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Federal Reserve Policy IS Working ... Just Not For America

George Washington's picture





 

Washington’s Blog

Richard W. Fisher, president of the Fed bank of Dallas, said last month:

In my darkest moments I have begun to wonder if the monetary
accommodation we have already engineered might even be working in the
wrong places. Far too many of the large corporations I survey that
are committing to fixed investment report that the most effective way
to deploy cheap money raised in the current bond markets or in the
form of loans from banks, beyond buying in stock or expanding
dividends, is to invest it abroad where taxes are lower and
governments are more eager to please. This would not be of concern if
foreign direct investment in the U.S. were offsetting this impulse.
This year, however, net direct investment in the U.S. has been running
at a pace that would exceed minus $200 billion, meaning outflows of
foreign direct investment are exceeding inflows by a healthy margin.

 

"[I]f
it were to prove out that the reduction of long-term rates engendered
by Fed policy had been used to unwittingly underwrite investment and
job creation abroad, then the potential political costs relative to
the benefit of further accommodation will have increased.

Shahien Nasiripour fills in some details today on why Fed policy is indeed helpful ... just not to America:

"Firms
continue to cut back on their capital expenditures and R&D
outlays," analysts at JPMorgan Chase said in a September report. Money
spent on long-term investments and research and development represents
less than 55 percent of operating cash flow at the non-financial
companies that make up the Standard & Poor's 500 index. It's down
from a high of more than 85 percent as recently as 2001, the analysts
noted.

 

But money is flowing overseas.

 

The proportion of
capital expenditures spent abroad has risen from 18 percent in 2001 to
27 percent in 2008, the JPMorgan analysts wrote. It's likely higher
today "thanks to growth opportunities prevalent in emerging markets."

 

On
Oct. 29, the Treasury Department reported that U.S. portfolios held
some $6 trillion of foreign securities at the end of last year. At the
end of 2008, U.S. portfolios held $4.3 trillion in foreign securities.

 

The
trend continues this year. There's been a net outflow of money from
domestic equities every month since May, according to the Investment
Company Institute. Foreign equities, on the other hand, have been
growing.

 

***

 

In other words, the Fed's next round of
asset purchases may not help American families. Rather, it may benefit
the citizens of other nations.

No wonder the developing world is experiencing a huge asset bubble. See this, this, this, this, this, this, this, this and this.

Indeed, as AP writes today:

Stocks
in developing countries are a likely candidate for the next bubble.
Cash from Europe and the U.S. has plowed into emerging markets, such as
Brazil and Chile, since the financial crisis, largely because these
countries have less debt and faster economic growth than in the
developed world.

 

***

 

"I think bubbles are the main villain in this piece," Grantham says.

Cheap
debt provided the fuel for the housing bubble, allowing home buyers to
take out larger loans on the belief that somebody else would buy the
house at a higher price. Fed chief Ben Bernanke's answer, Grantham said,
is to start the cycle over again by blowing a new bubble. "All they
can do is replace one bubble with another one," he said.

In fact, the Fed has been using our money to bail out foreign countries for years. See this, this, this, this, this and this.*

Nasiripour also documents:

  • Big corporations have gotten wealthy from Fed policies like quantitative easing, while Main Street hasn't seen a cent (see this for background)
  • Banks
    won't lend out extra cash sitting around, but will just deposit their
    excess reserves at the Fed or buy treasuries. "Dumping another trillion
    dollars into the system now will most likely mean they will follow
    the same path into excess reserves, or government securities, or
    'safe' asset purchases," Kansas City Fed president Thomas Hoening said
    Oct. 12. (see this, for background)
  • Jeremy
    Grantham, chief investment strategist at Grantham Mayo Van Otterloo
    & Co., told clients last month that "lower rates always transfer
    wealth from retirees (debt owners) to corporations (debt for
    expansion, theoretically) and the financial industry." "This time,
    there are more retirees and the pain is greater, and corporations are
    notably avoiding capital spending and, therefore, the benefits are
    reduced," Grantham, whose firm manages more than $104 billion, wrote
    in his latest quarterly newsletter. "It is likely that there is no net
    benefit to artificially low rates." (see
    this)

*In reality, as Michael Hudson shows,
the hot money flows into emerging economies do not really help the
people in those countries. Only the giant banks and mega-corporations
are benefiting from quantitative easing.

 


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Thu, 11/04/2010 - 01:18 | Link to Comment blindman
blindman's picture

http://www.democracynow.org/blog/2010/10/18/part_iislavoj_zizek_far_right_and_anti_immigrant_politicians_on_the_rise_in_europe

.

