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Ask and Listen
The head of the Minneapolis Fed, Narayana Kocherlakota gave a presentation
in Marseilles, France on Friday. This was another attempt at convincing
the public that the Fed can fix anything provided they are left to their
own devices and have unlimited capacity to print money. The
presentation was a “No Sale” for me.
The deep thinkers in Minneapolis have come up with a new formula. Bubbly Equilibria? What does that mean?
I suppose that someone has to create such drivel. The formulas were
based on an Apples and Bananas economic model. Unfortunately the real
world is a bit more complex.
The bottom line from Mr. K is that bubbles of any kind don’t create a threat to employment provided that the Fed provides the “appropriate”
level of monetary stimulus. He does point out the limits of monetary
policy due to the limitations of zero interest rates. So really this is
just a defense of QE. His words:
“The bubble collapse has no impact on unemployment or output, given sufficiently accommodative monetary policy,”
This suggests that the Fed can "fix" all bubbles. What Mr. K does not
seem to get is that the Fed is the one that causes bubbles. They do it
with accommodative monetary policy. We are seeing this in ink every day.
Look at the S&P, look at the CRB and look at the two-year note. They are all at bubble levels today. It’s cheap money and loose monetary policy that did it. The current bubbles formed by the Fed will pop. And when (not if) they do, guys like Kocherlakota will respond with: “We need more stimulus!!”
We do need some folks at the Fed who are purely academic economists. But they should not be pulling the strings on policy. We need pragmatists. Ones that can look beyond the next six months and say, “We should follow policies that promote long –term stability”.
The current policies that create bubbles, and then fight them when they
burst with more monetary stimulus, are old school. We need some new
leadership. That leadership should not come from academia.
Want some evidence of that? (Reuters)
In one of the paper's more surprising claims, Kocherlakota suggested that extending unemployment benefits
-- sometimes seen as adding to the jobless rate because it can
discourage those receiving benefits from actively seeking jobs -- actually reduces it.
Mr. K. has to get out of ivory tower and talk to the people.
He may be able to argue that extending unemployment benefits is
countercyclical. But if he bothered to ask around and see what is
happening he would understand that extending unemployment just creates
more unemployed. I’d be happy to introduce him to a few folks that maxed
out unemployment because it was much easier than working. But those people found work as soon as the checks stopped.
I suspect he would hear as much back in Minneapolis (if he bothered to ask). He would also hear that the folks in his district are just sick and tired of bubbles and the Fed that keeps causing them.
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Bruce, a pittance compared to the hundreds of billions they handed out to Wall Street. And at least this is for a good cause, to help hard working people who lost their job find another one. Let me ask you a question Bruce, and be honest: Have you ever received unemployment checks? I have and it's no frigging party. Sure, there are lazy people who like collecting handouts. So what? I'm of the school of thought that most people hate being unemployed and can't wait to stop collecting unemployment checks. I believe most people value the dignity of work.
Leo, You have nothing to say here. I have read you a hundred times where you jump on the QE bandwagon. You love that stuff. It is your life blood these days. You are Mr. K. You think that printed money can make you short term profits in solar stocks. Reread what you write. Greed is your motive, not reason.
The QE theft trumps all others. And you know it. But you are trying to milk it.
"The QE theft trumps all others. And you know it. But you are trying to milk it."
Bruce,
You're way too ideological. I couldn't care less about QE. All I know is that the power elite will do whatever it takes to reflate risk assets and introduce inflation in the system. They desperately want to avoid a prolonged period of debt deflation. PERIOD. That's all you need to know. You can bitch and whine all you want about QE, but it's the official policy because interest rates can't go any lower. Either you accept it, and trade around it, or you try to fight it. Try shorting the Fed. Good luck! You're all going to get your heads handed to you. And yes I invested in solars and made good money with huge swings in my personal portfolio, but the truth is I would have been better off buying all the 1990 tech whores. Much better off. There is a lot of liquidity out there and it's RISK ON.
"The QE theft trumps all others. And you know it. But you are trying to milk it."
Word up.
