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Lacy Hunt Warns Federal Reserve Policy Failures Are Mounting

Tyler Durden's picture




 

Authored by Lacy Hunt via Casey Research,

The Fed's capabilities to engineer changes in economic growth and inflation are asymmetric. It has been historically documented that central bank tools are well suited to fight excess demand and rampant inflation; the Fed showed great resolve in containing the fast price increases in the aftermath of World Wars I and II and the Korean War. In the late 1970s and early 1980s, rampant inflation was again brought under control by a determined and persistent Federal Reserve.

However, when an economy is excessively over-indebted and disinflationary factors force central banks to cut overnight interest rates to as close to zero as possible, central bank policy is powerless to further move inflation or growth metrics. The periods between 1927 and 1939 in the U.S. (and elsewhere), and from 1989 to the present in Japan, are clear examples of the impotence of central bank policy actions during periods of over-indebtedness. 

Four considerations suggest the Fed will continue to be unsuccessful in engineering increasing growth and higher inflation with their continuation of the current program of Large Scale Asset Purchases (LSAP):

  • First, the Fed's forecasts have consistently been too optimistic, which indicates that their knowledge of how LSAP operates is flawed. LSAP obviously is not working in the way they had hoped, and they are unable to make needed course corrections.
  • Second, debt levels in the U.S. are so excessive that monetary policy's traditional transmission mechanism is broken.
  • Third, recent scholarly studies, all employing different rigorous analytical methods, indicate LSAP is ineffective.
  • Fourth, the velocity of money has slumped, and that trend will continue—which deprives the Fed of the ability to have a measurable influence on aggregate economic activity and is an alternative way of confirming the validity of the aforementioned academic studies.

1. The Fed does not understand how LSAP operates

If the Fed were consistently getting the economy right, then we could conclude that their understanding of current economic conditions is sound. However, if they regularly err, then it is valid to argue that they are misunderstanding the way their actions affect the economy.

During the current expansion, the Fed's forecasts for real GDP and inflation have been consistently above the actual numbers. Late last year, the midpoint of the Fed's central tendency forecast projected an increase in real GDP of 2.7% for 2013—the way it looks now, this estimate could miss the mark by nearly 50%.

One possible reason why the Fed have consistently erred on the high side in their growth forecasts is that they assume higher stock prices will lead to higher spending via the so-called wealth effect. The Fed's ad hoc analysis on this subject has been wrong and is in conflict with econometric studies. The studies suggest that when wealth rises or falls, consumer spending does not generally respond, or if it does respond, it does so feebly. During the run-up of stock and home prices over the past three years, the year-over-year growth in consumer spending has actually slowed sharply from over 5% in early 2011 to just 2.9% in the four quarters ending Q2.

Reliance on the wealth effect played a major role in the Fed's poor economic forecasts. LSAP has not been able to spur growth and achieve the Fed's forecasts to date, and it certainly undermines the Fed's continued assurances that this time will truly be different.

2. US debt is so high that Fed policies cannot gain traction

Another impediment to LSAP's success is the Fed's failure to consider that excessive debt levels block the main channel of monetary influence on economic activity. Scholarly studies published in the past three years document that economic growth slows when public and private debt exceeds 260% to 275% of GDP. In the U.S., from 1870 until the late 1990s, real GDP grew by 3.7% per year. It was during 2000 that total debt breached the 260% level. Since 2000, growth has averaged a much slower 1.8% per year.

Once total debt moved into this counterproductive zone, other far-reaching and unintended consequences became evident. The standard of living, as measured by real median household income, began to stagnate and now stands at the lowest point since 1995. Additionally, since the start of the current economic expansion, real median household income has fallen 4.3%, which is totally unprecedented. Moreover, both the wealth and income divides in the U.S. have seriously worsened.

Over-indebtedness is the primary reason for slower growth, and unfortunately, so far the Fed's activities have had nothing but negative, unintended consequences.

