“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?
.......hmmmmmm indeed....
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.
Bruce: I "see you" and raise you one: I think there is a connection. Unfortunately the connection is a negative one. Unnecessary money printing = more unjustified sustenance for Big Finance = more delay in wiping the slate clean and of course is inflationary by (Austrian) definition.
BB of course should hurry up and do nothing. Or as Jim Rogers and now even Evans-Pritchard say, he should endeavor to put himself out of a job by lobbying to end the Fed's role in central planning. Then he should lobby to have Congress only sit in session every other year, just as in Meredith Whitney highest-ranked state of Texas.
I believe the BB is paving the way for a complete restructuring of the social and financial structure of the US... In addition to repudiating the debt overhang from China and Japan, we will see a restructuring or elimination of all entitlements and unfunded mandates... The Fed is now the United States of America.
"I believe the B[IS] is paving the way for a complete restructuring of the social and financial structure of the [Planet]."
!!!!!
Maybe they'll catch a raging case of Stuxnet? The mother of central bank STDs?
Bush I felt that Greenspan cost him a second term. Obama will continue to squeeze Bernanke to prevent the same result.
rolling, you actually think that things are going to hold together for another two years? you gotta be kidding....by the time the next election rolls around, the entire mess will have exploded and we will be a year into picking thru the rubble.....
If you had told me back in 2008 the situation would still have changed relatively little in 2 years time, I would have though you were smoking crack.
I honestly can't believe for how long they've kept this trainwreck on the tracks, but I think the only reason we keep going is because someone's standing at the front putting down track as we drive - and we're rapidly running out of stock.
But for how long the stock lasts... that's the killer question, isn't it? The one who knows could retire a millionai... eh, well, considering the worth of currency soon, lets just say he'll have plenty of gold (, bitches!).
rolling, you actually think that things are going to hold together for another two years?
Who the fuck knows? Collapse is inevitable given the massive structural imbalances, but it could take another 2 days, 2 months, 2 years. Forecasts in general are worthless and particularly when it comes to predicting the timing of a certain event. The only thing I know for sure about the future is that I will take a big dump each day sometime between 5-7 AM.
"we will be a year into [fighting in] the rubble....."
Meow!
He's a desperate, little man, that Bernanke. This doesn't end well.
Whether he's under pressure from the administration probably makes no difference, for he believes that he Must Do This, it is the Right Thing. Remember, his academic speciality was the Great Depression, and regardless of one's economic orientation (Neo-Keynesian, monetarist, Austrian, etc.) just about every practitioner in any of those areas subscribes to one notable standard regarding the Depression. That the Fed drained reserves from the system, tightening policy whilst the economy was still in decline, thereby unnecessarily exacerbating the economic pain. (Whether that be a correct or incorrect significant relationship of cause and effect is a separate dialogue for another moment.)
And thus, his response to the current environment? Probably that he is grateful that he is the right man, with the right background and knowledge, capable to respond in the right manner to the current disaster. In fact, possibly viewing himself as better prepared than most.
Indeed, he has not likely had a negative reaction to any pressures from the administration, for his very own belief system is in concert with that same desired and current policy.
The foundation of all economic activity, every exchange, and all contracts is trust. Ben cannot print trust.
Ergo, more liquidity sloshing around in the hands of the same old crooks does not bring the economy back.
Breaking up the Banking Cartel and Jail time for a couple of hundred bankers would show the country these guys are serious about correcting the trust problem.
Since Ben is blind to the trust problem he is the wrong man for the solution.
"The foundation of all economic activity, every exchange, and all contracts is trust. Ben cannot print trust."
indeed. this is the heart of the issue...and the heart is rotting.
Extensively studying a topic does NOT prevent you from drawing the wrong conclusions (ever!)
Right, as Mark Twain said (and was repeated recently on Automatic Earth)
It's not what we don't know that screws us. It's what we are certain of that is untrue. (Or something like that)
Timmy I believe is sincere, but dead wrong. Or we are.
The nice part is, unlike most philosophy questions, we will have an answer...and that right soon.
"What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so."
EK:
what's up with the AC avatar??
Nothing he can do now. FED has been standing on the gas for two years and has cut gold loose from the anchor. He fired his last shot but is still pointing the gun, hoping no one can see inside his clip..........