I understand it, given his circumstances...but it is morally, ethically and economically wrong.
No I think you are morally, ethically and economically wrong.
- Have I ever starved - no but have gone hungry as a kid - I remember counting potatoes
- How did I and my siblings get past our childhood -> decent public education and some support when we were older and some luck
I know that this a libertarian site but I have no issues with giving people a hands up. I would love to see my tax dollars going to that rather than wars in the ME.
"No I think you are morally, ethically and economically wrong."
You are free to think whatever you wish.
However, you will never find where I advocated for bank bailouts, Wall Street bailouts, sovereign bailouts, inter-generational theft, higher taxes, expotential government growth etc. ad nauseum.
I repeat...you will never find where I have.
Do you know why?
Because I take the moral position that it is immoral to use the government to take from others to give to those of it's own choosing.
I take that position because such practices create inherent conflict of interests, the government becomes unethical as it strives to curry favor with a few, at any given moment, at the expense of all...over time this leads to bad economic policy where one market or business is singled out for destruction by government regulators...not because their products are not desired or needed, but because government itself has taken a stake in a competitor.
"How did I and my siblings get past our childhood -> decent public education and some support when we were older and some luck."
LOL...if you say so.
If this is true, why do people trying to enter college have to take remedial courses in reading-writing-arithmetic to gain entrance?
My idea is to have less taken away from you throughout your life so in your old age you can support yourself...and I don't know the department within government that dispenses luck ;-)
Now I'm off for an outing with my family...that will cost no one outside my family a dime.
SeeYa
Are you driving? Those roads and their upkeep cost someone somewhere.
People in the US have to take remedial courses - luckily not me (public school was in Canada).
And coming from a disadvantaged home front - yes luck does enter into it. I will never forget my 7th grade teacher who taught me there was more than one way to solve an equation. I was lucky to be in his class.
"a pittance compared to the hundreds of billions they handed out to Wall Street."
Professional money managers Leo...these are the people you opine about constantly as the worlds saviors.
"Sure, there are lazy people who like collecting handouts. So what?"
Well, there ya go...starvation is a great motivator.
Have you ever had no food to eat Leo?...I have...I can tell you it's a very liberating experience...you will resolve for it to never happen again...and it hasn't.
Trust me on that.
nmewn,
I'm glad you got yourself out of starvation and never have to worry about it again, but be realistic, having people starve isn't a great motivator for finding a job. All it will do is exacerbate crime, drugs and prostitution. That's not exactly a great policy to "motivate" people.
"I'm glad you got yourself out of starvation and never have to worry about it again..."
Bullshit...don't lie to me...your preference would be for free thinking, free willed people to go the way of the do-do bird...supplanted with the all encompassing benevolence of the state.
That position is screwed dude...look around you.
Sharpest knife?...LOL...anytime spud...on a long enough timeline, Keynes died.
I never feared dogs with loud barks...
Stay inside your cage and disregard them...till it gets dropped in the water.
+infinity...there NEVER should of been any bailouts, think of what could of been done with that money...instead we have massive amounts of malinvestment, high unemployment, and a sluggish economy.
Bruce,
I would agree that Mr. K (from the Fed) is providing a self serving story line that is divorced from reality. It may allow him to sleep at night and probably strengthens his job security. Let us place him in the trash can of moral turpitude and forget about him.
Sooner or later, this is ALL going to come crashing down. Mr. Bernanke will remain the aloof surgeon who declares his surgery a success - even though the patient died. If I could, I would reset everything back to March 6, 2009 and let the collapse happen that SHOULD have happened - and "unemploy" the FED and pay contruction workers to demolish their buildings. Preventing the collapse has not solved the structural problems - indeed, things are worse because we now have a massive infection of moral hazard, on top of the new bubble you point out, that may prove fatal.
What is the delta between (TARP + QE + QE-Lite + QE-3) versus (ALL unemployment benefits paid out from 1/1/2007 thru 12/31/2011) ?
