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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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Agreed, we don't tolerate that shit here. I was laughing when I saw those fat union workers striking in Wisconsin. If you are in a union your are scorned here in Texas. No rioting here because oil is booming and corporations are relocating here in droves.
Notice the population drops in those unionized, heavy tax and entitlement states??
Never a Kent State, Watts or LA type race riot ever here.. not enough skums to reach critical mass; we won't pay skum, so they don't come here.
I can't wait for the turmoil: US will be broken up into smaller republics and that will be a good thing.
Wasn't it recently disclosed that Texas has a larger budget deficit than California? Unless I'm mistaken, I believe the numbers are somewhere around 28B for TX and 24B for CA.
Yes, we are cutting jobs and the least valuable (or at least less senior) will be fired. There will be slightly more whining than a private sector cut due to the media. Cuts such as these have been made before (early 80's).
Assfire I think you are a dick - but probably right about the US being broken up. We won't be around to see it but I can see the trajectory.
Btw, is your name and avatar based on a South Park episode that featured aliens:
http://www.southparkstudios.com/guide/episodes/s01e01-cartman-gets-an-anal-probe
Of course Assfire's a "dick" he already stated as much when he identified himself as a Texan.
Have you ever met two Texans in a row where at least one wasn't a complete dick?
Odd...I've never met a New Yawka who wasn't a complete fucking idiot.
The last one I ran into down here in Fla. remarked that "youze guyz drive like shit around heeeya"...I said it's cuz there ain't none of "us" left here...he was so fucking stupid he asked me what I meant.
You're ok in my book nmewn
nmewn, you sound like an arrogant jerk when you write these comments...
However, in your mind, the guy that calls anyone from Texas a dick, draws not an eyelash bat from you.
Fucking wannabe elitist snob...my wife was born in Texas...and I've explored every inch of her body.
No dick...you dick.
Your moronic comments above making fun of "cripples" show me what a dick you are.
Leo,
I was born without any hearing in my left ear, kidney- Bergers' disease at 12 (the same year I started working). I had a stroke at 35, viral menegitis at 40 and I still managed to do well enough that I give half my income to this fuckin government. I have had many other bad things thrust upon me that I don't even care to mention- cause I don't fuckin dwell on it. Having never commented to you before, I don't want to start any shit. Just saying- I hope your condition stays well so that there is no need for you to write about it for a long time.
AssFire (strange name), I only write about MS to help others who have the condition, not looking for any sympathy from anyone, which as you can read I don't get on ZH! I wish you many years of health and happiness. Sounds like you've had your share of health issues too.
Ahh yes the name:When younger I could really light a fire under someone's ass... these days it is more about the hemorrhoids.
I didn't make fun of cripples you fucking preposterous leech...your pathetic attempt at emotion means jack shit to me after you and your ilk have plundered the treasuries of the globe...no one even knows you outside of your posts who the hell knows if anything you say is true.
Let me clue your simple minded ass in on sumpin...when all those pension plans are in the open market...think of me.
Woof woof ;-)
Well done nmewn !
Thanks for the SouthPark link.. I was unaware of the connection. I appreciate the fact ya'll are honest with your opinions of me. That's what makes ZH great. Honest opinions from many voices in many places.
Sigh...mainstream economists are such morons. Yeah right, all capital is homogenous, blah blah, you can apply mathematics to people just like you can the hard sciences, blah blah, methodology is not impt, blah blah, there is no price inflation, blah blah. It is unreal how so many "analytically intelligent" people can so dogmatically believe in the horrible ideas that monetarism & keynesianism propound.... spend yourself rich, counterfeit yourself rich...these bad ideas are destroying our standard of living.
"Sigh...mainstream economists are such morons."
I have to criticize that statement, or at least elucidate upon it.
A real economist, such as Michael Hudson, has been consistently correct and brilliant.
Now, I would agree with you if by "mainstream" you mean all those economorons seeded around the various universities over the past thirty-some years by the Bretton Woods Committee**, who all follow them -- the BWC -- in lockstep and obey their dictates.
**Bretton Woods Committee: the premier lobbyist group for the international ultra-rich; who only ever communicate with the top individual in each country's political body or parliament (e.g., the US Senate majority leader and speaker of the house, etc.).
http://www.brettonwoods.org/members/
Not all mainstream economists publish useless drivel:
Chicago Economist’s ‘Crazy Idea’ Wins Ken Griffin’s Backing
John List is a pioneer in designing experiments that test how well economic theories explain the real world. Great article, read it.
Leo,
http://www.abc.net.au/rn/healthreport/stories/2011/3167693.htm
If you aren't aware of CCSVI this is a must read...
Good luck.