3. Academic studies indicate the Fed's efforts are ineffectual

Another piece of evidence that points toward monetary ineffectiveness is the academic research indicating that LSAP is a losing proposition. The United States now has had five years to evaluate the efficacy of LSAP, during which time the Fed's balance sheet has increased a record fourfold.

It is undeniable that the Fed has conducted an all-out effort to restore normal economic conditions. However, while monetary policy works with a lag, the LSAP has been in place since 2008 with no measurable benefit. This lapse of time is now far greater than even the longest of the lags measured in the extensive body of scholarly work regarding monetary policy.

Three different studies by respected academicians have independently concluded that indeed these efforts have failed. These studies, employing various approaches, have demonstrated that LSAP cannot shift the Aggregate Demand (AD) Curve. The AD curve intersects the Aggregate Supply Curve to determine the aggregate price level and real GDP and thus nominal GDP. The AD curve is not responding to monetary actions, therefore the price level and real GDP, and thus nominal GDP, are stuck—making the actions of the Fed irrelevant.

The papers I am talking about were presented at the Jackson Hole Monetary Conference in August 2013. The first is by Robert E. Hall, one of the world's leading econometricians and a member of the prestigious NBER Cycle Dating Committee. He wrote, "The combination of low investment and low consumption resulted in an extraordinary decline in output demand, which called for a markedly negative real interest rate, one unattainable because the zero lower bound on the nominal interest rate coupled with low inflation put a lower bound on the real rate at only a slightly negative level."

Dr. Hall also wrote the following about the large increase in reserves to finance quantitative easing: "An expansion of reserves contracts the economy." In other words, not only have the Fed not improved matters, they have actually made economic conditions worse with their experiments. Additionally, Dr. Hall presented evidence that forward guidance and GDP targeting both have serious problems and that central bankers should focus on requiring more capital at banks and more rigorous stress testing.

The next paper is by Hyun Song Shin, another outstanding monetary theorist and econometrician and holder of an endowed chair at Princeton University. He looked at the weighted-average effective one-year rate for loans with moderate risk at all commercial banks, the effective Fed Funds rate, and the spread between the two in order to evaluate Dr. Hall's study. He also evaluated comparable figures in Europe. In both the U.S. and Europe these spreads increased, supporting Hall's analysis.

Dr. Shin also examined quantities such as total credit to U.S. non-financial businesses. He found that lending to non-corporate businesses, which rely on the banks, has been essentially stagnant. Dr. Shin states, "The trouble is that job creation is done most by new businesses, which tend to be small." Thus, he found "disturbing implications for the effectiveness of central bank asset purchases" and supported Hall's conclusions.

Dr. Shin argued that we should not forget how we got into this mess in the first place when he wrote, "Things were not right in the financial system before the crisis, leverage was too high, and the banking sector had become too large." For us, this insight is highly relevant since aggregate debt levels relative to GDP are greater now than in 2007. Dr. Shin, like Dr. Hall, expressed extreme doubts that forward guidance was effective in bringing down longer-term interest rates.

The last paper is by Arvind Krishnamurthy of Northwestern University and Annette Vissing-Jorgensen of the University of California, Berkeley. They uncovered evidence that the Fed's LSAP program had little "portfolio balance" impact on other interest rates and was not macro-stimulus. A limited benefit did result from mortgage-backed securities purchases due to the announcement effects, but even this small plus may be erased once the still unknown exit costs are included.

Drs. Krishnamurthy and Vissing-Jorgensen also criticized the Fed for not having a clear policy rule or strategy for asset purchases. They argued that the absence of concrete guidance as to the goal of asset purchases, which has been vaguely defined as aimed toward substantial improvement in the outlook for the labor market, neutralizes their impact and complicates an eventual exit. Further, they wrote, "Without such a framework, investors do not know the conditions under which (asset buys) will occur or be unwound." For Krishnamurthy and Vissing-Jorgensen, this "undercuts the efficacy of policy targeted at long-term asset values."