The market intervention is direct "unemployment benefits" prepaid to financial sector with the justification that it saved the system and other peoples jobs - which is horsesh!t
If (TARP + QE + QE-Lite + QE-3) had not been proactively used, would it not have been far CHEAPER to come in after the fact and stimulated a recovery that sorted the winners/losers?
A fair number of people who SHOULD be in jail for financial crimes WOULD be in jail and destitute. The first purpose of any just government is to abide by the rule of law. In doing so, it maintains a social balance that encourages appropriate risk taking - issuing MBS's that are not fraudulent and busting your butt to find a new job are both examples.
Everyone knows the current game is rigged - even stupid money stays out of crooked games as a rule. Everyone knows the American game is "rigged" and they know the police are being ordered to ignore it. When you solve THAT problem, people will come back into the game and will be able to find jobs - at whatever level.
I always read your articles, Bruce - but viewing the "people are sitting at home and not finding jobs when they can" as a root problem is as much of an ivory tower mentality as Mr K from the FED. Have you completely missed the stories documenting that "the unemployed need not apply"?
Perhaps you should get a free trial of The Ladders, Monster, etc and get tuned in to what the current job market is like. Review the statistics on average time to finding a new job - it isn't at 100 weeks.
'But those people found work as soon as the checks stopped.' - please provide the documentation of that statement, would you?
barliman
Barliman
I'm with you. Let's stop sending checks to Wall Street and the PD's and see if these scum can find honest work.
Everyone knows that Wall Street would literally shed 50% or more of its income and jobs without government subsidies and direct and aggressive backstops from the Federal Reserve.
Is there anyone here who doubts this?
"Tough shit" for those in not so generously subsized industry (and mainly not subsidized at all).
You will never see Michael Bloomberg rail against the excesses and massive taxpayer funded subsidization of Wall Street. It butters his bread, Bloomberg Financial's bread, New York City & New York State's bread, but it does incredibly little for - and there is quite a bit of solid empirical data that it actually harms - the rest of the nation.
I said in the piece that I knew some who had maxed out UP and found a job. I accept that this is not a valid sample. But I still think it is valid.
What is the % of those who go 99 weeks and then find a job in the next 60 days? I think it is pretty high. What's your number for this.
What is my number?
Hmmmm - from personal experience? or anectdotal reading? or ?
Shadowstats does not seem to have that number - and the BLS? Well, that is the punchline, right?
Empirically, with food stamp usage above 43 million and climbing and reports on increasing numbers of people who have moved back in with relatives to survive - they suggest that once you go past 99 weeks your odds of finding a job are pretty bleak
Anecdotally - with a son who changed jobs to a lower paying one to get out of the pending closure of the place where he was working, or the daughter who is going to college but can't find any job despite two years of applications; on a broader scale; the blatant posting of positions on the job boards that include the statement "must be currently employed to be considered" ...
We are in a second Great Depression. On a personal level, I know people from the lowest to the upper rungs of the economic ladder. NO ONE ... NOT ONE of them believes the recovery nonsense - and that is a social statistic that is being documented.
The current situtation is an acid that will destroy the social fabric. I am very unhappy about that - but if it happens, it won't be because of the 99-er's sitting on unemployment, or welfare queens, or any other bogeyman of the moment. It will be because of a government that LIES, and a media that LIES and active corruption of multiple levels of society to form a "rigged" game.
You usually have access to better stats than most of us, so I am reporting my other questions (including one that asks for your opinion):
What is the delta between (TARP + QE + QE-Lite + QE-3) versus (ALL unemployment benefits paid out from 1/1/2007 thru 12/31/2011) ?
If (TARP + QE + QE-Lite + QE-3) had not been proactively used, would it not have been far CHEAPER to come in after the fact and stimulated a recovery that sorted the winners/losers?
FYI, as of February 2011, average unemployment has doubled to 30.2 weeks.
barliman
Wow, I could not say it any better or clearer.
The dogma against letting the forest fire rage is pathetic, since we wouldn't be now be dealing with another looming forest fire, but would be that much closer to enjoying a bountiful harvest, had they done so.
