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Janet Yellen: "Rising Commodity Prices Don't Warant Policy Shift"

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First we had FRBNY Dove Bill Dudley talking up the Goldman party line that QE3 may, just may, be necessary (recall Goldman initially asked for $2 trillion in QE), and now the dove from the west coast makes news as San Fran Fed (also known as the Captain Obvious academy) president Janet Yellen basically says that rising commodity prices don't warrant policy shift. And by policy shift she means a change to the current easing regime. Some other dovish statements: "it would be difficult to get a sustained increase in inflation as long as growth in nominal wages remains low" which is wrong - how many billions do American consumers "save" by not paying their mortgages; "structural explanations cannot account for bulk of rise in unemployment during the recessions" ... so why do we need economic "explanations"? "structural explanations cannot account for bulk of rise in unemployment during the recessions" - yup: Captain Obvious class 101; "long-term inflation expectations remain well-anchored despite jump in short term expectations" - anchored to what - the Rudy von Havenstein inflation projection wall chart?  "decline in jobless rate reflects in part drop in labor force participation" - advance topics In Captain Obviousness; "real consumer spending slowed around turn of the year after brisk gains in autumn, consumer sentiment weaker in March" - but CNBC just spent all of last week telling us how strong the consumer was in March; and most importantly: "accommodative monetary policy stance still appropriate because unemployment too high, underlying inflation too low" and "inflation effects from higher commodity prices likely to be transitory but must watch inflation expectations" uhh, what happened to well-anchored? To rephrase: the QE lunacy will continue until morale (and hyperinflation) improves.

From Janet Yellen:

Commodity Prices, the Economic Outlook, and Monetary Policy

Good afternoon. For more than a century, the Economic Club of New
York has provided an influential forum for the discussion of social,
political and economic challenges facing the nation, and I appreciate
very much your inviting me to speak today. My comments will focus on
recent increases in commodity prices and the effects of those
developments on the outlook for inflation, the economic recovery now
under way, and the appropriate stance of monetary policy. Let me
emphasize at the outset that these remarks reflect my own views and not
those of others in the Federal Reserve System.1 

Since early last summer, the prices of oil, agricultural
products, and other raw materials have risen significantly. For example,
the price of Brent crude oil has risen more than 70 percent and the
price of corn has more than doubled; more broadly, the Commodity
Research Bureau's index of non-fuel commodity prices has risen roughly
40 percent. The imprint of these increases has become increasingly
visible in overall measures of inflation. For example, inflation as
measured by the price index for personal consumption expenditures (PCE)
moved up to an annual rate of about 4 percent over the three months
ending in February after having averaged less than 1-1/2 percent over
the preceding two years. Moreover, survey data suggest that surging
prices for gasoline and food have pushed up households' near-term
inflation expectations and are making consumers less confident about
their economic circumstances.

Some observers have attributed the recent boom in commodity
prices to the highly accommodative stance of U.S. monetary policy,
including the marked expansion of the Federal Reserve's balance sheet
and the maintenance of the target federal funds rate at exceptionally
low levels. Such an interpretation of recent developments naturally
leads to the conclusion that the Federal Open Market Committee (FOMC)
should move promptly toward firmer monetary conditions. Indeed, some
have even raised the specter of a return to the high inflation of the
1970s in arguing for the urgency of monetary policy tightening.

Increases in energy and food prices are, without doubt, creating
significant hardships for many people, both here in the United States
and abroad. However, the implications of these increases for how the
Federal Reserve should respond in terms of monetary policy must be
considered very carefully. In my remarks today, I will make the case
that recent developments in commodity prices can be explained largely by
rising global demand and disruptions to global supply rather than by
Federal Reserve policy. Moreover, empirical analysis suggests that these
developments, at least thus far, are unlikely to have persistent
effects on consumer inflation or to derail the recovery. Critically, so
long as longer-run inflation expectations remain stable, the increases
seen thus far in commodity prices and headline consumer inflation are
not likely, in my view, to become embedded in the wage and price setting
process and therefore are not likely to warrant any substantial shift
in the stance of monetary policy. An accommodative monetary policy
continues to be appropriate because unemployment remains elevated, and,
even now, measures of underlying inflation are somewhat below the levels
that FOMC participants judge to be consistent, over the longer run,
with our statutory mandate to promote maximum employment and price
stability.

While I continue to anticipate a gradual economic recovery in the
context of price stability, I do recognize that further large and
persistent increases in commodity prices could pose significant risks to
both inflation and real activity that could necessitate a policy
response. The FOMC is determined to ensure that we never again repeat
the experience of the late 1960s and 1970s, when the Federal Reserve did
not respond forcefully enough to rising inflation and allowed
longer-term inflation expectations to drift upward. Consequently, we are
paying close attention to the evolution of inflation and inflation
expectations.

Sources of the Recent Rise in Commodity Prices
Let me now turn to a discussion of the sources of the
recent increase in commodity prices. In my view, the run-up in the
prices of crude oil, food, and other commodities we've seen over the
past year can best be explained by the fundamentals of global supply and
demand rather than by the stance of U.S. monetary policy.

In particular, a rapid pace of expansion of the emerging market
economies (EMEs), which played a major role in driving up commodity
prices from 2002 to 2008, appears to be the key factor driving the more
recent run-up as well. Although real activity in the EMEs slowed
appreciably immediately following the financial crisis, those economies
resumed expanding briskly by the middle of 2009 after global financial
conditions began improving, with China--which has accounted for roughly
half of global growth in oil consumption over the past decade--again
leading the way. By contrast, demand for commodities by the United
States and other developed economies has grown very slowly; for example,
in 2010 overall U.S. consumption of crude oil was lower in than in 1999
even though U.S. real gross domestic output (GDP) has risen more than
20 percent since then. On the supply side, heightened concerns about oil
production in the Middle East and North Africa have recently put
significant upward pressure on oil prices, while droughts in China and
Russia and other weather-related supply disruptions have contributed to
the jump in global food prices.

In contrast, the arguments linking the run-up in commodity prices
to the stance of U.S. monetary policy do not seem to hold up to close
scrutiny. In particular, some observers have pointed to dollar
depreciation, speculative behavior, and international monetary linkages
as key channels through which accommodative U.S. monetary policy might
be exacerbating the boom in commodity markets. Let me address each of
these possibilities in turn.

First, it does not seem reasonable to attribute much of the rise
in commodity prices to movements in the foreign exchange value of the
dollar. Since early last summer, the dollar has depreciated about 10
percent against other major currencies, and of that change, my sense is
that only a limited portion should be attributed to the Federal
Reserve's initiation of a second round of securities purchases. By
comparison, as I noted earlier, crude oil prices have risen more than 70
percent over the same period, and nonfuel commodity prices are up
roughly 40 percent. Put another way, commodity prices have risen
markedly in all major currencies, not just in terms of U.S. dollars,
suggesting that the evolution of the foreign exchange value of the
dollar can explain only a small fraction of those increases.