4. The velocity of money—outside the Fed's control

The last problem the Fed faces in their LSAP program is their inability to control the velocity of money. The AD curve is planned expenditures for nominal GDP. Nominal GDP is equal to the velocity of money (V) multiplied by the stock of money (M), thus GDP = M x V. This is Irving Fisher's equation of exchange, one of the important pillars of macroeconomics.

V peaked in 1997, as private and public debt were quickly approaching the nonproductive zone. Since then it has plunged. The level of velocity in the second quarter is at its lowest level in six decades. By allowing high debt levels to accumulate from the 1990s until 2007, the Fed laid the foundation for rendering monetary policy ineffectual. Thus, Fisher was correct when he argued in 1933 that declining velocity would be a symptom of extreme indebtedness just as much as weak aggregate demand.

Fisher was able to make this connection because he understood Eugen von Böhm-Bawerk's brilliant insight that debt is future consumption denied. Also, we have the benefit of Hyman Minsky's observation that debt must be able to generate an income stream to repay principal and interest, thereby explaining that there is such a thing as good (productive) debt as opposed to bad (non-productive) debt. Therefore, the decline in money velocity when there are very high levels of debt to GDP should not be surprising. Moreover, as debt increases, so does the risk that it will be unable to generate the income stream required to pay principal and interest.

Perhaps well intended, but ill advised

The Fed's relentless buying of massive amounts of securities has produced no positive economic developments, but has had significant negative, unintended consequences.

For example, banks have a limited amount of capital with which to take risks with their portfolio. With this capital, they have two broad options: First, they can confine their portfolio to their historical lower-risk role of commercial banking operations—the making of loans and standard investments. With interest rates at extremely low levels, however, the profit potential from such endeavors is minimal.

Second, they can allocate resources to their proprietary trading desks to engage in leveraged financial or commodity market speculation. By their very nature, these activities are potentially far more profitable but also much riskier. Therefore, when money is allocated to the riskier alternative in the face of limited bank capital, less money is available for traditional lending. This deprives the economy of the funds needed for economic growth, even though the banks may be able to temporarily improve their earnings by aggressive risk taking.

Perversely, confirming the point made by Dr. Hall, a rise in stock prices generated by excess reserves may sap, rather than supply, funds needed for economic growth.

Incriminating evidence: the money multiplier

It is difficult to determine for sure whether funds are being sapped, but one visible piece of evidence confirms that this is the case: the unprecedented downward trend in the money multiplier.

The money multiplier is the link between the monetary base (high-powered money) and the money supply (M2); it is calculated by dividing the base into M2. Today the monetary base is $3.5 trillion, and M2 stands at $10.8 trillion. The money multiplier is 3.1. In 2008, prior to the Fed's massive expansion of the monetary base, the money multiplier stood at 9.3, meaning that $1 of base supported $9.30 of M2.

If reserves created by LSAP were spreading throughout the economy in the traditional manner, the money multiplier should be more stable. However, if those reserves were essentially funding speculative activity, the money would remain with the large banks and the money multiplier would fall. This is the current condition.

The September 2013 level of 3.1 is the lowest in the entire 100-year history of the Federal Reserve. Until the last five years, the money multiplier never dropped below the old historical low of 4.5 reached in late 1940. Thus, LSAP may have produced the unintended consequence of actually reducing economic growth.

Stock market investors benefited, but this did not carry through to the broader economy. The net result is that LSAP worsened the gap between high- and low-income households. When policy makers try untested theories, risks are almost impossible to anticipate.

The near-term outlook

Economic growth should be very poor in the final months of 2013. Growth is unlikely to exceed 1%—that is even less than the already anemic 1.6% rate of growth in the past four quarters.

