“We need to do our part to help the economy recover” and ensure job growth in the U.S The labor market is growing “too slowly,”
Today William Dudley (FRB NY) chimed in:
The outlook for U.S. job growth and inflation is “unacceptable” and that the Fed will probably need to take action to spur the recovery and avert deflation.
We all know that the unemployment story is a disaster. This graph from the CBO tells the story in a different way.
Current unemployment is 9.5%. The concept of “Full Employment” would
still have unemployment at around 5%. So the status today is better
stated, “We are about 4.5% above what we would like to be on unemployment”.
Looking again at the CBO graph you see that unemployment for greater
than 26 weeks is now at a post WWII record of 4.5%. Exactly the same as
the current shortfall to the desired Full Employment.
That is not a coincidence. The long-term nature of unemployment we face
today is structural. We have exported too many jobs. You can’t fix that
problem overnight. And you can’t fix it with another jolt of short-term
monetary stimulus. As Philadelphia Fed’s Charles Plosser said this week:
“It
is difficult, in my view, to see how additional asset purchases by the
Fed, even if they move interest rates on long-term bonds down by 10 or
20 basis points, will have much impact on the near-term outlook for
employment.”
What troubles me is that Bernanke is well aware of the fact that his is
pushing on a string. There is nothing he can do to address America’s
structural unemployment. Yet it is increasingly clear that he will act
on November 4th. The comment, “We need to do our part”, says it all. Bernanke is committed with these words.
Do we really need to go down this dangerous road? From the Fed:
9/21/2010 (minutes)The
Committee anticipates a gradual return to higher levels of resource
utilization in a context of price stability, although the pace of
economic recovery is likely to be modest in the near term.
This says to me, “We are going in the right direction, we wish it were faster though”.
There is no sense of urgency in the Feds words. “Modest” recovery does
not justify extraordinary measures. From Bernanke at Jackson Hole on
8/27:
“The
deep economic contraction had ended, and we were seeing broad
stabilization in global economic activity and the beginnings of a
recovery.”
Nothing scary in those words.
“For a
sustained expansion to take hold, growth in private final
demand--notably, consumer spending and business fixed investment--must
ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way.”
Sounds encouraging to me.
“I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace.”
Why is modest such a bad thing? Should we gamble big time to get growth above modest?
Bernanke has been doing his level best to sell QE-2. He has been
parading Fed Governors and talking on the quiet to the press. I feel
like I am being barraged by an ad campaign. But he has not sold me. To
do that he has to convince me that there is a direct correlation to QE-2
and the structural unemployment problem. He can’t do that. There is no connection.
The next QE starts at 1 Trillion. I think it has to be an open ended
approach this time. In other words, “The sky is the limit”. It could
easily go to $2T. At that point we will have monetized nearly 50% of
public sector debt. Nothing like this has ever been done before
(successfully).
Bernanke is gambling with our future. He is making an all in bet on our
behalf. QE-2 will cause all manner of distortions. But it won’t address
the central problem we are facing. For the life of me I can’t imagine
how Bernanke can roll the dice like this. Why bet so big when there is
so little to gain?
RR.....thx for the photos from the Civil War........I have a friend from NZ who went to some of the famous battlegrounds and I still rememeber him telling me how affected he was by it even after so much time had passed.
To answer your question directly; dig.......dig up and name the names of who owns the FED......bring it into the light of day.
Why?
Why of course, Bernanke wants to fuck you Bruce.......what are you thinking?........it is as simple as that.......and, not just once but over and over again.......and he is doing it too.......
It is not your nature though, which makes it so difficult to believe........but it is Bernake's and his ilk.
I am looking at a lacquered Russian box as I write.
Just think about the 'Why' which you ask, in the historical context of the Czar.
The Czar put itself at the epicenter of accumulated intellectual and material wealth and as the virtual sole recipient of slave labor?...and for how long?
Bernanke.......America is the Winter Palace.
it is so perverse it is beyond imagination.........sorry, that is the truth........the FED is a private company and you are not allowed to know who owns it........
the FED is privately owned and you as an American are not allowed to know who owns it???
keep it simple stupid........that is America.
The Fed is private but you, sir, are a guarantor on all the debt.
And I see the Fed is trying to plant the seeds of its "profitability" .