A second potential concern is that U.S. monetary policy is
boosting commodity prices by reducing the cost of holding inventories or
by fomenting "carry trades" and other forms of speculative behavior.
But here, too, the evidence is not compelling. Price increases have been
prevalent across a wide range of commodities, even those that are
associated with little or no trading in futures markets. Moreover, if
speculative transactions were the primary cause of rising commodity
prices, we would expect to see mounting inventories of commodities as
speculators hoarded such commodities, whereas in fact stocks of crude
oil and agricultural products have generally been falling since last
summer.2 

A third concern expressed by some observers is that the
exceptionally low level of U.S. interest rates has translated into
excessive monetary stimulus in the EMEs. In particular, even though
their economies have been expanding quite rapidly, many EMEs have been
reluctant to raise their own interest rates because of concerns that
higher rates could lead to further capital inflows and boost the value
of their currencies. Some argue that their disinclination to tighten
monetary policy has in turn resulted in economic overheating that has
generated further upward pressures on commodity prices.

I do not think this explanation accounts for much of the surge in
commodity prices, in part because I believe that the bulk of the rapid
economic growth in EMEs mainly reflects fundamental improvements in
productive capacity, as those countries become integrated into the
global economy, rather than loose monetary policies. Irrespective of
monetary conditions in the advanced foreign economies, it is clear that
the monetary and fiscal authorities in the EMEs have a range of policy
tools to address any potential for overheating in their economies if
they choose to do so. Indeed, in light of the relatively high levels of
resource utilization and inflationary pressures that many EMEs face at
present, monetary tightening and currency appreciation might well be
appropriate for those economies.

The Outlook for Consumer Prices
Turning now to the outlook for U.S. consumer prices, I
anticipate that the recent surge in commodity prices will cause headline
inflation to remain elevated over the next few months. However, I
expect that consumer inflation will subsequently revert to an underlying
trend that remains subdued, so long as increases in commodity prices
moderate and longer run inflation expectations remain reasonably
well-anchored.

Underlying Inflation Trends
Focusing on inflation prospects over the medium term is essential
to the formulation of monetary policy because, due to lags, the medium
term is the timeframe over which the FOMC's actions can influence the
economy. For this purpose, economists have constructed a variety of
measures to separate underlying persistent movements in inflation from
more transitory fluctuations. These measures include "core" inflation,
which excludes changes in the prices of food and energy, and "trimmed
mean" inflation, which exclude prices exhibiting the largest increases
or decreases in any given month.

No single measure of underlying inflation is perfect, but it is
notable that these measures have exhibited a remarkably consistent
pattern since the onset of the recession: All show the underlying
inflation rate declining markedly to a level somewhat below the rate of 2
percent or a bit less that FOMC participants consider to be consistent
with the Fed's dual mandate. For example, core PCE price inflation stood
at less than 1 percent over the 12 months ending in February, down from
2-1/2 percent over the year prior to the recession. Trimmed-mean
measures of inflation have also trended down over the past couple of
years and are now close to 1 percent.

I want to emphasize that this focus on core and other inflation
measures that may exclude recent increases in the cost of gasoline and
other household essentials is not intended to downplay the importance of
these items in the cost of living or to lower the bar on the definition
of price stability. The Federal Reserve aims to stabilize inflation
across the entire basket of goods and services that households purchase,
including energy and food. Rather, we pay attention to core inflation
and similar measures because, in light of the volatility of food and
energy prices, core inflation has been a better forecaster of overall
inflation in the medium term than overall inflation itself has been over
the past 25 years.3 

In my view, the marked decline in these trend measures of
inflation since the intensification of the crisis largely reflects very
low rates of resource utilization. Strong productivity gains have also
played a role in holding down inflation because, together with low wage
inflation, they have markedly restrained the rise in firms' production
costs. With resource slack likely to diminish only gradually over the
next few years, it seems reasonable to anticipate that underlying
inflation will remain subdued for some time, provided that longer-term
inflation expectations remain well contained.

Longer-Run Inflation Expectations
In this regard, surveys and financial market data indicate that
longer-run inflation expectations remain reasonably well anchored even
though near-term inflation expectations have jumped in the wake of the
surge in commodity prices. For example, the Thomson Reuters/ University
of Michigan Survey of Consumers indicates that median inflation
expectations for the coming year moved up about 1-1/4 percentage points
in March, whereas the median expectation for inflation over the next 5
to 10 years increased only 1/4 percentage point. While such movements
obviously bear watching, I would note that such a combination--namely, a
substantial jump in near-term inflation expectations coupled with a
relatively modest uptick in longer-run expectations--has often
accompanied previous sharp increases in gasoline prices, and when it
did, those movements were largely reversed within a few months.4 

Information derived from the Treasury inflation-protected
securities (TIPS) market also suggests that financial market
participants' longer-term inflation expectations remain well anchored
even as the near-term outlook for inflation has shifted upward. In
particular, while the carry-adjusted measure of inflation compensation
for the next five years has increased about 1/4 percentage point since
earlier this year, forward inflation compensation at longer horizons is
roughly unchanged on net. Much of the increase in five-year inflation
compensation has been associated with the surge in food and energy
prices, and the level of this measure appears consistent with a normal
cyclical recovery after adjusting for those effects.

Commodity Prices and Inflation
Now I would like to explain in further detail why I anticipate
that recent increases in commodity prices are likely to have only
transitory effects on headline inflation. The current configuration of
quotes on futures contracts--which can serve as a reasonable benchmark
in gauging the outlook for commodity prices--suggests that these prices
will roughly stabilize near current levels or even decline in some
cases. If that outcome materializes, the prices of gasoline and heating
oil are likely to flatten out fairly soon, and retail food prices are
likely to continue rising briskly for only a few more months.
Consequently, the direct effects of the surge in commodity prices on
headline consumer inflation should diminish sharply over coming months.

Over time, I anticipate that the recent surge in commodity prices
will also affect the prices of a broader range of consumer goods and
services that use these commodities as inputs. Many firms are seeing
such costs escalate and will pass along at least part of these increased
raw materials costs to their customers. Nevertheless, I expect the
overall inflationary consequences of these pass-through effects to be
modest and transitory, provided that longer-run inflation expectations
remain well anchored. Moreover, labor costs per unit of output--the
single largest component of the unit cost of producing goods and
services in the business sector--are essentially unchanged since 2007,
owing to both moderate wage increases and solid productivity gains. I
expect that nominal wage growth and labor costs will continue to be
restrained by slack in resource utilization. Indeed, it would be
difficult to get a sustained increase in inflation as long as growth in
nominal wages remains as low as we have seen recently.

My expectation regarding the transitory effects of commodity
price shocks on consumer inflation is supported by simulation results
from the FRB/US model--a macroeconometric model developed at the Federal
Reserve Board and used extensively for policy analysis. Starting from a
situation in which inflation is running at 2 percent and households and
firms expect the FOMC to keep it there in the longer run, the model
predicts that a persistent increase of $25 per barrel in the price of
crude oil--that is, a rise similar to what we've experienced since last
summer--would cause the PCE price index to rise at an annual rate of
nearly 4 percent over the first two quarters following the shock. Beyond
that horizon, however, total PCE inflation drops quickly to about 2-1/4
percent and then declines gradually back to its longer-run rate of 2
percent.

These fairly modest and transitory effects of an oil price shock
are also consistent with the response of the U.S. economy to the
dramatic run-up in commodity prices from 2002 to 2008. Indeed, while oil
prices more than quadrupled over that period, measures of underlying
inflation remained close to 2 percent. In my view, that outcome was
crucially dependent on the stability of longer-run inflation
expectations, which in turn limited the pass-through of higher
production costs to consumer prices.