Marked improvement in 2014 is also questionable. Nominal interest rates have increased this year, and real yields have risen even more sharply because the inflation rate has dropped significantly. Due to the recognition and implementation lags, only half of the 2013 tax increase of $275 billion will have been registered by the end of the year, with the remaining impact to come in 2014 and 2015.

Additionally, parts of this year's tax increase could carry a negative multiplier of two to three. Currently, many of the taxes and other cost burdens of the Affordable Care Act are in the process of being shifted from corporations and profitable small businesses to households, thus serving as a de facto tax increase. In such conditions, the broadest measures of inflation, which are barely exceeding 1%, should weaken further. Since LSAP does not constitute macro-stimulus, its continuation is equally meaningless. Therefore, the decision of the Fed not to taper makes no difference for the outlook for economic growth.

 

 

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Fri, 10/18/2013 - 21:51 | 4071003 GOSPLAN HERO
GOSPLAN HERO's picture

FRN = SHIT.

Fri, 10/18/2013 - 22:02 | 4071028 markmotive
markmotive's picture

The world economy is not derived from finance. Finance is derived from real activity, which is derived from resource availability. The Fed has zero control over resource availability and therefore has zero control in the long run.

 

http://www.planbeconomics.com/2013/10/peak-oil-and-reality-of-whats-comi...

Sat, 10/19/2013 - 05:06 | 4071380 MeMadMax
MeMadMax's picture

The writer of this article misunderstands the feds actions: It has gone political, not economically driven.

It would take a complete idiot to not understand that the money they are dumping goes straight into the assest dump, maintaining the illusion of prosperity in the country for the sheeple, and keeping the big banks/corps happy...

This IS what the dems want. Dems have the big banks in the palm of their hands: They don't prosecute, they don't cut off the flow of money, they give them a tongue lashing once in a while to keep the sheeple happy, and they get reelected...

 

Everyone is happy until it comes to a screeching halt...

Sat, 10/19/2013 - 06:42 | 4071413 negative rates
negative rates's picture

It's abit more akin to determined and persistant GREED.

Sat, 10/19/2013 - 13:15 | 4071855 King_of_simpletons
King_of_simpletons's picture

Everytime the Federal Reserve policy fails, a select few make it out like bandits. The Fed "failure" is by design.

Sat, 10/19/2013 - 07:23 | 4071435 Oldwood
Oldwood's picture

And don't forget those "tribute" fines the banks are paying. Does anyone know whee that money goes? Direct to the revenue bucket or does it end up in the attorney General special purpose fund. I'm thinking about how police departments get to keep their impounded properties to use in further "enforcement".

Sat, 10/19/2013 - 12:39 | 4071789 ElvisDog
ElvisDog's picture

And every so often they trot out people like Elizabeth Warren to make a fiery speech about how bad the banks are, but when push comes to shove she votes along the "keep the party going" Democratic party line. She is the darling of the progressives for her supposed independence but in truth is one of the biggest hypocrites around.

Sun, 10/20/2013 - 12:00 | 4073536 RaceToTheBottom
RaceToTheBottom's picture

I doubt it is a Dems/Repubs thing.

Fri, 10/18/2013 - 22:13 | 4071060 zorba THE GREEK
zorba THE GREEK's picture

I don't care what Lacy Hunt says, Fed policies have not been a failure,

they have been a huge success, just ask any billionaire.

Sat, 10/19/2013 - 01:23 | 4071276 Yenbot
Yenbot's picture

Sign seen in California:

HOMELESS VET, PLEASE HELP

HAVE $185,000.00 PRE-APPROVAL

CANT FIND HOUSE THAT CHEAP (?)

LIVING UNDER BRIDGE, OR IN JAIL

FAMILY IS: SOMEWHERE (?)

Fri, 10/18/2013 - 21:51 | 4071004 Yen Cross
Yen Cross's picture

   Haven't you done enough damage Chairsatan? Gently drift into the " Jimmy Carter" Library...