He's not out of bullets, Bernanke can always raise interest rates when things get desperate for him. The showdown in hoetown with the last man standing will be Benny boy.
Then everyone will say why didn't he do it sooner. He'll say something like it wasn't prudent to, or he might even have been prevented. With QE2.0 comes a higher Fed rate. It has to. If the banks have any morality left, they'll absorb a cut in their margin incomes. They've made boatloads from TARP and cheap funds for 2 years now so they hold good cash positions in preparation.
10 years of Congress are to blame for where the TARP went without the prerequisite checks and balances. You've been raped, get over it. The lack of jobs falls to Obama, interest rates are Bernanke. Bush and Obama were convinced the world was going to fall apart if the banks weren't saved. Everyone else was fed fresh air and breadcrumbs while they were served ala carte.
You've heard it all berfore.
Raise interest rates, then watch T-Bills go up in flames! FRNs to follow 451°
USA debt service gets expensive when rates rise, indeed. He either kills the US Gov or kills the dollar. I think everyone is hoping some foreign country makes a mistake to take the spotlight away for awhile. Either that or the banksters do a drive by on gold and the euro.
<deleted duplicate>
Pretty much framed it up nicely.
The short term debt roll is a problem however. And its a big one.
Benny will monetize a lot of it, and that will toast the buck to its final bottom. Doubt it will morph into hyperinflation unless there is some serious error or exogenous event.
I can now see the picture yourself and IC have clarified. What are the events at maturity ... thx Jesse and IC, cheers. Is it possible to see at any one moment of time how much Treasuries at the various terms has been issued and remain open?
Jesse
the short term is indeed the painted into a corner issue for Ben, or perhaps the breathing the paint fumes problem.
This is chess and Ben studied checkers. Too much interdependency and structural issues for a printer.
Only on debt issued from that moment on. Not on debt already issued at low low rates - this has been a win for US Treasuries so far. Same reason why MSFT dished out $4B at a paultry 0.875%. When things improve the coupon rate at issuance is all they have to pay. The schmucks who bought it are the ones who lose out.
The fact that you can offload your debt at shithouse rates is not a sign of desperation of 'the issuer', it is actually a sign of desperation of the market who still hungers enough to buy it. Think it over some more.
If the US Gov't has shelled out max pain now and stop, it is those who bought the bags of dogshit are the loser - hence why they need to be ultra careful now with revenues and spending. It is only if things 'force' interest rates up while still shelling out for horrendous deficits are things really going to get interesting. So a gradual contraction next with QE2lite to get things back to normal slowly. All that has been issued now is a win for the Gov't - you should be happy they can still sell dogshit to the world at such low rates. That is the only positive coming from it so far.
Municipal debts might be a tipping point. Will be interesting to see how they handle that. So maybe after they sell another $750Billion at 0.5% to clear the States slates things will change. You can bet your life Benanke is not sweating anything.
So a gradual contraction next with QE2lite to get things back to normal slowly.
Back to what normal? Stimulus / deficit spending have never been anything more than a mechanism to bridge the economy over until the impact of the Fed's lowering rates can take effect. You can see this on the ten year constant maturity chart at Fredgraph. We seem to have reached debt saturation, the boost attributable to rates being as low as they now are is muted at best, and Ben has begun printing in response. You can also see debt saturation on Fredgraph's charts of consumer debt, nonfinancial business debt, etc. Printing en masse is not normal; QE, regardless of whether or not we call it "QE Lite", is not normal. So, unless I am misrepresenting your above, it seems you believe we are in a "new normal."
We all know the Fed targets inflation, it's always been a question of "inflation of what?" Inflating the money supply by one their measures; now, Ben has openly claimed to target inflation itself. New normal?
China is trying to internalize its markets, while the U.S. overtly internalizes lending, by printing money and lending to itself.
I don't think the international markets are going to let the U.S. get away with this new normal.
"The fact that you can offload your debt at shithouse rates is not a sign of desperation of 'the issuer', it is actually a sign of desperation of the market"
It's not a sign of desperation on anyone's part. I'm afraid you don't understand the Treasury carry trade. The Fed is issuing unlimited credit to primary dealers both here and abroad at effectively zero interest, to buy Treasurys at low interest.