Risks to the Inflation Outlook
I have argued that recent commodity price shocks are likely to
have only a transitory effect on inflation. But even if such a
trajectory for inflation is most likely, some specific risks must be
considered. First, while futures markets suggest that commodity prices
will stabilize near current levels, these prices cannot be predicted
with much confidence. For example, oil prices could move markedly higher
or lower as a consequence of geopolitical developments, changes in
production capacity, or shifts in the growth outlook of the EMEs.

In addition, the indirect effects of the commodity price surge
could be amplified substantially if longer-run inflation expectations
started drifting upward or if nominal wages began rising sharply as
workers pressed employers to offset realized or prospective declines in
their purchasing power.

Indeed, a key lesson from the experience of the late 1960s and
1970s is that the stability of longer-run inflation expectations cannot
be taken for granted. At that time, the Federal Reserve's monetary
policy framework was opaque, its measures of resource utilization were
flawed, and its policy actions generally followed a stop-start pattern
that undermined public confidence in the Federal Reserve's commitment to
keep inflation under control. Consequently, longer-term inflation
expectations became unmoored, and nominal wages and prices spiraled
upward as workers sought compensation for past price increases and as
firms responded to accelerating labor costs with further increases in
prices. That wage-price spiral was eventually arrested by the Federal
Reserve under Chairman Paul Volcker, but only at the cost of a severe
recession in the early 1980s.

Since then, the Federal Reserve has remained determined to avoid
those mistakes and to keep inflation low and stable. It will be
important to closely monitor the state of longer-term inflation
expectations to ensure that the Federal Reserve's credibility, which has
been built up over the past three decades, remains fully intact.

The Outlook for the Real Economy
Turning now to the real economy, real gross domestic
product (GDP) has been rising since mid-2009 and now exceeds its level
just prior to the onset of the recession. While GDP growth during late
2009 and early 2010 was largely the result of inventory restocking and
fiscal stimulus, private final sales growth has picked up over the past
six months--an encouraging sign. At the same time, measures of business
sentiment have generally returned to pre-recession levels, factory
output has been expanding apace, and the unemployment rate has dropped
by a percentage point over the past few months.

Real consumer spending--which had been rising at a brisk pace in
the fall--slowed somewhat around the turn of the year, and measures of
consumer sentiment declined in March. Those developments may partly
reflect the extent to which higher food and energy prices have sapped
households' purchasing power. More generally, however, as the
improvement in the labor market deepens and broadens, households should
regain some of the confidence they lost during the recession, providing
an important boost to spending.

Broad Contours of the Outlook
Nonetheless, a sharp rebound in economic activity--like those
that often follow deep recessions--does not appear to be in the offing.
One key factor restraining the pace of recovery is the construction
sector, which continues to be hampered by a considerable overhang of
vacant homes and commercial properties and remains in the doldrums. In
addition, spending by state and local governments seems likely to remain
limited by tight budget conditions.

Moreover, while the labor market has recently shown some signs of
life, job opportunities are still relatively scarce. The unemployment
rate is down from its peak, but at 8.8 percent, it still remains quite
elevated. And even the decline that we've seen to date partly reflects a
drop in labor force participation, because people are counted as
unemployed only if they are actively looking for work.

Some observers have argued that the high unemployment rate
primarily reflects structural factors such as a longer duration of
unemployment benefits and difficulties in matching available workers
with vacant jobs rather than a deficiency of aggregate demand. In my
view, however, the preponderance of available evidence and research
suggests that these alternative structural explanations cannot account
for the bulk of the rise in the unemployment rate during the recession.
For example, if mismatches were of central importance, we would not
expect to see high rates of unemployment across the vast majority of
occupations and industries. Instead, I see weak demand for labor as the
predominant explanation of why the rate of unemployment remains elevated
and rates of resource utilization more generally are still well below
normal levels.

Commodity Prices and the Real Economy
As I have indicated, the recent run-up in commodity prices is
likely to weigh somewhat on consumer spending in coming months because
it puts a painful squeeze on the pocketbooks of American households.5 In
particular, higher oil prices lower American income overall because the
United States is a major oil importer and hence much of the proceeds
are transferred abroad. Monetary policy cannot directly alter this
transfer of income abroad, which primarily reflects a change in relative
prices driven by global demand and supply balances, not conditions in
the United States. Thus, an increase in the price of crude oil acts like
a tax on U.S. households, and like other taxes, tends to have a
dampening effect on consumer spending.6 

The surge in commodity prices may also dampen business spending.
Higher food and energy prices should boost investment in agriculture,
drilling, and mining but are likely to weigh on investment spending by
firms in other sectors. Assuming these firms are unable to fully pass
through higher input costs into prices, they will experience some
compression in their profit margins, at least in the short run, thereby
causing a decline in the marginal return on investment in most forms of
equipment and structures.7 Moreover,
to the extent that higher oil prices are associated with greater
uncertainty about the economic outlook, businesses may decide to put off
key investment decisions until that uncertainty subsides. Finally, with
higher oil prices weighing on household income, weaker consumer
spending could discourage business capital spending to some degree.

Fortunately, considerable evidence suggests that the effect of
energy price shocks on the real economy has decreased substantially over
the past several decades. During the period before the creation of the
Organization of the Petroleum Exporting Countries (OPEC), cheap oil
encouraged households to purchase gas-guzzling cars while firms had
incentives to use energy-intensive production techniques. Consequently,
when oil prices quadrupled in 1973-74, that degree of energy dependence
resulted in substantial adverse effects on real economic activity. Since
then, however, energy efficiency in both production and consumption has
improved markedly.

Consequently, while the recent run-up in commodity prices is
likely to weigh somewhat on consumer and business spending in coming
months, I do not anticipate that those developments will greatly impede
the economic recovery as long as these trends do not continue much
further. For example, the simulation of the FRB/US model that I noted
earlier indicates that a persistent increase of $25 per barrel in oil
prices would reduce the level of real GDP about 1/2 percent over the
first year and a bit more thereafter. The magnitude of that effect seems
broadly consistent with the estimates of professional forecasters; for
example, the Blue Chip consensus outlook for real GDP growth has edged
down only modestly in recent months.

Monetary Policy Considerations
Let me now turn to the stance of monetary policy. As you
know, monetary policy has been highly accommodative since the financial
crisis intensified. In December 2008, the FOMC lowered the target
federal funds rate to near zero and started to provide forward guidance
concerning its likely future path. As in its statements since March
2009, the Committee reiterated last month that "economic conditions,
including low rates of resource utilization, subdued inflation trends,
and stable inflation expectations, are likely to warrant exceptionally
low levels for the federal funds rate for an extended period." In
addition, the FOMC has purchased a substantial volume of agency debt,
agency mortgage-backed securities, and longer-term Treasury securities.
The Committee initiated a second round of Treasury purchases last
November and has indicated that it intends to complete those purchases
by the end of June. My reading of the evidence is that these securities
purchases have proven effective in easing financial conditions, thereby
promoting a stronger pace of economic recovery and checking undesirable
disinflationary pressures.

