Minneapolis Fed President Kocherlakota Warns Massive Debt Load Can Only Be Paid By Tax Collections Or Debt Monetization

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Tue, 02/16/2010 - 14:20 | 232654 MsCreant
MsCreant's picture

So coupled with the Kansas Fed Head announcement, is this a mutiny, or Kabuki?

Tue, 02/16/2010 - 14:28 | 232671 Divided States ...
Divided States of America's picture

I wouldnt be surprised if the Alaska Fed Head would be the next in line to criticize Bald Eagle Bernanke's policies.

Tue, 02/16/2010 - 14:23 | 232662 Ripped Chunk
Ripped Chunk's picture

Gee Whiz! There is some news!

Tue, 02/16/2010 - 18:58 | 233201 Anonymous
Anonymous's picture

Passing the peak of a monumental pulled-forward-future-demand wave, we are entering the plummet from the precipice of the wave back.

Margins are being compressed everywhere by falling wages, falling demand, debt destruction just as inflationary monetization and weak-tea rule of law confuse business planners. Even if taxes could be raised, they will enter into diminishing returns.

Monetization has some, yet undefined point, where all currency users will begin forms of repudiation and main-street hedging. Eventually that can lead to complete currency crisis and refusal of the legal tender.

Since it is too painful and too laborious to bring all economic actors to an agreeable equilibrium which ensures the survival of the system, the system with patch-piece short-term solutions with rampant wealth transference for favourites and slow default through devaluation.

A threshold exists, which when exceeded will lead to systemic collapse--inevitably. It will probably lead too to a new form of gov't.

Debt must be repaid, forgiven, or defaulted. All paths lead to destabilizing austerity. This is austerity no living generation will quietly, patiently endure.

Tue, 02/16/2010 - 14:24 | 232664 Selah
Selah's picture

Suppose that households believe that prices will rise. They would then demand more deposits to use for transactions. Banks can readily accommodate this extra demand, because they are holding so many excess reserves. These extra deposits become extra money chasing the same amount of goods and so generate upward pressure on prices. The households’ inflationary expectations would, in fact, become self-fulfilling.

So, if a perceived increase in future prices will carry demand forward, leading to self-fullfilling inflation, how is this different from what the present regime wants? Aren't we supposed to spend our way out of the mess that the government has created? Isn 't hyper-inflation the ONLY way out... and they damn-well KNOW this?

 

 

Tue, 02/16/2010 - 15:19 | 232774 Anonymous
Anonymous's picture

The governor is trotting out absolute - but conventional - garbage.

Firstly, 90% of households do not have deposits to withdraw and spend: they have debts to repay, and on the other side of these debts are the 10% who DO have deposits -and they are not going to trickle them down any time soon.

Secondly, 'inflationary expectations' were certainly true of Joe Six Pack when it came to buying his house - everyone knew house prices only ever went up - but IMHO absolute bollocks in respect of retail prices.

In the world people outside Federal Reserve Banks inhabit Joe Sixpack does not think:

"Prices are going to rise, therefore I need a pay increase."

...which is what informs Voodoo economic theory.

He thinks:

"Prices HAVE risen, therefore I need a pay increase".

Tue, 02/16/2010 - 16:05 | 232908 Anonymous
Anonymous's picture

+1

Tue, 02/16/2010 - 16:24 | 232942 seventree
seventree's picture

Either way his boss says "I can find six guys to take your job, therefore bugger your pay increase."

Tue, 02/16/2010 - 14:28 | 232667 Going Down
Going Down's picture

 

Deep Capture

 

Narayana Kocherlakota was born Oct. 12, 1963, in Baltimore, Maryland. He earned a Ph.D. in economics from the University of Chicago in 1987 and an A.B. in mathematics from Princeton in 1983.

 

'nuff said.

 

Tue, 02/16/2010 - 15:09 | 232751 sgt_doom
sgt_doom's picture

Outstanding point, Good Citizen!

 

And as Gerald Celente says, six words describes it all: Harvard, Yale, Princeton, bullets, bombs and banks.

Although I'd add, that from the original financing of the University of Chicago, it should be renamed: John D. Rockefeller U.