BBerg and CNBS are touting the $75 billion "profit" Ben has made for the Treasury.
Of course, the balance sheet hasn't been audited for the toilet paper Ben calls assets.
on Fri, 10/01/2010 - 16:52
#619829
Bruce, PLEASE do not repeat the outrageously outlandish lies of the BLS! The current unemployment rate is NOT 9.5%! Whether is it the U6 17% or John Williams' 22%, it is merely supporting the establishment's propaganda, however unintentionally, to continue to propagate any of their insultingly pollyannish and massaged statistics.
Got to agree with that.
Or we could use the Real Misery Index to ask yet another question re this insightful article and incisive comments.
Why if RMI fell from 33 to 24 this Summer because of a deflationary drop in food and beverage, gasoline and medical care -- and to a precipitous decrease in credit card delinquencies, would the Fed Chair, charged with a stable dollar, steady economy and full employment, want to raise these very items with the QE II domino poker bluff this Fall?
http://www.huffingtonpost.com/2010/09/08/real-misery-index-dropped_n_709...
Certainly there is no apparent explanation in this BSB quote:
The deep economic contraction had ended, and we were seeing broad stabilization in global economic activity and the beginnings of a recovery.”
More likely as many posted, the constituency of the Fed and Treasury is not the consumer, but member bank shareholders watching their mortgage and loan asset balance sheets melt before their eyes, begging for asset inflation with the feint of foreclosures and FASB Mark to Market on hold until at least after the mid-term elections.
If this is indeed true, then we may see wholesale dumping of Treasuries, with higher interest rates, good for the dollar and horrible for equities and those who fled into gold or bonds for safety.
In any event, no matter how much Great Depression Monetary Theory nearly perfect SAT BSB studied, today we have, as Don Regan said on a visit to Nob Hill to motivate the troops before he became Reagan Treasury Secretary, a similar and different situation with far more debt leverage, less cash savings equity, no gold standard and higher unemployment and debt default deflation.
70 years of socialist central planning prove that those who would control the economy, full employment or even attempt to stabilize currencies without a gold standard, are doomed to Sisyphyan failure while enriching themselves at consumer and taxpayer expense for an all too brief time.
Else why would Rahm and company be seeking greener pastures?...
okay. These numbers are all over the lot. I used CBO's #s to make a point.
Maybe Tepper's giving him a kickback to his Swiss account? When your hedge fund's performance fees are calculated in dollars, 20% of dollar devaluation goes straight into your pocket.
Besides, you must have skipped your Fedspeak classes in college. Here are some translations.
Fedspeak: The Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be modest in the near term
English: The committee hasn't given up hope for a recovery in the longer term, but in the near term you're all going to get f***ed.
Fedspeak: we were seeing broad stabilization in global economic activity and the beginnings of a recovery
English: Most of the rest of the world seems not to be getting too much worse anymore, knock on wood.
Fedspeak: For a sustained expansion to take hold, growth in private final demand--notably, consumer spending and business fixed investment--must ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way.”
English: Okay, look, we know the only reason the economy isn't completely in the drink is that we're selling your children into slavery. But, even though we've been increasing the pace of those sales recently, we've got some other nifty statistics here that show improvement.
Fedspeak: I expect the economy to continue to expand in the second half of this year, albeit at a relatively modest pace.
English: If we can just drag out those foreclosures a bit longer we could put off the next big leg down till next year.
Bruce, why bother dissecting the Orwellian doublespeak of this Keynesian quack (if you'll pardon the redundancy)? He's already spoken, after all -- http://www.youtube.com/watch?v=HQ79Pt2GNJo -- so why not just get to the point and advise people accordingly?
It's the only hedge left, after all. And yes, it involves hard assets, the first of which is hard-headedness in the face of the inevitable.
In other words, buck up or fuck up:
http://www.survivalblog.com
Did anyone see Leisman and Kiernan on the morning program after Liesman broke the news that Dudley had "a NUMBER" and it was good to have a number?
Liesman said that FRBNY chief Dudley said that $500 billion dollars should be enough to get started...
and Kiernan was all like, "What is this QE Lite? QE 1.5? I mean I don't know what to call this. It just doesn't sound like a lot of money to me..."
I was floored. Unbelievable.
Four years ago, if we'd have heard numbers like a half-trillion dollars, our eyes would have bugged out. Now, a hundred bill here and a hundred bill there...pretty soon, you're talking about some real money.