I believe this accommodative policy stance is still appropriate
because unemployment remains elevated, longer-run inflation expectations
remain well anchored, and measures of underlying inflation are somewhat
low relative to the rate of 2 percent or a bit less that Committee
participants judge to be consistent over the longer term with our
statutory mandate. However, there can be no question that sometime down
the road, as the recovery gathers steam, it will become necessary for
the FOMC to withdraw the monetary policy accommodation we have put in
place. That process will involve both raising the target federal funds
rate over time and gradually normalizing the size and composition of our
security holdings. Importantly, we are confident that we have the tools
in place to withdraw monetary stimulus, and we are prepared to use
those tools when the right time comes.

Of course, there are risks to the outlook that may affect the
timing and pace of monetary policy firming. In my view, however, even
additional large and persistent shocks to commodity prices might not
call for any substantial change in the course of monetary policy as long
as inflation expectations remain well anchored and measures of
underlying inflation continue to be subdued. As I noted earlier, a surge
in commodity prices unavoidably impairs performance with respect to
both aspects of the Federal Reserve's dual mandate: Such shocks push up
unemployment and raise inflation. A policy easing might
alleviate the effects on employment but would tend to exacerbate the
inflationary effects; conversely, policy firming might mitigate the rise
in inflation but would contribute to an even weaker economic recovery.
Under such circumstances, an appropriate balance in fulfilling our dual
mandate might well call for the FOMC to leave the stance of monetary
policy broadly unchanged.

That said, in light of the experience of the 1970s, it is clear
that we cannot be complacent about the stability of inflation
expectations, and we must be prepared to take decisive action to keep
these expectations stable. For example, if a continued run-up in
commodity prices appeared to be sparking a wage-price spiral, then
underlying inflation could begin trending upward at an unacceptable
pace. Such circumstances would clearly call for policy firming to ensure
that longer-term inflation expectations remain firmly anchored.

Conclusion
In summary, the surge in commodity prices over the past
year appears to be largely attributable to a combination of rising
global demand and disruptions in global supply. These developments seem
unlikely to have persistent effects on consumer inflation or to derail
the economic recovery and hence do not, in my view, warrant any
substantial shift in the stance of monetary policy. However, my
colleagues and I are paying close attention to the evolution of
inflation and inflation expectations, and we are prepared to act as
needed to help ensure that inflation, over time, is at levels consistent
with our statutory mandate.


1. I am indebted to Board staff members Christopher Erceg, Steven Kamin, David Lebow, Andrew Levin, Trevor Reeve, David Reifschneider, Stacey Tevlin, and William Wascher for their assistance in preparing these remarks. Return to text

2. Longer-dated futures suggest that
the prices of some important commodities, such as cotton, are expected
to fall or at least remain flat in coming years; there is little
incentive to speculate in commodities whose prices are not expected to
increase further. Return to text

3. Overall inflation and core
inflation regularly deviate from one another. When this has occurred
over the past 25 years, the tendency has been for overall inflation to
subsequently converge to core inflation, and not the other way around. Return to text

4. An example of this pattern was seen in the months following Hurricane Katrina in 2005. Return to text

5. It should be noted that commodity
price increases do boost the incomes of commodity producers. For
example, the recent surge in food prices has generally boosted the
incomes of farmers and others with ties to the agricultural sector. Return to text

6. Staff analysis at the Federal
Reserve Board indicates that a dollar increase in retail gasoline
prices--a little more than has occurred over the last year--reduces real
household disposable income by nearly 1 percent and hence tends to
exert a significant drag on consumer spending. Return to text

7. Increased investment in
energy-conserving technologies would likely provide a partial offset to
the various factors damping capital spending outside the
commodity-producing sectors. Return to text

 


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Mon, 04/11/2011 - 12:52 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Last paragraph.

In summary, the surge in commodity prices over the past year appears to be largely attributable to a combination of rising global demand and disruptions in global supply. These developments seem unlikely to have persistent effects on consumer inflation or to derail the economic recovery and hence do not, in my view, warrant any substantial shift in the stance of monetary policy. However, my colleagues and I are paying close attention to the evolution of inflation and inflation expectations, and we are prepared to act as needed to help ensure that inflation, over time, is at levels consistent with our statutory mandate.

In a pornographic movie this would be considered "the money shot". Janet, here is my handkerchief. Please get yourself together before going outside.

Mon, 04/11/2011 - 12:58 | Link to Comment SheepDog-One
SheepDog-One's picture

The country burns, yet normalcy bias is re-established day after day. 

Go ahead Janet, keep printing! This is about to get fun real soon.

Mon, 04/11/2011 - 13:44 | Link to Comment Cash_is_Trash
Cash_is_Trash's picture

Are these people stupid or clueless?

Mon, 04/11/2011 - 13:56 | Link to Comment jmc8888
jmc8888's picture

Stupid like a creampie surprise. 

Which of course is a fake 'surprise'.

Mon, 04/11/2011 - 13:05 | Link to Comment supernickel
supernickel's picture

There will be no QE3. Dollar demise is put on hold for another day. Janet's just trying to make sure that the "surprise" rate hike looks like a black swan to those who believe her.

In the meantime, "surprise" temporary winner: the euro. Salute to the "experts" who predicted parity AFTER the move down to 1.20 last June. Ha, ha, ha ..... yeah, right, it's all linear, once any idiot can see the "linear" trend ... ha, ha.

 

Mon, 04/11/2011 - 13:00 | Link to Comment Careless Whisper
Careless Whisper's picture

all lies. they know it. there is no one else out there to buy $1.6 billion in treasuries unless rates skyrocket. so they monetize the debt, claim inflation is transitory, juggle the books, and the system works, until it doesn't.

 

Mon, 04/11/2011 - 13:08 | Link to Comment supernickel
supernickel's picture

Nicely said. However, if they need to "save" the dollar, a little stock market crash will do wonders to "create" a lot of t-bill and t-bond buyers. Kind of what will happen shortly. Walk away in May will be too late, folks.

Mon, 04/11/2011 - 15:49 | Link to Comment unununium
unununium's picture

+6469.95

Mon, 04/11/2011 - 13:09 | Link to Comment A Man without Q...
A Man without Qualities's picture

They remind me of the generals on the Western Front in WWI.  When the three day barrage followed by sending 4 divisions over the top failed to achieve the objective, they would decide the solution was 5 days of shelling and 8 divisions.  When eventually they were removed from their posts, they would spend until the end of their days muttering that their strategy would have worked if only they had more guns and more men.  

"Rather, we pay attention to core inflation and similar measures because, in light of the volatility of food and energy prices, core inflation has been a better forecaster of overall inflation in the medium term than overall inflation itself has been over the past 25 years."

The problem with these idiots is they don't accept how much the world has changed since 1986....

Mon, 04/11/2011 - 13:29 | Link to Comment Cognitive Dissonance
Cognitive Dissonance's picture

Nice WW1 analogy.

When a group of people seem to act at cross purposes to their stated goal or against otherwise sound advise I submit that maybe their real purpose is not as they state.

Mon, 04/11/2011 - 13:45 | Link to Comment A Man without Q...
A Man without Qualities's picture

I don't know - it's amazing how hard it is for most people to accept what they are doing isn't working and change strategy.  I do see this ability as the mark of a great leader, but that's sorely lacking right now.  

There's a tendency to assume that apparently stupid decisions made by American leaders hide ulterior motives, but is that because we prefer to believe they are Machiavellian, rather than just dumb?