Tue, 02/16/2010 - 15:57 | 232879 WaterWings
WaterWings's picture

Yep. Bet he didn't see it coming either. Talk about hiding the obvious in plain sight:

I hasten to say—and I want to stress—that I view this scenario as unlikely. For it to transpire, we would need a combination of [1] bad monetary policy and [2] poor fiscal management. I do not fore"see" this combination as likely to occur.

These mouthpieces state what is on everyone's mind - and then refute it. Brilliant. Stated more plainly: [1] print a bunch of money and [2] maximize bonuses.

Tue, 02/16/2010 - 14:28 | 232669 lsbumblebee
lsbumblebee's picture

Now that the Fed's policies have created this mess, I'd just like to say that if you don't want to be taxed by inflation then we'll have to tax you. Thank you. Please don't abolish us. Thank you.

 

Tue, 02/16/2010 - 15:26 | 232736 thomasstreet
thomasstreet's picture

Bet he never met mr. Bernanke. infintie spending & ho tax hikes. Free moeny for all.

/sarcasm/
A major barrier to the success of stimulus programs is the high debt levels of Americans. The banks are being criticized for a failure to lend, but much of the problem is that there are no consumers to whom to lend. Most Americans already have more debt than they can handle.

Hapless Americans, unrepresented and betrayed, are in store for a greater crisis to come. President Bush’s war deficits were financed by America’s trade deficit. China, Japan, and OPEC, with whom the U.S. runs trade deficits, used their trade surpluses to purchase U.S. Treasury debt, thus financing the U.S. government budget deficit.

Tue, 02/16/2010 - 15:59 | 232888 knukles
knukles's picture

Never met?  Wasn't Bennie the Red on faculty in 1983?  Doctural Student? 

And monetize the debt?  That injects reserves into the system, not take 'em out!

Tue, 02/16/2010 - 14:28 | 232670 Wynn
Wynn's picture

Having just flayed open a few birds ...

If I'm reading the gizzards right,
looks like a deflationary death spiral to me

Tue, 02/16/2010 - 19:48 | 233239 Boop
Boop's picture

Thank you. +1

Tue, 02/16/2010 - 14:31 | 232675 buzzsaw99
buzzsaw99's picture

Doin' a heckuva job!

Tue, 02/16/2010 - 14:32 | 232676 suteibu
suteibu's picture

 

and merely hoping that a rising stock market (with or without its invisible hand) is sufficient to fix everything.

 

To be fair, it seems the only people paying attention to things like this are those who are active in the market. Those who view the market as the economy (and haven't lost their house or job) are sold on this strategy. I have a friend who is VP of a major aerospace firm. When I try to talk to him about this, I get a blank stare. He actually admitted, finally, that he "can't allow (him)self to think that the economy will get worse." I sold my stock in his company the next day.

Tue, 02/16/2010 - 15:07 | 232743 sgt_doom
sgt_doom's picture

Great point, suteibu!

Many have a difficult time comprehending that with 78% of the economy simply financial engineering and financialization (i.e., Ponzi sheme layers), there is no REAL economy!

Tue, 02/16/2010 - 15:22 | 232783 crosey
crosey's picture

+10.  Hope is NOT a strategy.

When I was a kid and we watched scary movies, we often watched through our fingers, covering our eyes.  The majority of those I know are either oblivious, or in denial.  But, they're still working.

Mostly I'm a bore at cocktail parties.  Maybe this is why Noah drank alone.

Hoard Spam and single malt!

Tue, 02/16/2010 - 15:44 | 232843 suteibu
suteibu's picture

I'm mostly a bore, too.  I only hope it's the subject matter.

 

Most of my friends are the type who let their brokers "re-balance" their portfolio once a quarter so they have no idea about these things.  That said, the number of people who have had to drop out from our club here is telling.  These guys had planned to live out their lives here and now they are looking for jobs again.

Tue, 02/16/2010 - 15:58 | 232883 faustian bargain
faustian bargain's picture

You guys get to go to cocktail parties? Lucky.