Thank you. I had meant to make the point of how much closer we would be to true recovery but forgot to pick it up in my last edit.
barliman
What is guaranteed, is that the QE experiment the FED has dawned upon, only helps the top 10% of the country. The wealthy people who can buy loads of S&P futures, while the little guy takes it in the a$$ again. This is going to blow up in the FED's face really soon, and when it does, the last collapse is going to feel like it never happened, except to those who have already been destroyed by it.
Ben is going to fix all of this...or so he thinks. Time will tell.
It seems obvious that most of our unemployed here in the USA will remain so because of "structural" reasons. Translated that means their time is no longer worth $7.25 per hour in the world market for unskilled or semi-skilled labor. Forgetting for the sake of this discussion the voluntary or involuntary options that would cause massive death and destruction of property, their are two civilized options: (1) Retrain the workers so they can do something that is worth more than $7.25 (expensive, will take years to do, might not be possible in many instances); or (2) Inflate the currency so the workers think they are making $20.00 per hour when they are actually making $2.50 per hour in 2010 dollars.
Prices at Wal-Mart will skyrocket, but I don't care, since I detest shopping at fucking Wal-Mart, and consider doing it the walking equivalent of water-boarding myself, and something to be done only as long as their prices remain lower.
Basically, a huge portion of our work force is currently legally prohibited from working, unless they open up their own businesses, in which case they don't have to pay themselves the minimum wage for the 80 hours they put in each week. Lot's of people have done just that, contributing to the fleeing of many Mexicans back to their own stinkin' loose confederation of drug lord fiefdoms.
Think I'm wrong? Look around you. Gazillions of things need doing. Nobody is doing them. Why? Too big a spread between what workers are willing to accept and employers can legally offer to pay, combined with the fact that people generally resist working for nothing, and the futher fact that employers resent paying wages to drug-addled idiots who generally do more harm than good wherever they hang out. Ergo, no jobs, and nothing gets done. This is not good for America.
If you are TPTB, the sneakiest way to fix the unemployment problem caused by the minimum wage is to inflate the currency, the sooner the better, so that real wages in the USA quickly fall in line with real Asian wage levels.
Cut to 2015: 28 year-old shouts up the stairs from his makeshift basement bedroom - "Hey Mom, I got a job today for $22.50 per hour". Mom pours son glass of celebratory (hopefully non-irradiated) milk, priced at $8.00/half-gallon) and says "Why that is wonderful!!! Will you need a motor scooter to get to work?"
You would never, ever get minimum wage laws tossed or reduced. Not politically feasible. A lot of inflation (but not too much) is the only fix I can come up with. Not only can you put a lot of people back to work, you can also raid the savings of the financially prudent to help with that crushing debt problem. As an added bonus, the working class will end up paying a lot more in income taxes due to bracket creep, which will really help with those pesky ginormous government budget deficits.
Why, it's pure genius, as long as the Bernanke can keep merrily skipping down that knife's edge.
These are perilous times we live in. Economic adjustments which should have been trickling in gradually over 40 years will now arrive tsunami-style.
The Fed seems to be as confident of their abilities as the Jap engineers who designed the Fukoshima seawall.
Retrain for what, clown???
They are now multi-generations of unemployed, and underemployed former engineers, programmers, computer scientists, scientists in general, etc., etc., etc.
Please try not to sound so uninformed, misinformed and uneducated.
I thought my own post adequately denigrated retraining as not really being a feasible option. With hindsight, perhaps I was bit too subtle for some.
Your reply helps to make my point that inflating the currency is perhaps the only available choice.
But this is not the sort of topic where one size fits all in a nation of 300 Million people.
Here are some possible growth industries:
Paid pumper/bashers. With QE money creating markets with securities trading on nothing but sentiment, it might be a new dawn for this ilk.
If the SHTF, undertakers and grief counselors will surely be needed. Not to mention private security and law enforcement.