I felt this about Cheney and the Bush cabal - everyone thought Cheney was some Kissinger-like puppet master, pulling all sorts of strings behind the scenes, but all I knew from his time at Halliburton was the guy was a doofus.  I thought he liked to cultivate this image as a master of the dark arts to hide the fact he was just bumbling around in the dark.  

Mon, 04/11/2011 - 14:06 | Link to Comment Hugh G Rection
Hugh G Rection's picture

stagflation bitches.

 

just modify the CPI again.  Who needs food and energy? As long as dildos and Ipads are cheap all is well.

Mon, 04/11/2011 - 12:56 | Link to Comment alien-IQ
alien-IQ's picture

"underlying inflation too low"

WHAT THE FUCK?!?!?!?!?!?

Mon, 04/11/2011 - 12:59 | Link to Comment SheepDog-One
SheepDog-One's picture

In other words, 'You aint seen shit, yet'.  :D

Mon, 04/11/2011 - 13:04 | Link to Comment Cone of Uncertainty
Cone of Uncertainty's picture

Yep, better re-calibrate your inflation-O-meter, mother fuckers.

Mon, 04/11/2011 - 12:59 | Link to Comment Careless Whisper
Careless Whisper's picture

Miss Yellen is highly qualified to take Mister Bernank's position should he take that job offer from the IMF.

 

Mon, 04/11/2011 - 13:11 | Link to Comment Ruffcut
Ruffcut's picture

Now we have yellen, soon to be screamin.

Mon, 04/11/2011 - 12:58 | Link to Comment oogs66
oogs66's picture

Why is wage pressure not global?  As people in China and Egypt etc want more money for their work they will drive up prices there and jobs won't shift back here because our wages are still out of touch with global reality.   The fed cannot choose which parts of the economy are global and which aren't!  U.S. wages are NOT the only (or even main) driver of inflation in the U.S. anymore. 

Mon, 04/11/2011 - 13:04 | Link to Comment LawsofPhysics
LawsofPhysics's picture

It is, and the end game for TPTB is to have all the world living like the average Chinese.  How do you feel about that?  Hedge accordingly.

Mon, 04/11/2011 - 13:13 | Link to Comment oogs66
oogs66's picture

I feel sad, but can't help but agree.  We don't have the stomach to take short term pain to create a better future.  We are pissing away our remaining wealth to maintain a standard that cannot be maintained.

Mon, 04/11/2011 - 12:59 | Link to Comment LawsofPhysics
LawsofPhysics's picture

This puts more than "a painful squeeze on the pocketbooks of American household" idiot.  The margin compression for anyone who owns a business is horrific.

The moral hazard of Fed policy has been unleashed for quite some time.  Again, the inflation/deflation debate is pointless.  Some asset classes will continue to deflate, some will inflate.  I think that there is more deflation (in technical economic bullshit terms) to worry about, but buying power is and will remain all that businesses and individuals a like should be concerned with.  The full brunt of those "zeros" that the Fed has been adding to the books of the primary dealers has definitely not been felt by the American consumer... ...yet. Remember, buying power can take many forms, you will either have it, or you won't.  Hedge accordingly.

 

 

Mon, 04/11/2011 - 13:02 | Link to Comment SheepDog-One
SheepDog-One's picture

Right, 'buying power' can even be in the form of an AR15, depending on the situation.

Mon, 04/11/2011 - 13:00 | Link to Comment ATM
ATM's picture

Of course these fucktard academics at the Fed don't beleive we can have inflation when wages are rising. That's what it says in my Econ 301 book afterall.

But that 301 book never contemplated rampant monetization of the debt. That's a paradign shift that these assholes can't decipher because it hasn't been written about occuring in the US .....yet.

Once the book comes out they'll get it but we'll all be scavenging and hopefully laughing at the rotting corpses hanging from the lightposts.

Mon, 04/11/2011 - 13:07 | Link to Comment SheepDog-One
SheepDog-One's picture

And bottom line, no way do I believe these FED's are the only ones among us who DONT see it? All just a puppet show, they know exactly what theyre doing like a professional building demolition company. Just diverting questions from any onlookers about what theyre doing while planting the base charges by saying 'We're actually putting in reinforcing braces to the structure'. One morning soon the button will be hit and we'll be looking at a pile of rubble, demolition team long gone from the scene.

Mon, 04/11/2011 - 13:26 | Link to Comment kridkrid
kridkrid's picture

When I think back to my intro to econ classes, I see them as little more than pure propaganda written about a system that didn't even exist.

But that 301 book never contemplated rampant monetization of the debt. That's a paradigm shift that these assholes can't decipher because it hasn't been written about occurring in the US .....yet.

 

It's more than the monetazation of debt, but debt as money.  The idea that Savings equals Investment... except when it doesn't... because money is created out of thin air to begin with and then multiplied through fractional reserve banking, creating "investment" along the way.  All of the models are clearly, and quite simply wrong... why teach them?

Mon, 04/11/2011 - 13:53 | Link to Comment IQ 145
IQ 145's picture

 It's the "science" of Financial Astrology; complete with Masters you cannot question.

Mon, 04/11/2011 - 18:01 | Link to Comment ATM
ATM's picture

They continue to teach it because it's the only things they know. They are incapable or unwilling to understand or admit the truth. They are either liars or dullards and perhaps both.

Mon, 04/11/2011 - 18:34 | Link to Comment Sheepneck
Sheepneck's picture

Well said.

Mon, 04/11/2011 - 13:04 | Link to Comment Catullus
Catullus's picture

In summary, we're using the same failed, disproven theories of the 1960s and 1970s because no one told academia that they're embarassingly and laughly full of shit. There continues to be some supposed link between unemployment and inflation "expectations". Pv still equals mt in our world. And right now, we're still thinking that their is no inflation because CPI says so.

Everyone else is a racist extremist without a PhD.

Mon, 04/11/2011 - 13:08 | Link to Comment SheepDog-One
SheepDog-One's picture

I dont believe it, that theyre the only ones just using some theory and are oblivious to reality? They were all put there to plant the strategic demolition charges, and while doing it confuse and obfuscate, but no way do they not know what theyre doing.

Mon, 04/11/2011 - 13:47 | Link to Comment Catullus
Catullus's picture

It's tough. When you talk to people who work for the fed or IMF or World Bank, they have an internal confirmation bias to their ideas. And I find that the data junkies using seriously flawed econometric modeling cut off discourse to challenging the accepted theories. To conclude something as simple as "you've doubled the money supply, no shit prices are going up" doesn't fly with these people. Then tell them there's no way to predict which specific prices go up and they go off into some nonsensical banter about your inability to predict anything with any accuracy because you haven't used a historical data set to test it. Economics and history (the same thing in a lot of cases) are two disciplines that do not move forward in thought. Bad ideas stick around for decades in economics and they manifest whole subsections of thoughts that are also flawed.

I'd say there's a willful ignorance to the whole thing. It falls under the "no one prove me wrong, so I'm just right." Alan Greenspan gets like this when you finally back him into a corner.

Mon, 04/11/2011 - 14:03 | Link to Comment LawsofPhysics
LawsofPhysics's picture

"no one prove me wrong, so I'm just right." Alan Greenspan gets like this when you finally back him into a corner.