October 18, 2010 Part II..."Slavoj Zizek: Far Right and Anti-Immigrant Politicians on the Rise in Europe"
Wed, 11/03/2010 - 23:04 | Link to Comment blindman
blindman's picture

working "on" america, definitely not for it.

one result of the new qe2 will be more speculating

in commodities to further drive up prices in the usa.

accelerating the collapse and creating better buying

opportunities for hedge funds to buy infrastructure to

further the toll booth economy concept.  as things get

worse there will be further need for qe^2 and so on.

no job will be created, none that has a paycheck associated

with it.  just a little something to make a monthly payment on

a desperate loan.  systemic structure and function.

replicanomics. ( blade runner feel ). 

Wed, 11/03/2010 - 22:01 | Link to Comment onlooker
onlooker's picture

Geroge, xlnt bit of bad news. It my hope you are incorrect. Keep us posted. Anything new in the Gulf of Mexico? Will the Republicans continue the cover up???

Wed, 11/03/2010 - 21:50 | Link to Comment rocker
rocker's picture

It is starting to get ugly.  Eh.

Wed, 11/03/2010 - 20:02 | Link to Comment Buttcathead
Buttcathead's picture

The zombie bankster bankruptcy auction keeps getting bid up, but the auctioneer wont say the four letter word...  Sold  Oh the humanity !

Wed, 11/03/2010 - 19:26 | Link to Comment Buck Johnson
Buck Johnson's picture

That would explain why they want to repatriate their money overseas without the big tax on it from the US.  So the inflate the foreign markets and then when those pop the run back to the US and then deposit it into the banks to start the game all over again. 

Wed, 11/03/2010 - 19:24 | Link to Comment JimboJammer
JimboJammer's picture

Gold  is  cheap  right  now  compared  to  July  of  2011..

Wed, 11/03/2010 - 19:22 | Link to Comment Cdad
Cdad's picture

Money leaking overseas...why would that bother anyone at JP Morgan?  The GPS systems in the lear jet is already preprogramed for when the time to leave is upon them.  These folk, this class, the oligarch...he cares not about some American ideal anymore than he cares about the rule of law.  He has shown us all that he is there for scalps and America be damned. 

Not sure what the mystery here is about leakage.  Seems logical to me that the banksters involved are encouraged by leakage.

 

Wed, 11/03/2010 - 19:03 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture
Gold was slapped down to avoid embarrassing Fed, Sinclair tells KWN

Jim Sinclair - Gold Bottomed, Dollar Index Headed to 56

 

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/3_Jim_Sinclair_-_Gold_Bottomed%2C_Dollar_Index_Headed_to_56.html

Wed, 11/03/2010 - 19:12 | Link to Comment goldmiddelfinger
goldmiddelfinger's picture

QE leakage into foreign economies and nonproductive assets like gold far exceeds the benefits left behind to the unemployed and the US economy. The leakage overseas exhibits multiples of wealth creation, to the expense of the US taxpayer, saver and consumer, nowhere near realized at home.

Wed, 11/03/2010 - 18:56 | Link to Comment bruiserND
bruiserND's picture

If the Bankster Oligarchy is committing treason.. then why aren't there hearings and talk of a military junta?

There must be some union of Lions or Patriots in the combined branches of the armed forces . They all know who each other are vs. the ticket puncher bureaucrat types. To unite and create a formal document and send it to the Joint Chiefs would at least serve written notice that this has become a national security matter and that they are watching.I only wish the Joint Chiefs had the sophistication to see how this is going to impact national security. They have an obligation to speak up.

When insolvent banks are a higher priority than the people it can only end one way.

Wed, 11/03/2010 - 19:37 | Link to Comment CPL
CPL's picture

Five bucks says the US armed forced are dropped like a hot potatoe overseas on posting and promptly ignored.

 

Not a wish mind you, but would you want experienced soldiers around while running their homeland into the ground.  I if overthrew a country in a bloodless and obvious coup, I certainly wouldn't.

Wed, 11/03/2010 - 23:41 | Link to Comment LowProfile
LowProfile's picture

You seriously think they could keep them from returning here if they wanted to?

Wed, 11/03/2010 - 19:33 | Link to Comment CPL
CPL's picture

Five bucks says the US armed forced are dropped like a hot potatoe overseas on posting and promptly ignored.

 

Not a wish mind you, but would you want experienced soldiers around while running their homeland intot he ground.  I wouldn't.

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