If Engineering Family has been unable to employ any of its males for multi-generations, perhaps they might want to abandon such noble albeit misplaced stubborness and consider repositioning themselves as Kick Useless Eaters Asses With Extreme Prejudice Family. It looks like that might turn out to be a very profitable profession, or at least one featuring employment by those few left with lots of money. No...wait...they would have to compete for those jobs with about 100,000 already well trained soldiers wandering back from MENA.
As noted already by somebody above, jobs which for whatever reason cannot be outsourced in industries that cannot be moved overseas have fared the best. Also, professions sucking on the insurance company teat have done OK, like medicine or auto body repair. Government job have held up better than most, but it appears from recent news that perhaps their gravy train is about to jump off the trestle.
The fastest way to a financial recovery is to have our working population offer themselves for employment at whatever low wage the market would dictate. If they have skills in demand, they will get more money than if they have the same skills as possessed by too many other workers. If the jobs being offered are in an industry which has been granted special legal protection by the government, maybe they can extort a little extra in wages.
Please explain to me, if you can, how having millions of engineers, programmers, computer scientists, and scientists in general sitting on their asses all day dreaming of how much money they used to make does anybody any good?
But the bottom line is that somebody has to figure out how to get everybody working. If, because of excess labor in a burgeoning world market, and crushing domestic debt, the end result is a lower standard of living, that is still going to be much, much preferable to whatever occurs if such a large percentage of our workforce remains idle.
The nerve of those rice-eating motherfuckers. Here we lift them out of their ancestal paddies by being super-consumers on credit. Do they thank us? Hell no! Instead they want to be paid what we owe them, and, admiring how we do things, they decided to emulate us by producing and selling stuff, and they end up cleaning our fat and happy clocks doing so.
OK, maybe they had a little help from the banksters, who skimmed something off the top for their trouble.
I get daily job postings for HFT algorithm developers - just do it!
Pulling this cogent a reply on the fly is pretty goddamn impressive. Many posters take all day (or week?) to think that much.
You forgot a good one. Dope grower! The govt even helps by trying to squash low cost foreign competition.
Your subtlety was not lost on me, and your depth was to be found in reading the white part. Well done on the follow-up.
I have not seen many of your comments but what I have read so far sucks. If you are apparently informed and educated why don't you tell us what to do? Print, print, print till we all have great 250K / year jobs..
I have to take exception to the anectdotal evidence regarding employment benefits and a supposed link to a disclination to find work. I am a recent beneficiary of these benefits for which I'm grateful because they cover my rent and utilities. But that is all they cover. Anything above that (including my single malt!) comes out of my savings. And given that I prefer a surplus over a deficit, I am pretty sure I won't be receiving these benefits for very long. In the short term, I'm grateful that they are giving me enough time to figure out what's next.
Another reason I don't forsee myself being on benefits for long is that I like what I do and am looking forward to what comes next whether I strike out on my own or find a new position.
Regarding the comment on full pensions - I've been working at start-ups for the past 15 years so I don't expect a pension and I don't expect job security. And I've always been willing to relocate and have done so numerous times.
But about that relocation thing ... it is very easy for me to do as a single person who doesn't own property. I can envision it being a little harder with children and a spouse and an underwater house.
Last thing, I know a lot of people who have lost jobs since 2008 and in every single case they were diligent about finding a new position. Some took longer than others (definitely saw an age bias), some took new jobs that payed substantially less, one person I know took a job that entails a two-hour commute (each way!) but they all found work. None of them maxed out their benefits or said to me it was easier to stay on benefits than it was to find a new job. From what I saw, they wanted to work. In any case, that's my anecdotal experience.
How about means testing for benefits? Just throwing that out there. I'm ambivalent.
They do it for the folks needing medical benefits for the big procedures don't they? If you got a home or some money in assets, you don't get financial help. If a fella saw his savings dwindling all that much faster he'd be hitting the streets. I don't really qualify as an expert in this area since I've always been self-employed and have provided for my own retirement without any of the gov't sponsored "vehicles" created for that purpose -- which will promptly be appropriated when needed by said gov't.
"Means testing for benefits" is another way of saying: "Screw those who tried helping themselves."
Rocky
How about means testing for bankers ?