----------------------------

 

Yes, economics is the only field where the lack of findings or negative results are used as proof of principle.  Does not work that way in disciplines based on observable, measurable entities.  Try starting a biotech company on negative results, it won't happen.  Science and engineering require that you measure the stress a material can take before you build the bridge or sell the technology.  The system is broken, we all know it, why not just scrap it and start over.  Seems like it would be a lot less painful for the vast majority of people.  I look around now and see dentists trading services with their mechanics.  Not because they have too, but simply because they are fed up with giving more to a broken bailout-happy system.  More and more of this will occur.  Why not, fuck the taxman!  Crash the system, crash it now, the sooner we do, the sooner compensation will find its way to people who are actually worth a shit.  I still have some arable land not being used and have begun talks with some low income folks interested in sharecropping.  Fine with me, even these folks have gotten sick of some of their entitlement-happy neighbors and recognize what is coming.  Totally blew me away when they contacted me.

Mon, 04/11/2011 - 13:19 | Link to Comment LawsofPhysics
LawsofPhysics's picture

They know exactly what they are doing and yes, for the most part everyone else is an extreme racist lacking a Ph.D.

Mon, 04/11/2011 - 13:23 | Link to Comment SheepDog-One
SheepDog-One's picture

Yes, all who can see what theyre doing are obviously redneck racists.

Mon, 04/11/2011 - 13:55 | Link to Comment IQ 145
IQ 145's picture

 Approximately. "Stagflation" didn't happen; because, it still doesn't fit in their theory. "Beatings with a stick will continue, until Morale improves".

Mon, 04/11/2011 - 13:05 | Link to Comment Rider
Rider's picture

"accommodative monetary policy stance still appropriate because unemployment too high, underlying inflation too low"

WTF!?

I do pay for what I eat and drive and you are making me pay more by debasing the currency you darn FED punk!

Mon, 04/11/2011 - 13:03 | Link to Comment Hedgetard55
Hedgetard55's picture

Lying skeezer.

Mon, 04/11/2011 - 13:08 | Link to Comment truont
truont's picture

Yellen is signalling the future:

the current "underlying inflation [is] too low."

QE3, anyone?

 

Rewind the news reel:

"If it were possible to take interest rates into negative territory I would be voting for that,"

www.reuters.com/article/.../usa-fed-yellen-idUSN2222725320100222

 

So whoever still thinks QE is ending, raise their hand.

Mon, 04/11/2011 - 13:09 | Link to Comment SheepDog-One
SheepDog-One's picture

QE goes forward? Total implosion.

QE stops? Total implosion.

Take your pick!

Mon, 04/11/2011 - 13:13 | Link to Comment alien-IQ
alien-IQ's picture

I'll take Total Implosion for $500 Alex.

Daily Double?

Mon, 04/11/2011 - 13:15 | Link to Comment truont
truont's picture

Right, they know this will end badly.

Shall it be a deflationary collapse?  Or a hyperinflationary collapse?

They have chosen the hyperinflation, which better protects the banksters and screws the proles.

Mon, 04/11/2011 - 13:25 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Mixture of both.  They are trying to "manage the collapse" by slowly easing everyone into slavery.

Mon, 04/11/2011 - 13:58 | Link to Comment MachoMan
MachoMan's picture

The seesaw allows the principal actors more time to convert their spoils from the ether to real wealth (ambiguity is the fuel of every printing regime)...  at the same time margin compression kills 80%+ of the american populace.  I suppose, to a large extent, we already had a class society...  all that is happening now is we're having a collective recognition...  combatting a significant case of denial.  And the standard of living for most everyone is going to decrease...  and not by a little.

The limited liability entities will be cast away, while their principal actors prevail...

Mon, 04/11/2011 - 13:07 | Link to Comment Everybodys All ...
Everybodys All American's picture

With all certainty I would not want to be one of these Fed heads when the s hits the fan. And it's not far away.

Mon, 04/11/2011 - 13:08 | Link to Comment reader2010
reader2010's picture

Brain dead fuckers in the Fed. They fuck up all the honest and responsible people on the main street.  Thomas Jefferson was right. 

Mon, 04/11/2011 - 13:14 | Link to Comment SheepDog-One
SheepDog-One's picture

I simply dont believe theyre brain dead. Theyve been brought up thru the ranks, tested for total reliance, and put there to systematically destroy the economy, markets, and currency. Bernanke...yes he's an expert on the great depression, EXPERT in knowing how to totaly destroy it all and to put us in the greatest depression of all time and guarantee theres no way out of it!

Mon, 04/11/2011 - 13:40 | Link to Comment kridkrid
kridkrid's picture

I agree that collapse in inevitable (inflationary or deflationary) and I also believe that those at the fed recognize this... so what's the end goal, in your opinion?

Mon, 04/11/2011 - 13:50 | Link to Comment SheepDog-One
SheepDog-One's picture

They want a 1 world govt and bank, all the rest slaves, and have to bring everything down just right so theres no chance of the frogs hopping out of the boiling pot.

Mon, 04/11/2011 - 13:56 | Link to Comment reader2010
reader2010's picture

To achieve that, they need to control China, India and the rest of Asia. Can they do it?

Mon, 04/11/2011 - 14:04 | Link to Comment MachoMan
MachoMan's picture

Copenhagen says no...

Does collusion work in perpetuity?

Mon, 04/11/2011 - 13:11 | Link to Comment Milton Waddams
Milton Waddams's picture

Someone tell Yellen that the unemployment is indeed structural.  In fact the unemployment rate would probably be 30% or higher if all of the embedded inefficiencies were chiseled out of the economy.  In other words, the act of doing things in an irrational or unthinking way employs one out of every three people IMO.  I'm willing to prove this by accepting a research grant from the government to prove this. 

Mon, 04/11/2011 - 14:02 | Link to Comment IQ 145
IQ 145's picture

 Public Snervice, with a snile. I just started a new business with plenty of credentialed academics on the letterhead, and our business model is to write reccommendations for your grant proposals; so be sure to get in touch soon.

Mon, 04/11/2011 - 13:10 | Link to Comment Everybodys All ...
Everybodys All American's picture

I want to know what idiots would go listen to this insanity. I would not walk across the street to hear some of this bs.

Mon, 04/11/2011 - 13:12 | Link to Comment banksterhater
banksterhater's picture

MINUS 4.5% REAL INTEREST RATES aren't enough? Get rid of this lair cunt.

Mon, 04/11/2011 - 13:16 | Link to Comment darkaeye
darkaeye's picture

For those too lazy to read the whole dissertation, I’ll condense and summarize…

 

“We are completely disconnected from reality and have no clue what’s going on, or what will happen next.  So don’t worry, be happy.”

 

Mon, 04/11/2011 - 13:33 | Link to Comment Obummer
Obummer's picture

Ladies and gentlemen, fellow Americans, good people of the world.  Today there is much talk of "inflation" and the role of the Federal Reserve in creating inflation through devaluation of the dollar.  In reality, the Federal Reserve is doing everything it can to prevent inflation, and it has several tools it can use to do this.  For the past year, with the consent of our allies in business and governments around the world, my administration has encouraged the Federal Reserve to make more money.  Because there is more money in the system this allows the average American to have more money to exercise their buying power.  The short-term effect of this policy is to actually deflate the value of the dollar.  So you can see that the policy of my administration is actually a "deflationary" policy.  Deflation is the opposite of inflation.  And this policy is working, because you can see that Americans now have more buying power, which is causing the costs of some non-essential items to increase.