Insane.
Bruce, PLEASE do not repeat the outrageously outlandish lies of the BLS! The current unemployment rate is NOT 9.5%! Whether is it the U6 17% or John Williams' 22%, it is merely supporting the establishment's propaganda, however unintentionally, to continue to propagate any of their insultingly pollyannish and massaged statistics.
The. current. unemployment. rate. is. NOT. 9.5%!
It's "Liar's Poker" and nothing more. Ben is not insane. Nor is the Board of Directors of the FRBNY. Really. They may be desperate but they are not insane.
99er,
Ditto.
You can kill a sheep once,but you can shear it many times.
I hope you're right but I have my doubts. Ben may not be insane but he strikes me as a sociopath, indifferent to the consequences of his policies for all except his constituency, which includes the Administration, banksters, et al.
Ben just has a limited world view. They don't call academia an "ivory tower" for nothing.
We will not, as common folk, ever understand that view since we don't have the peer admiration that most of those folks have (need). The most valuable thing that Ben can own is a history book with his name in it as the savior of the economy during this drastic upheaval. To go down in history -- at any cost. That is the "all in" philosophy as outlined by others above.
China is going to be eating a lot of bad debt at this rate, hope it's worth it.
This movie is becoming more excruciating than watching Jim Cameron's Titanic. Enough with all the googley eyes between the U.S. and China...Sink damnit... Sink! I have to piss for Christ's sake and don't want to miss anything!
Jumbo popcorn needed as well.
What would you do if you though a Country and its Currency was going to Collapse? If you had the power would you do what is necessary to keep the Country up long enough for you to Cash out your holdings? Of course you would. Would you slowly take your assets and invest in other Countries and their Currency? Of course you would.
It makes sense to me that as they want to extract their Assests and cash they have to print money and in turn collapse the Country and their Currency to create demand for them to sell and extracate themselves. They have to create a demand for what they want to sell. Once you are out who cares what happens to the Country or their Currency? You no longer have anything invested.
I think the FED has an exit plan from the US and our Economy as stated above.
"Why bet so big when there is so little to gain?"
Chutzpah.
He can't help it. If he is remembered as the worst central banker in history, on par with Rudolf Havenstein, why it will be far better than not being remembered at all!
Bruce,
I was playing golf with a bunch of my buddies recently at a resort in Central Florida. This amounts to 3-days of drinking, borderline heat stroke and poker playing until the wee hours of the evening.
It was interesting to observe how the poker games changed from the first night until the last. At first, everyone placed small bets unless they had really good hands...little bluffing was taking place and the games tended to last a long time. By the last night, everyone was bluffing and "I'm all in" was heard often. I think that my friends were getting exhausted and just wanted to win money and/or end the games quickly. Of course, they almost always lost....jump to Bernanke.
Maybe the Fed is exhausted and wants to end the game sooner rather than later. We all know that Ben is bluffing...the question is; who is going to shout "I call" when Ben pushes all of his chips in for the final bet?
I very much agree with your take on the recent Fed comments. These are not the actions (or comments) of a Central Bank that is calm, composed, and confident in their control of things. Then again, nothing that comes out of the Fed is an accident..."Plan B" must finally be ready to deploy.
Gold and Silver are already saying: "Show me dem 5 aces, Bitch!"
+1 Interesting analogy.
Without any true knowledge, its seems BB made a deal with Obama for reconfirmation as Fed chief to keep the ponzi afloat until after the elections. Bam thinks he means 2012, Bennie thinks it means 2010 ... :-)
Your point about the economic issues being structural are right on. It will take 20 years to fix it, if we started today.
sschu
There seems to be 4 alternatives...raise taxes (not now); cut spending (are you kidding); impost tariffs (impossible); and QE2 (seems painless, can be done by a few unelected officials). QE2 is the only choice for extend and pretend. At least China is our partner and has the same general interest. This could be important is keeping this process going longer than anyone thinks at this time. There are plenty of taxes that can and will be imposed to extend to debt levels to maybe $20 trillion over time. China has to give the US time to balance its books because of their reserve holdings and unemployment issues. It could be worse. We could be in a trade and fight war with China.
tempo
Look at the trade figures with China. The transactions between the U.S. and China are something but TRADE it is not.