Sure thing. I'll get right on a letter to my Congressman about that.
Every time there is any hint at having their bonuses cut some cretin comes out with the "free market" crap. So much for that.
How about all public servants, from the top down, enjoy the average wages and benefits that the private sector has in their particular area. We should demand legislators live with the same circumstances the citizens have, good times and bad.
I don't have that much savings? Jeez! Single, no dependents = highest tax bracket.
Get with the program.
Edit: And if there were means testing for unemployment, why the fuck should I have to pay into the program if I make above a certain income?
"I have to take exception to the anectdotal evidence..."
Please don't respond in the future to such propagandistic balderdash and BS, sir or madam.
It's all meant to put the true workers of America on the defensive -- always has been; always will -- which is why you hear all those douchebags in Wisconsin forever stating that they aren't really earning that much as union workers -- when they should be chasing Gov. Wanker and hanging his worthless butt.
But then, some of those very same union members voted for that stooge (I studied the voter demographics immediately after that election) even thought Gov. Wanker had already established a record of privatizing municipal union jobs, for cripes sakes!!!!
In fact, this is downright Terrifying!
Our best and brightest in full bloom.
What is amazing to me is how easily the Federal Reserve passes on the world's inflation they themselves created by choice to counter the housing collapse. Revolution's all over the globe result and the boys in pin striped suites just don't care or admit fault. Simply amazing.
"Revolution's all over the globe result and the boys in pin striped suites just don't care or admit fault. Simply amazing."
I believe it's actually in their job description -- perhaps you should read up on the history of the Fed, the World Bank (please see below) and the IMF.
http://madmark.slarti.myfastforum.org/viewcardtopic.php?t=2010
In January 1951, high commissioner of occupied Germany John McCloy [18] announced that only five of the 15 death sentences from the Nuremberg judgments would be carried out. He then reduced the sentences of 64 out of the remaining 74 war criminals. One third of these were to be released immediately. He also reduced the sentences of all remaining convicted doctors who had experimented on concentration camp inmates. McCloy had sat in Adolf Hitler’s box at the 1936 Olympic games in Berlin. Prior to the war, McCloy was a senior partner with Milbank, Tweed, whose most important client was the Rockefeller family’s bank, Chase National. In 1947, McCloy was named to head the World Bank. McCloy and two other board members spent three months in Nelson Rockefeller’s personal home organizing the bank along commercial lines. [19] In the 50s, McCloy became chairman of Chase National Bank and David Rockefeller became his protégé. P. 31, 32
OMG.
He really said that?
In France?
WTF squared?
We are soooooooo fucking screwed.
Here's an interesting story of a few enteprenuers who made some serious loot. Bad economy didn't stop them. Just to warn you, once you start, you won't put it down, it's really good.
http://www.rollingstone.com/politics/news/the-stoner-arms-dealers-201103...
+1
Terrific Story. It also seems representative of business in the US today.
Don't trust anyone. People will fuck anyone for a few extra bucks.
Fascinating story. Got to luv the Bush administration for making such stories possible. Of course that means a fortiori for the Obama administration, which is Bush^2.
Gonna be a long hot summer when this pot boils over....London and Middle East just a preview.... the poor and unemployed Americans won't play nice when hundreds of thousands march in the street. Smash and grab the free stuff will be an extension of the entitlement mentality that is prevalent with the poor.
At least they'll create jobs for the window installers and re-building the structures that get burnt down.
Bastiat, bitchez!
Sorry, that's about as erudite as I get in these sorts of circumstances.
The Broken Window - Frederic Bastiat - Mises DailyAnd here in Texas we'll keep the undertakers and cemetery crews busy with the bodies of the "smash and grab" entitlement crowd.
Cognitive Whatnot ? You think? Who do you think will keep this from happening?
You state "undertakers and cemetery crews busy with the bodies of the "smash and grab" entitlement crowd."
So you believe it will just be looters? Nope it will mom and pop, your neighbor, your friends, your firemen, your police.... protesting and demanding change.
So you want someone in Texas to kill them?
PUD
+10