mexican and Colombian drug wars, the Lebanese civil war — these have been localised and at a much smaller scale than the violence that ripped the world apart during the Second World War.
The recent downward trend is clear:
Many thinkers believe that this trend of pacification is unstoppable. Steven Pinker, for example, claims:
Violence has been in decline for thousands of years, and today we may be living in the most peaceable era in the existence of our species.
The decline, to be sure, has not been smooth. It has not brought violence down to zero, and it is not guaranteed to continue. But it is a persistent historical development, visible on scales from millennia to years, from the waging of wars to the spanking of children.
While the relative decline of violence and the growth of global commerce is a cause for celebration, those who want to proclaim that the dawn of the 21st Century is the dawn of a new long-lasting era of global peace may be overly optimistic. It is possible that we are on the edge of a precipice and that this era of relative peace is merely a calm before a new global storm. Militarism and the military-industrial complex never really went away — the military of the United States is deployed in more than 150 countries around the world. Weapons contractors are still gorging on multi-trillion dollar military spending.
Let’s consider another Great Moderation — the moderation of the financial system previous to the bursting of the bubble in 2008.
One of the most striking features of the economic landscape over the past twenty years or so has been a substantial decline in macroeconomic volatility.
Ben Bernanke (2004)
Guest post by Gold Silver Worlds.
On September 13th, the Fed announced QE3, a policy of open-ended bond purchases which would add $1 trillion annually to the Fed’s balance sheet. The Fed’s decision to provide liquidity ad infinitum, i.e. QE etc, was framed in reasonable and carefully chosen language:
…These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative…
The measured wording gave the Fed sufficient cover to mask its increasingly desperate condition, i.e. how to keep its fatally-wounded credit and debt ponzi-scheme functioning while searching for a solution that doesn’t exist.
CAPITALISM’S CONSTANTLY COMPOUNDING DEBT IS THE DEVIL’S WHIP OF GROWTH
In capitalist economies, capital, i.e. money, is introduced by central banks into the economy in the form of loans; and because interest constantly compounds, economies must constantly expand in order to pay down and/or service those loans. This is why economists in capitalist systems are obsessed with growth.
Both Draghi and Bernanke are committed to buying his market higher, whatever it takes. Investors are all long the QE go long trade, and are all waiting for equity prices to spike further. What if this doesn’t happen, and the ECB is actually in panic, and actually doing the wrong thing? From The Telegraph.
The break came in 2010. Until then everything went well,” Juergen Stark, the German who resigned from the ECB in late 2011 after criticising its earlier round of buying up of sovereign debt, told Austrian daily Die Presse in an interview.
“Then the ECB began to take on a new role, to fall into panic. It gave in to outside pressure … pressure from outside Europe.”
Mr Stark said the ECB’s new plan to buy up unlimited amounts of eurozone states’ bonds, announced on September 6, on the secondary market to bring down their borrowing rates was misguided.
“Together with other central banks, the ECB is flooding the market, posing the question not only about how the ECB will get its money back, but also how the excess liquidity created can be absorbed globally,” Mr Stark said.
“It can’t be solved by pressing a button. If the global economy stabilises, the potential for inflation has grown enormously.” (Full article here).