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Guest Post: The 'Baseball' Economy: The Fed Strikes Out
Submitted by Charles Hugh Smith from Of Two Minds
The 'Baseball' Economy: The Fed Strikes Out
The Fed's game plan is to pitch low-cost credit so borrowed money will flow into the productive economy. But the Fed's own policies insure that the borrowed money goes to speculative bets and unproductive reserves.
The Federal Reserve has been playing a perverse version of baseball, and unfortunately it has struck out. Here's the Fed's version of baseball: The Fed "wins" if it can get batters to "swing" at more debt and get a "hit" by spending that borrowed money in the real economy. If a job is created by that spending, then the "hit" becomes a "run" and a "runner" gets on base.
To entice players to borrow money, the Fed has been lobbing big fat slow pitches for the past three years: zero-interest rate policy (ZIRP), excess liquidity, quantitative easing, buying risky mortgages to take on bad debt from the banking system, etc., all designed to keep interest rates low and credit flowing.
The "too big to fail" banks and speculators have swung at the fat slow pitches, but no one's on base: few jobs have been created by the Fed-fueled rampant financial speculation. Speculating in financial games has added a few jobs to Wall Street, but it accomplishes precious little the real economy. the Fed's game plan boils down to funneling billions of dollars to the top 5% of the households who benefit from rampant speculation in stocks and financial instruments, and then hoping their purchases of Porsches, Coach handbags and $100 bottle of wine in high-end restaurants will "trickle down" to the real economy.
While Porsche dealerships, luxury retailers and elitist restaurants have prospered, their share of the real economy is too small to have much of an impact on jobs. Yes, a few more retail clerks, dishwashers and waiters have jobs, but these are ultimately temporary and often low-paying/marginal positions.
Banks have amassed "hits" by borrowing vast sums of the Fed's "free money," but since they have squirreled the money away at the Fed to earn no-risk interest, they don't get any "runs." The money sits there, earning easy profits for the banks, but it doesn't flow into the real economy. The banks' "hits" aren't leading to "runs."
Large enterprises are selling debt to amass "war chests" of cash they can use to snap up competitors. But corporate acquisitions don't create jobs, they destroy them as overlapping divisions are axed and consolidated.
The irony is painfully obvious: the more slow fat pitches the Fed throws, the more the banks and corporations borrow for speculation or no-risk interest paid by the Fed itself. As for investing in actual capital-intensive new plant--who would be insane enough to do that in the U.S., where regulations and taxes on productive profits are burdensome and profit margins are slim? It literally makes no sense.
What makes sense is to borrow the "free money" here and build the capital-intensive plants in countries with advantageous tax policies that are near the high-growth BRIC markets. As for the U.S.--the high-profit plays are all speculative financial gambits.
You have to feel sorry for the lame-brained Fed: all it knows how to do is toss fat, slow pitches of "free money," hoping someone will borrow the money and put it into the real economy. But the Fed's own policies insure that the money will either be hoarded by banks or "invested" in speculative gambles which are ultimately backstopped by the taxpayers--gambles with little to no payoff for the real economy.
As the Fed-engineered stock market rally rolls over, then perhaps the Mainstream Media sitting in the press box sucking corporate-sponsor provided beverages will awaken and look at the progress of the Fed's game: lots of corporate hits, but no runs, nobody on base and zero RBIs (runs batted in)--that is, no jobs created despite the trillions in treasure lavished in new credit.
It feels like we're entering the eighth or ninth inning of the Fed's perversely destructive game, and all we need is an umpire to call "STEE-RIKE!" and end the doomed-from-the-start "extend and pretend" game the Status Quo has been playing since 2008.
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They're hoping you can't foul out in this game as well.
Ron Paul for designated hitter!
Steve Wynn said it a while back
http://www.youtube.com/watch?v=fWacc6L9NoU
Darn! I missed "Take me out to the bail game" during the seventh-inning stretch.
They have decided to go bush league.
http://farm3.static.flickr.com/2107/2196761818_2f8de47b14.jpg
My congratulations on a well written analogy.
Jim
A steroids analogy would be appropriate here.
http://gonzalolira.blogspot.com/2011/05/fiscal-spendingthe-steroids-of-g...
The fed. It's like organized crime on steriods.
The army. It's like corporate accounts recievable on steroids.
The pentagon accounting wing destruction by cruise missile painted up to look like a mini airliner. It's like an intrusive audit block. On steroids.
The recent craze of advertising everything as being something else on steroids. It's like hyperbole on steroids.