Thx, I'm aware about it and did it last week in Albany, NY:
http://pensionpulse.blogspot.com/2011/03/on-road-to-liberation.html
I feel a little better but it will take months before I can update people on my condition. I'm reluctant to advise patients with financial concerns to do it right away. It's probably best to wait for the results of the ongoing trials in Buffalo and Albany. As I stated, there are no guarantees with this procedure but some patients have experienced significant benefits. We need to find out why some experience benefits while others don't. MS is a difficult disease to pinpoint because it varies from one person to the next. I consider myself lucky to be able to work and enjoy life. All I do now is take high dose vitamin D (D-drops) and eat properly, following the Mediterranean diet as much as possible.
Two things:
1) Extention of UI CAN reduce unemployment over the intermediate to long term by providing people the flexibility to get a "good job match." In the short term -- which you and others are rightfully focusing on -- longer UI increases unemployment. There are, of course, countervailing impacts, e.g. decay of job skills, stigma of long term unemployment. In partial defense of Kocherlakota, you need to look at the correct time horizon. I'm sure that Kocherlakota would concede that extended passive UI doesn't help the u-rate in the short term in the current environment
2) I've read the paper in question, and the whole thing hinges on the fact there is a fixed real interest rate. In a Classical sense (i.e., the long term) this may hold, although there are compelling reasons why it may not. Short run, no way. Again, to defend Kocherlakota a bit, I doubt that he would claim that his theoretical result is valid in the short term.
Here's the thing. The Fed and government pursue objectives over different time horizons, and academicians similarly focus on multiple time frames. Policies that "work" over one horizon may have deleterious impacts over others... just a fact of life. The job of the policymakers is to pick the best mix of SR-LR policies. Ultimately, that's a normative call.
While I completely agree that much macroeconomic theory is useless in practice, not all of it is. Furthermore, it is not fair to the author to basically take his theories out of context. In this case don't assume that Kocherlakota believes that the model bears any resemblance to reality in the short run. Argue all you want, however, about him spending time on dubious LR theory while he should focus on SR practice.
cswjr
The problem with normative economics is its ignorance of living, breathing human beings.
YOU HAVE TO SURVIVE THE SHORT RUN TO BE THERE IN THE LONG RUN.
How about Bernanke holding his breath til next Thursday, when I will gladly give him twice as much oxygen.
Oh, you're absolutely right. I find BK and others here to be VERY informative, and I enjoy reading the comments and articles. In this case, though, BK is making an ill-advised, if not specious, argument by ascribing short-term policy intentions to Kocherlakota based on a long-run theoretical paper by same. I think Kocherlakota is wasting his time and energy, and should be focusing more on the short-run pressing policy issues; furthermore, I disagree with many (but not all) of Kocherlakota's recent policy statements, etc.
a few things in the Fed/governments defense. The structural problems in the economy aren't their fault. Unemployment is a structural problem. If the banana groves all catch some disease, there are no more bananas. Secondly a service (economy) or environment relies less on commodities and value added manufacturing. In short you can inflate it higher, assuming its a virtuous circle, businessmen make bigger bonuses, the maid at the holiday inn gets bigger tips. Everyone works for tips in a service economy.(we all do each others laundry), and this is were miserliness, or savings, really hurts, because if that businessman is a cheap sob, then the money stays in the wall safe in his mansion in Florida. And the Fed has to chase that money out of savings, all savings, even good and wwise savings. therein lies the problem
Oh, structural problems as the result of decades of malinvestment due to too cheap credit are not the Fed/governments fault?
I'd like some of what you're smoking.
"And the Fed has to chase that money out of savings..."
Oh, and capital formation has been a myth over centuries, now I get it!
The structural problems in the economy aren't their fault.
WTF. THE STRUCTURAL PROBLEMS IN THIS ECONOMY ARE THE FED/GOVERNMENTS FAULT.
1. Offshoring American jobs, WHILE ALLOWING FOREIGN IMPORTS, is the Governments problem. A few Americans became wealthier as the nation became poorer.
2. The Fed has brutally robbed American Savers by keeping short term rates far below the actual rate of inflation. This forced everyone to become an "Investor". In reality, the vast majority of "Investors" are sadly misinformed speculators.
Without a productive, value-added, wealth creating base the so-called Service economy is dead. The U.S. Service economy grew by proportion as American industry was outsourced.
Please name me a nation that was entirely a "Service" economy.
in a representative Democracy I have to say these are your problems, and it wasn't that anyone wasn't aware of the problems. (that said you have two candidates and both of them lie from both sides of their mouth, and the nativist GOP party so opposed to Mexican immigration, has no problem selling us out to Asian slave labor. But its your country (theoretically). exhibit A: the farce of representative Democracy. farce B: the Constitution (doormat). All i can say is we should have been smarter than all this, but try to get a job in Academie spreading sedition, we all know that in Yale and Harvard you take your marching orders, so we are near the end, but let's put enough of the blame on our own shoulders, as a people, we just didn't have it.