It doesn't matter to the banks that they are only getting 87 basis points to hold Treasury notes bought with credit that only cost them 10 basis points. As long as there is a carry to take, they'll take it. It's absolutely risk-free money to them; the Fed and Treasury guarantee both sides of the trade.
That's why Treasury yields are converging on zero--the primary dealers are bidding each other down in the rush for free money. It will work until there's no carry left, and then it will end. Don't be anywhere near the Treasury complex when that happens.
Thanks IC, I think I can see your point now. This chart below shows me where the debt is positioned currently using USTnotes.
USTnote series by maturity date, separated for each term series. Obvious peaks L-R are 2, 3, 5, 7, 10 year.
http://i962.photobucket.com/albums/ae107/pw01/USTreasnoteshistoricalImage1a.jpg
Bernanke is still buying himself time until the yield curve flattens out some more. It means the next generation of politicians have some work cut out for them.
It is still a benefit from issuing debt at lower rates now while there are buyers. You say it is due to the carry trade which makes a lot of sense.
The horror story comes from the debt issued in 2009/10 alone. Amazing numbers and it's still not over.
Imminent C.........thx vm for putting the Treasury carry trade into a context.......and Jesse for clarifying the short term roll problem.
Not sure I understand your POV. Primary dealers won't want to be kept caught holding onto these treasury issues and (to me) are merely onselling to a demand in skimming a margin - who to I'd be very interested to know. If/when this demand disappears, the bond market is snafu'd, or interest rates rise. The simple fact there is even such a demand at low yields tells you already something is seriously f***ed up - the benefactor is still the people issuing it.
Why would anyone tie up funds even for 2 years at less than 0.5%? This is insane or something catastrophic is about to occur to make this look remotely attractive.
Your carry trade is correct - it is arbitrage gone berserk with now Japan and US doing zero interest combat in not only bonds but also YEN and USD currency carry trade. Perhaps the best known end game of HFT trading to me is the bond market situation as it is currently shaping up. Who has interest in buying treasuries at such low yields??????? It's got me stumped.
This makes risk in equities look highly attractive, but adds an obvious element of immediate volatility to the equity market as it is not a long term gig in the present environment. Everyone knows what happens when a vaccum appears in the bid side.
Hence gold, is going to the moon the longer this plays out like it is. Good luck any which way.
Well if we start to directly monetize the debt for all roll-overs then the higher interest rates won't effect the US budget directly. If we combine that with a primary balanced budget (no more new debt) then the only "cost" is FX weakness and higher import and commodity costs - but improved US export competitiveness. Of course if Oil goes to $300/barrel then we won't have to worry about US contribution to global warming.....
Dog shit bitchez!
I am so proud, my first bitchez statement.
Richard Dennis once said that traders stay locked in a bad position when they confuse " net worth with self worth ". Is it possible that Ben is locked into a position because of his 'helicopter speech' being the cure for an anti- deflation, depression cure?
Psychologists call it being caught in a schema.
An error by him is death and dying to a standard of living to others if he is wrong.
The "helicopter" can counteract deflation. He showed that during the 2008 deflationary crash. What he can not do is fix the economy, to the contrary, the low interest rates stop the needed restructuration of the economy.
Bernanke has managed to turn a short deflationary recession into a long inflationary depression.
traders stay locked in a bad position when they confuse " net worth with self worth ".
You said it all right there: TRADERS. Sadly, we have an academic behind the wheel. At least a trader runs out of money at some point after countless wrong calls. He, however, has built his entire career on studying the Great Depression and to the very core of his being, believing he could change the outcome with a different approach. Because of this, not one moment was spent thinking "perhaps this (The Depression) was necessary". At the expense of the country, he will do everything he possibly can to prove his ideas are the right ideas.
I pray to God that somebody shows him the light before he pulls the trigger on this bitch. As Bruce mentioned, this is indeed the last bullet. The world will truly see the Emperor has no clothes and the liquidation party will begin.
I think you hit a Grand Slam on your Thoughts and it feels you are ready.
Poor Bermonkey! Looks like an exhausted 'end-of-honeymoon' guy running dry!