Blackwater. It's like security guards on steroids. If like means security guards actually ON STEROIDS.
Ben maybe pitching batting practice to the Wall St. Banks but when a small businessman from Main St. or a widow comes to the plate they only see inside fastballs or knuckleballs dancing everywhich away.
That's the problem. Main St. can't hit Bernanke's pitching. He's tossing a shut out as far as they are concerned!
4 K's is a Golden Halo.
Well with Obama/Timmay/Ben (take your pick) as the "umpire" I highly doubt there will be any called third strikes in this game. It would be like the 1919 Black Sox sending in their manager to be the umpire during that World Series. If things get bad quick, we will likely see a "lockout" just like 1994 and a bank holiday declared/markets closed.
Ben reminds me of Mark McGwire in 1998...all the "fans" (TBTF firms/gov't/Krugman) cheering him on, later we find out he's a complete fraud. And Ben is printing on steroids for sure.
Looks like the market is calling the FED's bluff about pulling back from QE.
...catcher Ben is signaling the deuce, but everyone in the park knows the fastball is coming
Is there anything else that the fed can do? I mean being honest with us and the rest of the world that our monetary system isnothing more than a debt issuing ponzi scheme that requires said debt to be in a state of constant expansion would be great, but absent that, our central planners need to do what they must to insure that the animal be fed, no? This war is going to end some day.
Insane, is'nt it?
A group of men create IOUs out of thin air, use these IOUs to buy real assets, foment wars, control and crash economies, etc.
End all unlawful fiat "money".
But try and have a calm, reasonable conversation on this topic and people look at you like you have 3 eyes. I have moments when I think, "holy sh-t.... maybe I'm the crazy one". And maybe I am.
No, you have just joined the world of the "awakened" while others sleep until their hunger pangs awaken them and much to their dismay their hunger will not be satiated.
Tuco Benedicto Pacifico Juan Maria Ramirez
Unlawful fiat - nice oxymoron!
Nice catch, mayhem...
See-- the popular religion "Rule of Law" is so deeply entrenched in prole intellect (not by accident) that every problem--including those created by law, such as fiat currency (legal tender laws)--must be the fault of not enough law, the violation of an existing law, or the wrong kind of law.
The solution, usually, is to outlaw; to create more laws.
"When all you've got is a hammer... "
With this nifty Jedi mind trick, lawmakers have cemented perpetual lordship.
Sure... the Fed can go tell our representatives in Washington (including those in the Obama administration) to go pound sand and get their fiscal mess in order. If the Fed can pursuade CONgress to address an aggressive narrowing of the deficit (tight fiscal policy), it would allow the Fed to remain on the easy side with monetary policy-- with minimal damage done to the core economy.
Benny and the Fed have effectively established a 2-year holding pattern for Congress to get their house in order and institute real reforms of the financial system-- and they are no better prepared than they were going into 2008. Dodd-Frank was a pathetic attempt at "reform" that really didn't solve anything.
The core of the discussion from Charles Hugh Smith is certainly on the mark-- except for the fact that the TBTF banking sector has been hitting singles-- and scoring. Unfortunately, the remaining 320 million or so of the rest of us haven't scored much of anything, as it's pretty much impossible to score if you can even get on base.
Damn umpires. I wonder who pays these guys?
At least the sleepy little FHA is taking up some lending slack. FHA now has ballooned its book into the $ 1 Trillion range....and LTV still means nothing.
http://www.doctorhousingbubble.com/fha-insured-loans-now-cross-a-giant-tipping-point-exceeding-1-trillion-in-book-value-at-risk-fha-loans/
I repeat.
Ben Bernanke will go down as the greatest central banker of all time.
All stock market declines are instantly arrested and u-turned.
All inflation scares are "whipped" with a series of margin hikes.
Trillions of new debt can be added with impunity, and the 10-year Treasury remains pinned near 45 year lows.
Debt ceilings are ignored, scoffed at, and laughed at.
Future central bankers around the world will be studying this case for years, as the greatest recovery effort of all time.
The sad part is, you're probably 100% right. Krugman, Biden, Obama, Bush, and all the other assholes will regard Uncle Ben as "the gold standard" in central banking. And will institute central planning to attempt to recreate this "recovery."
Unless, of course, the Fed loses control and everything spirals out of control. So Ben will either be seen as the best, or the worst, of all time. Such is our current situation. Basically, the clock is ticking on the bomb, if it goes off while Ben is in charge, he will be doomed. If the can is kicked to the next Fed chairman, then Ben will get off scot free.