LEST YOU ARE CREATOR OF EARTH AND SKY
YOU HAVE NO AUTHORITY OVER ME
I AM A SOVEREIGN BEING
TRUTH IS MY ONLY GOVERNOR
I CARE NOT WHAT GOVERNMENTS DICTATE
I STAND FIRM WITHOUT CONCERN
FREEDOM IS NOT GRANTED BY MEN
IT IS ENDOWED BY NATURE
Job creation is a result of potential employers having a favorable view of the local risk/reward balance. In the US, the risks simply outweigh the rewards, i.e. there is both too much risk AND too little reward (outside of the financial services sector). Nothing in any currently proposed fiscal or monetary policy substantially changes this balance. Hence, there will be no meaningful job creation in the US.
I keep thinking of the saying, "When all you have is a hammer, all problems look like nails."
The fedgov has to be active and "do something", or lose power/influence. "Print more money", "spend more money", and "raise taxes" are all they can do and be active.
Trouble is, the economy can only recover if the fedgov is NOT active or reduces it's activity, "stop printing money", "stop spending money" and "lower taxes".
They "gotta do something" and all they have is hammers.
Sorry, dood, but you are either completely clueless or completely dishonest.
Hope it's the first one.
Each of these people on the Federal Reserve board need to be held accountable when the entire system is exposed for what it truly has been for Americans. That is a disaster. This is all about destroying the US dollar and globally distributing wealth to other countries from you guessed it our working middle class. Fuck Bernanke and anyone who thinks like him.
Off Topic but worth a read:
It looks like someone has finally gone to jail for mortgage fraud...but it's not who you might think or hope...Amazing story here:
In Prison for Taking a Liar Loan
A few weeks ago, when the Justice Department decided not to prosecute Angelo Mozilo, the former chief executive of Countrywide, I wrote a column lamenting the fact that none of the big fish were likely to go to prison for their roles in the financial crisis.
Soon after that column ran, I received an e-mail from a man named Richard Engle, who informed me that I was wrong. There was, in fact, someone behind bars for what he’d supposedly done during the subprime bubble. It was his 48-year-old son, Charlie. On Valentine’s Day, the elder Mr. Engle said, his son had entered a minimum-security prison in Beaver, W.Va., to begin serving a 21-month sentence for mortgage fraud. He then proceeded to tell me the tale of how federal agents nabbed his son — a tale he backed up with reams of documents and records that suggest, if nothing else, that when the federal government is truly motivated, there is no mountain it won’t move to prosecute someone it wants to nail. And it was definitely motivated to nail Charlie Engle.
FULL STORY HERE:
http://www.nytimes.com/2011/03/26/business/26nocera.html?_r=2&emc=eta1
Incredible!Unbelievable!
"The bubble collapse has no impact on unemployment or output, given sufficiently accommodative monetary policy"
Which is simply wrong.
Kocherlakota thinks that the amount of deflation caused by the pop of a credit bubble can be replaced by the exact same amount of printed paper money, like nothing happened.
Except that the money destroyed was to-be-repaid value, and the money created by the FED is just money.
According to Kocherlakota, a country can:
1) Order its banks to create a credit bubble adding 5% to the national GDP.
2) When the bubble pops (-5%), order its central bank to replace the money destroyed by new money (+5%).
3) Final result: +5% (+5% -5% +5%).
The problem is quite obvious: if this "scheme" was working, no country on Earth would need to work in order to produce wealth.
Either Kocherlakota meant another thing, or he's just a moron who hides his stupidity - or dishonesty - behind PhD math formulas.
Of course it's wrong as this clown at the MN Fed is the same idiotic moron who once said that SIV + SPE + SPAC = super-wealth!
As all thinking American citizens realize, when the US Chamber of Commerce scum whores claim (along with Chelsea Clinton over at McKinsey & Co. and all those swineherds at their affiliated McKinsey Global Institute) that for every American job offshored, two more are created, such claptrap should have yielded at least 60 mil to 70 million new jobs by this time.
Anybody happen to stumble upon them????
Thought not.....
Sarg
Of course Chelsea has to sing the company song. After all, Daddy sold his tiny little soul to Chinese Wallmart a long time ago.
And she learned well. If you are going to tell a lie, TELL A BIG LIE.
And there is a eensy-weensy bit of truth to the JOBS LIE. For every job outsourced, 2 are created to dismantle the plants and ship the technology to China for free. Then after a couple of months the last 2 jobs disappear.