China is happy indeed to fund the Walmart purchases to keep its citizens employed. The sooner the U.S. deals with this one-way relationship, the sooner the country will be back on its feet.
Whether you look at Japan in the 1920's, 1930's, and 1970's or Germany in the 1930's, all the "economic miracles" had a heavy price to pay.
China is a country of rulers, mandarins, and slaves.
Our man Henry said- COUNTRIES DON'T HAVE ANY FRIENDS, ONLY INTERESTS.
There is a reason why Bernanke will be remembered as the worst central banker in history.
Rudolf von Havenstein will fall to second place, and since he is dead will not be able to regain the crown.
I can't believe you guys are actually talking about your "least favourite central banker". But hey, I just want to throw in that Hans Blix is my favourite weapons inspector.
Hans Brix...Ahhhh nooooo!
(NSFW) http://www.youtube.com/watch?v=fSXNJMP8ir4
Ben will be remembered as the LAST central banker in history.
Just kidding -- just the last central banker for the Fed.
Unless we remember Eugene Meyer ( 30-33 ). Hoover's uber rich go to guy. He couldn't get the Fed pump moving at all. After Ben Strong died, the entire decisionmaking makeup of the Fed went into disarray......somewhat similar to today....loose cannons rolling all over the deck blasting off opposing points of view and much of the crap somehow going public.
Meyer was more astute in the private world, buying the almost bankrupt Washington Post ( daughter was the late Katherine Graham ).
To this day I don't believe The Fed Chairman is the decider. He's the convener , the public mouthpiece and the political link. Others are really in charge.
Who do you know/think the others are?........names?.........nice point, but your comments are always smart and finesse.
Strong was guilty of pedal to the metal central banking, leading to the crazy boom of 1928-9. The inevitable crash was his doing, not Meyer's.
Meyer was stuck in an impossible situation, what with Hoover's many idiotic policies, Smoot-Hawley and the wild and crazy international debt and banking crisis exploding. Talk about unusually uncertain times!
Re the worst central bankers, let us not forget G. William Miller. But he had a decent excuse, which was that he was neither a banker nor an economist--so he was at least as unqualified for his job as BHO is for his. So everyone knew he did whatever Carter wanted. BB lacks Miller's excuse.
When Smoot-Hawley was enacted countries actually traded goods. Today we import worthless Chinese crap (do we really needed the i-pad ?), export our manufacturing base and pay for this short term thrill with long term debt.
What is the real cost of an i-pad ?
It seems few of our gutless political whores understand the big picture problem here.
World trade, free trade- all empty words intended to enrich some of the American elite at the cost of middle class families. The ultimate cost is the collapse of the country.
... do we really needed the i-pad?
Yes. Cisco is making their own version of the iPad for doctors to use with Electronic Medical Records systems. (All transactions written directly to the Pad, and from there to the database; no paper involved.) It will change the way they operate in the office. Other versions for other professions. E.g., home health care workers can take them on their rounds into homes. Need the doctor to see something - use the on-board camera. Anyone in the field who needs real-time interaction with home-base will end up using these things as they are refined for particular applications.
Reading Ben's muses reminds me of the one time I had the misfortune to be within earshot of listening to a speech by the Rev. Jesse Jackson in my younger days. I couldn't figure out what the hell he was talking about. Then I realized he wasn't talking to the likes of me at all. I was not his audience. I'm not Ben's either. Nor are you, Bruce. Same for most of the ZH audience.
Now that is about being smart.
Your story about being close enough to hear reminded me of something similar.
I was in Paris and it was before the Clinton election. A party at a tablle next to ours who practiced law and taught at Harvard was giving the rest of the restaurrant an education in what it meant to not amtter about whether it was a Republican or Democrat that was elected because in the end it really did not matter........then the talk was all about why it was the smart thing to have chosen law over medicine.........and then it was all about how much money.
Fly7 on the wall
Bruce, while I truly appreciate and admire your insights and posts, on this one it is my sincere belief that you missed the one point that would explain Bernankes actions: You assume he's doing what he's doing "to try to help the country"...I believe the exact opposite is the truth. And I believe he knows exactly what he's doing.
I realize how this may be perceived as an off the cuff, snarky remark...but it's not. It is my sincere belief.
I actually think that this is one of Bruce's better articles, and he's written several good ones in my view.