Let me address those who would lie and call what we are seeing "inflation".  Your words are harmful to the American dream.  The "inflationists" are a clear threat to our standards of democracy, human values, and the American way.  For behind the inflationists are the very terrorists we have been fighting against for so long.  And now these terrorist organizations have infiltrated the very heart of America, and are in our living rooms and our bedrooms even as I speak.  Rest assured that I will do everything in my power as President of this great nation to repel this threat, and that in the coming months we shall take decisive action against this new menace to our financial stability and our Constitution.  Thank you, good night, and God bless America.

Mon, 04/11/2011 - 14:03 | Link to Comment IQ 145
IQ 145's picture

 That's scary, Dude. You could probably get a job writting this stuff for them. I expect to see it in paper, soon.

Mon, 04/11/2011 - 13:20 | Link to Comment SheepDog-One
SheepDog-One's picture

OT but slightly amusing, just heard the Burnett say while the DOW just went from +59 to -18, its just an anomoly which should be fixed by the end of this commercial break.

Mon, 04/11/2011 - 13:26 | Link to Comment plocequ1
plocequ1's picture

She's hot. I love women. Bearclaw says, " I swear, A womens breast is the hardest rock the almighty put on this earth"

Mon, 04/11/2011 - 13:27 | Link to Comment LawsofPhysics
LawsofPhysics's picture

Yes, I too recently found out that I am a lesbian.

Mon, 04/11/2011 - 13:26 | Link to Comment partimer1
partimer1's picture

People talked about Japan's lost decade and 0% growth etc.  If you go to Tokyo Japan, and you will find Tokyo is still the most expensive city to live in, everything included.  How is such country with zero inflation still so expensive?  That's Richard Koo's success story of Japan.  I think Yellen is saying the same thing. To let the food and energy prices high, wages low, rent stable. Keep the interest rate at zero, keep the CPI low, to squeeze the Jesus out of savers and seniors so that the banking system can enjoy profits from the savers and the carry trade. 

Overall, I don't think this is optional.  The rich and the powerful have made their decisions, and they will not listen to us.  We don't matter.

Mon, 04/11/2011 - 13:53 | Link to Comment flattrader
flattrader's picture

They may be looking at Japan as the living laboratory/on-going model as to what "they" want to achieve, but you can't necessarily do in the US what "they've" accomplished in Japan.

First and most important consideration...the US doesn't have a compliant, homogeneous population.

Ooops...

And the gong-show government is about to try their infinite patience.

Mon, 04/11/2011 - 13:25 | Link to Comment colonial
colonial's picture

janet yellin and christie romer,

together they could destroy the country.  Its amazing that smart people can be this stupid and dangerous.  But now that I think about it, didn't George Soros just have Larry Summers at his economic summit this weekend? 

Mon, 04/11/2011 - 13:42 | Link to Comment narnia
narnia's picture

The dual mandate of the Fed is price stability and employment.  Please, Ms. Yellen, draw a picture of the economy from 2007 to today using just the employment number and the expenditure of resources- the bailouts, the stimulus & all of this liquidity injection (QE1 & QE2, SDR's & God knows what we don't know about)- and prove to the American people (in cost per job created) that all this has had a position effect on EMPLOYMENT! You either have to say the fiscal stuff was a complete failure or the monetary stuff was a complete failure or both.  

Lay out a case on exactly how further easing is actually going to help employment (even the hard core Keynesians are calling the current situation a "liquidity trap"). Spare us of the unfounded inflation fear propaganda.  

Mon, 04/11/2011 - 13:40 | Link to Comment apberusdisvet
apberusdisvet's picture

Do Janet and Blythe use the same psychiatrist.........................at the same time?

Mon, 04/11/2011 - 13:41 | Link to Comment Fish Gone Bad
Fish Gone Bad's picture

In 1936 Keynes thought that the government might be able to create jobs by creating demand.  If the public did not buy the goods, then the government could create the demand.  This is also known as the Ketchup theory, as in Bernanke will buy everything including ketchup. 

Keynes was a smart man who often changed his mind as events changed.  He would be looking at the current interpretation of his work and just pull out his hair.  The government has stepped in and created demand, BUT NO JOBS HAVE MATERIALIZED.  This current path will end when the public can no longer participate in the purchasing of goods in a meaningful way.

Inflation will end (after equilibrium sets in), once the government stops printing money.  

Mon, 04/11/2011 - 13:48 | Link to Comment baconator3000
baconator3000's picture

There will be no Collapse.... Just a slow 20 year bleeding ala Japan or Post Soviet Russia until entitlments evaporate or settle. People will forget what things were like before 2007. Hell people are already forgetting.

Mon, 04/11/2011 - 17:35 | Link to Comment topcallingtroll
topcallingtroll's picture

I will remember.

And every year i will return to celebrate the death of entitlements and piss on its grave.

Mon, 04/11/2011 - 14:00 | Link to Comment glenlloyd
glenlloyd's picture

I can't bring myself to read her nonsense. I say she's a witch and should be burned at the stake.

Mon, 04/11/2011 - 14:05 | Link to Comment bania
bania's picture

This is what it sounds like, when the doves cry.

Mon, 04/11/2011 - 14:14 | Link to Comment ivars
ivars's picture

Japan may rise nuke accident severity level to higest 7 from 5!

http://saposjoint.net/Forum/viewtopic.php?f=66&t=2657&p=31718#p31718

Took them some time to count the radioactive releases.

Mon, 04/11/2011 - 15:58 | Link to Comment flattrader
flattrader's picture

Ivars,

Been following the discussions at the forum links you give.

Very interesting.

Yes, future aftershocks [and related costs], cancer deaths, productivity losses, property loss etc...not taken into account or monetized.

This will be overwhelming for Japan and the Global economy.

In the meantime, party on...

Mon, 04/11/2011 - 14:22 | Link to Comment Eireann go Brach
Eireann go Brach's picture

If you seen the interview last week with ex Obama economic advisor Christina Roman (female Shrek) then yes, this will confirm that indeed all govt officials are fucking stupid and are relying on "Academic Studies we performed" to prove that QE etc will work.

Mon, 04/11/2011 - 14:23 | Link to Comment overmedicatedun...
overmedicatedundersexed's picture

Our Academiceconomic models are working, QE is a great success..it is just the common man who is confused at the data..all data fits our models after some adjustment factors are added in to reduce outliers..yes everything is going as we planned in our lectures in advanced economic theory.

Mon, 04/11/2011 - 14:26 | Link to Comment jbc77
jbc77's picture

Janet Yellen is a senile old dirt bag. How stupid can you be?

Mon, 04/11/2011 - 14:34 | Link to Comment Temporalist
Mon, 04/11/2011 - 14:36 | Link to Comment element115
element115's picture

What a fucking cunt.

Mon, 04/11/2011 - 14:39 | Link to Comment AldousHuxley
AldousHuxley's picture

She is not stupid. This is deliberate.

Save housing, save banks, create jobs, and status quo gains back legitimacy and the power over the system.

Otherwise, no jobs, bankrupt banks, central banks abolished, elites overrun by the proles who realizes the emperor has no clothes.