+1000
The problem is quite obvious: if this "scheme" was working, no country on Earth would need to work in order to produce wealth
Yeah, Kocherlakota has a serious case of Headus Rectumus.
He should start a country by creating a Central Bank and see how many productive, value creating businesses move in.
Parasites must have an host.
Yes, its like saying you can reduce entropy (disorder) without doing any work which by definition requires energy. Life (and wealth) is all about creating order out of disorder and if some won't carry the load, then others have to carry more (a sort of conservation law). And thus all the conflict reflected in the comments. But just as there's no "free energy" in physics, to produce real wealth requires work, both mental and physical. Of course, capital markets are all about "putting your money/capital" to work so you don't have to do anything but consume. Just a ponzi since only real work creates wealth-a prime tenet of Austria economics. A single real concept such as quantum mechanics has produced more real wealth than all the "financial innovations" combined.
Even the poorest in current society live better than aristocrats did in earlier times (who lacked both clean water, sanitation and indoor plumbing and had no antibiotics to treat any respiratory illness)
Two sides of the same coin... No free lunch...no free social justice...just free paper printing press...that devaluates debt of USA and inflates prices so that take home pay is going Zimbabwean...that is if you have take home pay. Its the basic structural imbalances in US economy (debt/insolvency/mis-allocation of capital), its corrupting power imbalance/ impasse (fiscal/monetary gridlock), which is making the two sides of the coin...incompatible...The people pay for what their elites won't solve.
What kind of fucking name is that? Don't any Americans have jobs anymore?!
I think it's time for Americans to go to other countries by the millions and overload their systems. If they hate us now, think what a mass exodus of the state of Texas would do to what's left of our moral standing. They want to secede. I say let em go. Let anyone go with the requisite amount of printed currency needed to bribe or buy citizenship in a foreign country of their choice.
If you're unemployed over two years; you aren't counted anymore anyway, so why not line up for just one more shot. That should take care of the mass immigration of Latinos into the US from Mexico. Somehow the wall will be torn down as people discover there is a need to have many more workers than jobs to keep the people down in a ditch where they belong.
It's a necessary evil and a reality so those who have stabbed and sucked their way to the C-Suites of America's largest corporations, where no taxes are paid and compensation package can reach well in 10 figures or more for pretty much doing nothing.
Maybe they call consulting companies about what they should do next to squeeze more earnings out of nothing, after they bitch about too much travel in the company's gulf-stream V.
Of course I'm not saying all execs who draw 8 , 9 and 10 figure salaries are bad. An ex-college buddy is one who draws big time bucks in a top Fortune 100 company. Funny thing that; We made contact after 26 years and we had nothing to say. I'm way too far over the other side of the railroad tracks of material success. But you know? one thing he didn't do was lecture me.
Real risk for producers is way out of proportion to reward. There are no safety nets to bail our asses out when we screw up. Now-a-days,staying open another day is considered a worthy accomplishment.
There are 29 Million small businesses in this country. Most of the owners who haven't gone bankrupt and lost their house and everything in it because of all those PGs they signed to get credit, are finding the rewards are slim these days with risk many multiples of what it was.
Sure life isn't fair. We know the drill. That's why I just love watching people who are enclosed in their multimillion dollar non-producing bubbles coming out and lecturing the small people like us. By the way Bruce, how's that bet going with finding the special ed teacher work from Cleveland?
Dburn
Here's the thing- THEY WON'T TAKE US.
And why not try to build a church in any of our friendly Muslim countries...
Oh, it's discrimination only if we don't allow Mosques to be build in a Christian/Secular country.
I know they won't take us unless we get some of that printed stuff before the banks get it. Then you can buy a citizenship almost anywhere.
Actually Canada has a fairly liberal policy when it comes to certain skilled workers. I was in the US first under NAFTA and then on an HI-B so I somewhat familiar with this stuff. Since I've been back in Canada, I've been looking into immigration requirements for a friend in the US - much easier than moving to the States if you have the right skills:
http://www.cic.gc.ca/english/immigrate/skilled/apply-who-instructions.asp#list
Canada does have an aging population and the gov is trying to compensate for that.
"I think it's time for Americans to go to other countries by the millions and overload their systems."
That's funny....if you've been reading the world news the past year you'll know they've been saying the exact same thing (about their unemployed emigrating to other countries) in Latvia, the Czech Republic (home of the most beautiful women I've yet seen), Sweden (yup -- I've even read that in the svenksa press), Ireland, Greece, Italy, Spain, etc., etc., etc.
Seems to tough all over.....
I like db's idea too. Esp. about Texas, in its entirety.
+10