Assuming that fraud will create a prosperous and sustainably prosperous economic system is akin to assuming that the tree will grow to the sky or that a body builder can create bigger and bigger muscles by taking more and more steroids. TPTB's scheme of extend and pretend will work until it doesn't. I'm convinced that there is a subtle yet constant corrosive effect of all of their efforts on the underlying, real economy. At some (admittedly unknown) future point, the system will fail spectacularly.
You've adopted an excellant disguise, Ben.
What "recovery"? Oh nevermind i asked.... robo's just being robo.
There is only one "GO" space on the Monopoly board where you collect your $200. Ben has effectively replaced all of the "pay" spaces with "GO" spaces. So the game will never run out of money.
But that doesn't mean it won't end, and end badly at that.
You're such a card, Robo...
Broken robots repeat, day after day, they never learn. And you will always be a wanna-be pigman.
robottrader: when stupid doesn't say enough.
Don't diss robo. He just bought a bunch of Ambercrombie and Fitch and they are coming out with assless radiation suits.
lol!
future central bankers will be studying this case alright but for slightly different reasons ...
don't let the banksters smack your balls around!
protect yourself with precious metals!
slewie--Of Two Balls
You mean a chastity belt?
Speaking of her, if you see Chastity please give her a belt for me.
Tuco Benedicto Pacifico Juan Maria Ramirez
The bats have been corked, the stadiums have become smaller with the fences moved in to the point you can throw the ball out of the stadium and the hitters all look like Arnold and still no runs. Maybe we should take a look at that ball; Ahh look at all that Vaseline.
Dimon's a pitchin and Obama's a catchin
have we dugout or just balked?
While everyone is focused on DSK, the beat goes on..
Fiscal Adjustment Roadmap
Cut salaries by 30% – IMF
What’s that I hear? Someone from the PIIGS is complaining about our wage cut mandate? Didn’t you read the fine print at the bottom of your IMF loan contract? bwahahahahahaha.
The fedsters use little kiddie rules; keep swinging til you hit the ball or throw your bat and hit the taxpayer pitcher, in the ballsack.
Stocks and euro looking weak
http://deadcatbouncing.blogspot.com/
We're going into extra innings, bitchez.
2013 - Criminal Bernanke, Enemy of the State, tried in abstentia for Crimes Against Humanity, sentenced to death, hiding out in the NYC sewer system.
You mean enemy of "the people". He "is" "the state" that needs to be flushed down the toilet.
Tuco Benedicto Pacifico Juan Maria Ramirez
They'll just keep bunting - occasionally making it to first
They make the rules - they'll get 10 outs this inning
The Bernank can't fool major league hitters with just a screw ball and a K-Y ball...
IF "Outsourcing" THEN "No Job Growth in the USA"
Is this *really* that hard to comprehend? Even an American politician should be able to understand it.
How about this one?
GLOBALIZATION = Good for corporate profits
GLOBALIZATION = Bad for workers, farmers and the unskilled.
Well if this economic crisis was a baseball game, we're still in the 1st inning. Perhaps 2nd. Haven't made up my mind yet because time has gone by, but nothing progressed since 2008. Considering this could be a 20+ year event (of course if sane and uncompromised people had the reigns it could be done in 20 days), I didn't want to over do the progression of innings. As time as gone on, that was a correct move because we are stuck in a limbo. With all there is still ahead of us, 1st-2nd inning is still appropriate. (especially when people are still calling it a 'debt problem', or 'liquidity crisis'....no it's a problem of the system, monetary system, and in that monetary system we've been inundated with fraudulent debt...all legal but retarded to do since we repealed Glass-Steagall)
For the fed it may be th 8th or 9th, but for human beings, it's still the 1st-2nd.
Don't forget that AFTER we re-enact Glass-Steagall will still need years to really get this pig going. Fusion, Space, NAWAPA, etc, etc. These are going to take some time.
So we face collapse, anarchy, realization, passing Glass-Steagall, enacting it, pick up the jumpers, starting to rebuild....among other things. That's if we don't pop off a new dark age. Which can happen. The fraud makes up well over 90 percent of the entire system. When that goes out, anyone that says we couldn't devolve into new dark age and nuclear wars is a fucking idiot. Instead of letting it collapse and affect everything around it, it's much better to call it fraud, legally, and wipe it out. Meanwhile utter credit to keep the system running, credit that the fraudulent debt has no claim over.