Tue, 02/16/2010 - 14:52 | 232708 DaveyJones
DaveyJones's picture

"Now suppose that the Federal Reserve did not have supervisory authority over banks. Then, no institution in the government would have the kind of collective expertise to orchestrate ..."

 

exactly

Tue, 02/16/2010 - 16:51 | 232997 cougar_w
cougar_w's picture

Maybe it was code for "stop me before I monetize again!"

The world is full of sickos crying out for help.

Tue, 02/16/2010 - 14:55 | 232715 orca
orca's picture

"Making it the systemic risk regulator is a step in the right direction."
Right on bro, all for it, a.f.t.e.r. we have audited and abolished your institution.

Tue, 02/16/2010 - 14:58 | 232720 DavosSherman
DavosSherman's picture

With respect for the Fed figuring this out. Duh!

Tue, 02/16/2010 - 15:00 | 232725 Anonymous
Anonymous's picture

Is this NEWS? I mean, doesn't everyone already know this?

Tue, 02/16/2010 - 15:00 | 232727 Anonymous
Anonymous's picture

Just another Fed head trying to talk up inflation. It's all part of setting the stage for the eventual monetization of a bunch of debt.

Tue, 02/16/2010 - 15:25 | 232728 thomasstreet
thomasstreet's picture

warning fall on deaf ears we are in deep yogurt:
A major barrier to the success of stimulus programs is the high debt levels of Americans. The banks are being criticized for a failure to lend, but much of the problem is that there are no consumers to whom to lend. Most Americans already have more debt than they can handle.

Hapless Americans, unrepresented and betrayed, are in store for a greater crisis to come. President Bush’s war deficits were financed by America’s trade deficit. China, Japan, and OPEC, with whom the U.S. runs trade deficits, used their trade surpluses to purchase U.S. Treasury debt, thus financing the U.S. government budget deficit.

Tue, 02/16/2010 - 15:07 | 232742 Anonymous
Anonymous's picture

Tyler:

Using the phrase "keeps on keeping on," leads me to believe that you are a fan or at least aware of Curtis Mayfield.

http://www.youtube.com/watch?v=t-l91O9VxN0
Curtis Mayfield - Keep On Keeping On

Tue, 02/16/2010 - 16:09 | 232919 faustian bargain
faustian bargain's picture

1. Everyone is, or should be, aware of Curtis Mayfield.

2. "Keep on keepin' on" is an ubiquitous idomatic expression and at this point in its evolution does not necessarily refer directly to Mayfield. In fact one could just as easily see a reference to the Steve Miller Band's "Big Old Jet Airliner".

3. I am obviously a dork.

Tue, 02/16/2010 - 16:32 | 232964 Anonymous
Anonymous's picture

...but not as big a dork as me.

'Jet Airliner' was written (and much better recorded by) Paul Pena, a blind Cape Veridan-American from Hyannis, MA

'New Train' is a fantastic album. Buy it used here before it's unavailable

http://www.amazon.com/New-Train-Paul-Pena/dp/B00004Y6R1

Tue, 02/16/2010 - 16:44 | 232985 faustian bargain
faustian bargain's picture

sweet, i need to check this out. thanks for the info.

Tue, 02/16/2010 - 15:09 | 232746 truont
truont's picture

Hmmm...Dire warnings from the Kansas FED and now the Minnesota FED.

It seems the Regional FED branches are not perfectly aligned with the corrupted, beholden FED in the Eccles Building in DC.

 

Tue, 02/16/2010 - 15:09 | 232748 Anonymous
Anonymous's picture

I think that the story diary falls under the rubric of "Thanks, Captain Obvious."

Clearly, the only way that government can repay its debt is to either get money (tax) or make money (monetize).

Tue, 02/16/2010 - 16:16 | 232930 faustian bargain
faustian bargain's picture

I guess they could also start selling off national parks and other assets.

Naaaahh. That'd be crazy.

Tue, 02/16/2010 - 16:54 | 233008 cougar_w
cougar_w's picture

You forgot to mention "invade Canada"

Tue, 02/16/2010 - 15:13 | 232763 sgt_doom
sgt_doom's picture

So, if I understand this correctly, all those bozos who made billions by peddling their debt, should keep said assets (The Game: acquiring assets by peddling debt.  Then socializing said debt.), while the majority pick up the tab?