 

 

Mon, 04/11/2011 - 14:45 | Link to Comment AldousHuxley
AldousHuxley's picture

What is needed: reality check (bring back asset prices down to earth, entire cast of jersey shore gets laid off, proles turn off TV and start thinking, banksters and corrupt elites face the angry mob, CEOs forced to face the nation, world admits flaws in the capitalism.

What is happening: print dollars for fake recovery (higher stocks, wealth effect, fake careers at facebook, fake justification for supporting the already wealthy top 1000)

What will happen: America becomes Europe, China becomes the next America

 

Mon, 04/11/2011 - 14:58 | Link to Comment Bartanist
Bartanist's picture

Does the stupid b^$#% realize that we do not need more lawyers, bankers, insurance agents, McDonalds clerks, TSA workers and WalMart greeters?

Where the f&(* does she think these jobs are going to magaically come from when we buy virtually all consumer goods and most of our raw materials outside the US?

Can she be that stupid or is she just another front person for the elitist B/S while in plain view of everyone they trash the US for a global agenda?

Mon, 04/11/2011 - 15:00 | Link to Comment AldoHux_IV
AldoHux_IV's picture

Looks like Goldman Sucks provided a nice BTFD opp in the commodity complex as it appears that prices don't affect the fed's decision even though price stability and inflation is what they're actually going for-- in the end dollar destruction is the soup du jour.

Mon, 04/11/2011 - 15:31 | Link to Comment ex VRWC
ex VRWC's picture

Her main arguments from the text:

First, it does not seem reasonable to attribute much of the rise in commodity prices to movements in the foreign exchange value of the dollar. Since early last summer, the dollar has depreciated about 10 percent against other major currencies, and of that change, my sense is that only a limited portion should be attributed to the Federal Reserve's initiation of a second round of securities purchases. By comparison, as I noted earlier, crude oil prices have risen more than 70 percent over the same period, and nonfuel commodity prices are up roughly 40 percent. Put another way, commodity prices have risen markedly in all major currencies, not just in terms of U.S. dollars, suggesting that the evolution of the foreign exchange value of the dollar can explain only a small fraction of those increases.

Her basic argument here is that there should be a correlation, percentage wise, between dollar devaluation and commodity increases.  What she fails to account for is the fiat currency race to the bottom, of which the Fed's dollar policy is put one component.  If she were to contrast commodities in terms of silver or gold (which she ignores) her argument would have more weight.  As it is, it is unconvincing.

A second potential concern is that U.S. monetary policy is boosting commodity prices by reducing the cost of holding inventories or by fomenting "carry trades" and other forms of speculative behavior. But here, too, the evidence is not compelling. Price increases have been prevalent across a wide range of commodities, even those that are associated with little or no trading in futures markets. Moreover, if speculative transactions were the primary cause of rising commodity prices, we would expect to see mounting inventories of commodities as speculators hoarded such commodities, whereas in fact stocks of crude oil and agricultural products have generally been falling since last summer.2 

Again, she carefully picks her statistics with which to argue, talking about futures markets as if they were the only outlet for speculative influence on commody prices.  Whet she ignores is the trend toward viewing commodities as an asset class, which means that the market, in all its forms has many more means that just futures markets with which it can affect prices, and is doing so.

A third concern expressed by some observers is that the exceptionally low level of U.S. interest rates has translated into excessive monetary stimulus in the EMEs. In particular, even though their economies have been expanding quite rapidly, many EMEs have been reluctant to raise their own interest rates because of concerns that higher rates could lead to further capital inflows and boost the value of their currencies. Some argue that their disinclination to tighten monetary policy has in turn resulted in economic overheating that has generated further upward pressures on commodity prices.


I do not think this explanation accounts for much of the surge in commodity prices, in part because I believe that the bulk of the rapid economic growth in EMEs mainly reflects fundamental improvements in productive capacity, as those countries become integrated into the global economy, rather than loose monetary policies. Irrespective of monetary conditions in the advanced foreign economies, it is clear that the monetary and fiscal authorities in the EMEs have a range of policy tools to address any potential for overheating in their economies if they choose to do so. Indeed, in light of the relatively high levels of resource utilization and inflationary pressures that many EMEs face at present, monetary tightening and currency appreciation might well be appropriate for those economies.

Here she really, really goes off the trolley tracks.  She engages in the basic fallacies that define interventionist thinking - that EM economies can disconnect from the global economy easily in order to limit its effects, while at the same time, she argues that demand is increasing in these economies precisely because they are connected and integrated in the global economy.  This is classic doublespeak.

 

I am forced to conclude that 'Economic Club of New York' should be renamed the "Keynsian/Interventionist Kool-Aid Society" or somesuch, if such weak analysis passes for truth on its podium.  Surely our monetary policy makers are not so self-deluded, and this speech is merely intended as some Kool-Aid for them to quench their self-denial thirst.

Mon, 04/11/2011 - 15:37 | Link to Comment AldousHuxley
AldousHuxley's picture

She is selling the kool aid, American public is drinking it.

Q: Who then is making the kool-aid and why?

A: Descendants from old industrialist families wishing to compete with new industrialists rising from the far east. In order to prepare for the battle, cost of labor must be cheapened and labor must become bloodthirsty again. Europe tried this in the turn of the century and everyone ended up losing via wars.

Mon, 04/11/2011 - 16:10 | Link to Comment gerriek
gerriek's picture

"The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. ... Increasing America's debt weakens us domestically and internationally. Leadership means that 'the buck stops here.' Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem."  - Barrack Obama before voting against raising the debt limit in 2006.

Mon, 04/11/2011 - 16:26 | Link to Comment alangreedspank
alangreedspank's picture

 

Oh yeah, that good old line about inflation not existing if wages don't go up. Nevermind the trillions electronically created and used to bid up commodities trough speculation due to easy money.

 

Mon, 04/11/2011 - 16:51 | Link to Comment TruthInSunshine
TruthInSunshine's picture

Janet Yellen, you are a CUNT.

Got it?

Cunt, cunt, cunt, cunt, cunt.

Understand?

You cunt.

Mon, 04/11/2011 - 19:35 | Link to Comment PulauHantu29
PulauHantu29's picture

 "I print therefore I am."

GLD, USO and SLV....all the way Baby!

http://www.youtube.com/watch?v=jllJ-HeErjU

GS is prob massively long oil and PMs.

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luckly123's picture

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Mon, 04/11/2011 - 22:38 | Link to Comment luckly123
luckly123's picture

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Mon, 04/11/2011 - 22:40 | Link to Comment luckly123
luckly123's picture

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Mon, 04/11/2011 - 22:44 | Link to Comment luckly123
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Mon, 04/11/2011 - 22:48 | Link to Comment luckly123
luckly123's picture

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Mon, 04/11/2011 - 22:50 | Link to Comment luckly123
luckly123's picture

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Thu, 04/14/2011 - 05:20 | Link to Comment Rikki-Tikki-Tavi
Rikki-Tikki-Tavi's picture

Tyler:

Correct me if I am wrong, but doesn't she argue that backwardation in the futures curve leads her to believe that commodity prices will likely go down from here in section "Commodity Prices and Inflation"?

 

Is that what they base the "transitory" argument on? If so we are soooo fucked!!!

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