I do agree with you that he knows what he's doing. And given past comments in previous tesimony, I get the impression his version of "saving America" is doing whatever it takes to save the financial system... and he is willing to live with that moral hazard.
With all that being said, I think the danger here is that Bernanke is tragically married to an underlying ideology, he fails to understand the root cause of the employment problem.
Here's some ugly realities: ZIRP + QE + QE-Lite have not-- and will not-- solve the employment problem. And it's exactly for the reasons Bruce stated. The only ways to move the needle on the employment side is fiscally commit to job training; and make it attractive for companies to move business here by lowering the corporate tax structure.
All that stuff is off the radar, unfortnately. My hope is that as QE 2.0 is announced, there will be a unexepcted, disproportionate move in the dollar that will make Fed change direction and stop the madness.
I don't have a lot of confidence in the Bernanke/Dudley/Yellen triumverate though. Bruce is right-- the potential longer-term risks of more QE are multiples higher than might benefit from the added stimulus in the near term.
But Ben will have nothing of it.
During Weimar Germany, unemployment wasn't really an issue. Anyone with a business in fact hired, as they'd rather increase their payroll, ie. invest in the future of the company, than be stuck with worthless currency.
I'm not saying we'll quite get to that, but I can understand the justification that inflation will lead to an increase in employment. If (real, not the government lies) inflation reaches 10%, and you're only paid 5% in TIPS, you might consider investing in the alternative.
That't not saying I defend this completely bankrupt philosophy, however, as it almost entirely eliminates capital formation.
Can't we say that the only way to move the needle on the employment side is to increase demand? And we can't increase demand when most folks already have what they want. We expanded production facilities and sales floors to meet the increased needs of the baby boomers as they created families. That demand was met, the kids are out of the nest, and the boomers are downsizing. Demand falls. It won't be replaced. We have excess capacity. We've been through all of this before. The demand of the boomers is gone. It won't be back. Reduced consumption = reduced production = reduced need for workers. The new normal. Unless we import a large number of reasonably wealthy immigrants to replace the boomers.
You COULD say that, and there's some secular-based merit to moderating domestic demand.
But look at the drop of tax receipts; and then look at government spending-- totally different trajectories and direction. This is more than just a boomer-induced "demand for goods" issue on the spending side. Boomers just don't halt spending and pull everything back on a dime.
Massive un/under-employment is remaining a persistent thorn in the side that will keep demand levels and resource utilization low. Reduced boomer demand may be a factor, but the drying up of tax receipts is a very serious issue.
FED thinking (PLAYBOOK, NO MATTER WHAT THE MACRO SCENARIO):
Increase phoney $$ => Asset Correlations => 1 => VIXdecreases=> ASSets up => Bankers Make $$$ to buy their MJ (Soros)=> SPX increases => Bankers make $$$$ => Homer Simpson Wealth effect => Homer borrows (Bankers make $$$) money & spends on unneeded discretionary shit made in China => Bankers make $$$ on FX => China buying more Treasury's => Bankers make $$ on x-actions => US cannot pay its debts => US creates and sells more treasury instruments => Bankers make $$ => Fed Prints more $$ => US Economy goes =>
boom!!!!!!!!!!!!!!!Boom!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!KABOOM!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!CLEAN, FLUSH AND RINSE.
I think the number of times that "Bankers make $$$$" appears in your comment says it all. That's what the Banksters want, and that's what QE2 is designed to accomplish. It has nothing to do with the economy.
I don't get it either. Oil at $80+ and gold at $1,300+ and these guys are advertising QEII when they damn well know it's like pushing on a string.
What gives?
Unless.........in the never ending effort to recapitalize the banks.......and since they've run out of shorts to scalp........the banks will get the word first that QEII was a head fake and scalp the longs since QEII seems to be already priced in.........hmmmmm....
What a knife edge to be sliding down. If QEII is a head fake and it becomes a MSM theme soon, then Obama's team is wiped out.
And of course, the Fed is not political.
Very devious tarax, indeed.
No way.
That would mean sacrificing every 401k (and retirement account) on the planet. There would be murderous outrage amongst the population. Politicians would need 24-7 police escorts, strikes would cripple economies, ...
For TPTB, inflation is by far the easier solution.
It will all quiet down after the election.
It's all posturing.