Why is it, over the past year, whenever I hear or read from a present or former Federal Reserve governor, they always sound like either complete idiots or professional liars?

And why is it, in testimony before congress, the Inspector General of the entire Federal Reserve System, while sitting on her hands, stated she still couldn't find her butt?

'Nuff said.....

Tue, 02/16/2010 - 16:56 | 233015 cougar_w
cougar_w's picture

[Why is it]

Door number two; professional liars.

Tue, 02/16/2010 - 15:17 | 232770 Anonymous
Anonymous's picture

News Flash, the Fed has already lost its ability to avoid another crash with interests rates at zero NOW. This guy ignores the elephant in the room that they can inflate away the debts....the favorite tax of these banksters, crushing the poorest among us the most with their not so hidden tax. But alas, with the ongoing destruction of private debt it will be quite some time before they can implement the inflation tool, tho they are getting antsy.

Tue, 02/16/2010 - 16:02 | 232902 Anonymous
Anonymous's picture

Monetization is the tool of choice in this situation.

Tue, 02/16/2010 - 15:21 | 232781 Anonymous
Anonymous's picture

Freshwater opinion - expected. Not saying he's not right, just sayin' predictable.

Tue, 02/16/2010 - 15:31 | 232807 percolator
percolator's picture

Here's the money shot by comrade Kocherlakota:

  "I hasten to say—and I want to stress—that I view this scenario as unlikely. For it to transpire, we would need a combination of bad monetary policy and poor fiscal management. I do not foresee this combination as likely to occur."

I'm betting that's a lock!

Tue, 02/16/2010 - 15:32 | 232817 crosey
crosey's picture

Amazing, isn't it.  Are we not in the middle of both?

Tue, 02/16/2010 - 15:58 | 232886 WaterWings
WaterWings's picture

Haha! +1

I hadn't scrolled down this far yet - same thing on my mind.

Tue, 02/16/2010 - 17:02 | 233036 cougar_w
cougar_w's picture

He's pre-writing the history books on this crisis. In 20 years he'll point back to that speech and say "I was right about the trigger, I just didn't think it could happen. I thought they were smarter than that."

This speech is high heresy. It is CYA on a Biblical scale. He knows already what's coming and cannot allow himself to say it in the clear.

Semiotics and semaphores. Signs in the sand. Anyone with a knot of morality left is signaling faintly, but only to save their souls from damnation. The message will not get through. It will not have mattered.

cougar

Tue, 02/16/2010 - 15:39 | 232834 Hephasteus
Hephasteus's picture

It's not my fuckup. I don't care what you do. Touch my gold I'll kill ya. As long as the fed understands that. This will all turn out fine.

Tue, 02/16/2010 - 15:54 | 232872 suteibu
suteibu's picture

And that is the point, isn't it.  Most people can honestly say it wasn't their fuckup.  Planned economies suck and will suck even worse when the Fed and Treas. start looking at retirement accounts, moneymarkets and......gold holdings to continue to fund this Utopian experiment.

Tue, 02/16/2010 - 15:45 | 232842 MarketTruth
MarketTruth's picture

"The Romans used to cut up birds to make their economic forecasts. Our methods have improved—somewhat—but just like in Roman times, it’s very much caveat emptor with economic forecasting."

Maybe we can cut up Fed presidents and chairmen to forecast the future of the economy? Who is with me on making this a new law, as it sounds about right and far more accurate than Ben Shalom Bernanke's ability to forecast the future?

www.youtube.com/watch?v=9QpD64GUoXw

NOTE: Gold is $642 @ 2:07 in this video. Oh yeah, time to cut up Ben Shalom Bernanke to see the future...

Tue, 02/16/2010 - 16:12 | 232925 Hephasteus
Hephasteus's picture

Liesman and Bernanke. They did the same thing to russia they are doing to us. That video just lays down the same bullshit scam they pulled only they did the revolving credit end game different this time. Liesman's obsequious manner makes me disgusted.

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