Sat, 10/19/2013 - 07:00 | 4071426 Landrew
Landrew's picture

I think I am well read however before calling your comment strange. What's with the Jimmy Carter? Stagflation=Miller? Wouldn't it be two evils Bernanke=Bush Library?

Sat, 10/19/2013 - 16:28 | 4072165 Landrew
Landrew's picture

Down arrows for history? Jimmy Carter into office Miller, then appointed Volcker, Bush in office Greenspan, appionted Bernanke, O'Bummer in office Bernanke, appionted Yellen. That's history what is to down arrow about that? I would like to know the meaning of the Bernanke Jimmy Carter comment before I said you are a FUCKING MORON. Now I will just say it, fucking moron, as I see it. It would be like me saying Reagan and O'Bummer are one in the same for tripling the national debt while in office?

Fri, 10/18/2013 - 21:53 | 4071005 LetThemEatRand
LetThemEatRand's picture

How is it a failure when you've made billions for your employers?  They stole our money by hijacking our government and using the Treasury as their own private source of revenue for doing nothing other than lending our own future tax liabilities back to us with interest.  They should be prosecuted for fraud if not treason.

Fri, 10/18/2013 - 22:03 | 4071029 tao400
tao400's picture

Exactly

Fri, 10/18/2013 - 22:38 | 4071110 Bangin7GramRocks
Bangin7GramRocks's picture

Jamie Dimon saved 16 billion and didn't need to admit guilt after he met with Obama. Most profitable meeting in history. They don't even try to hide the corruption anymore!

Fri, 10/18/2013 - 23:48 | 4071223 Anusocracy
Anusocracy's picture

Let's see, the government steals money from the public, then somebody else steals the stolen money from government.

Looks like two parasitic organisms vying for a resource that's not theirs.

Sat, 10/19/2013 - 12:37 | 4071783 pavman
pavman's picture

Let's see, the government steals money from the public, then somebody else steals the stolen money from government.

Looks like two parasitic organisms vying for a resource that's not theirs.

So the only solution is to then go work for the Fed and get your money back!  Full employment comrade!

Sat, 10/19/2013 - 09:52 | 4071590 Debt-Is-Not-Money
Debt-Is-Not-Money's picture

"Hyman Minsky's observation that debt must be able to generate an income stream to repay principal and interest,"
"as debt increases, so does the risk that it will be unable to generate the income stream required to pay principal and interest."

Another BS finance article that refers to money, debt and income without ever defining these terms (does this guy work for the IRS?). If the "income stream" consists of debt based currency loaned into circulation at interest, then how is it possible to pay "principal and interest" on a loan??? Answer: It Isn't, Debt must either be paid off in money (which by definition has no interest attached to it) or extinguished in a bankruptcy.

We have no money (except for our coin) so the debt and interest can not only never be retired, but must grow exponentially until the giant crash comes!

P.S. LTER, "They should be prosecuted for fraud if not treason."

     A big greenie on this one!
     I've noticed over the past several weeks that your posts are making more and more sense- are you feeling OK? /sarc

Fri, 10/18/2013 - 21:53 | 4071006 therevolutionwas
therevolutionwas's picture

No sh!t Sherlock!

Fri, 10/18/2013 - 21:54 | 4071011 blindman
blindman's picture

cancer has an admirable growth rate.

Fri, 10/18/2013 - 22:20 | 4071066 dogmete
dogmete's picture

us gov = cancer

 

(but I state the obvious)

 

 

Fri, 10/18/2013 - 21:54 | 4071012 DrDinkus
DrDinkus's picture

walked past the nyfed today on way home from work...bizarre metal bar pattern around the windows...almost looks like baphomet...maybe it is...idk...#trolled

Fri, 10/18/2013 - 22:01 | 4071024 Zero Point
Zero Point's picture

Another article that assumes all this is a mistake.

HAHAHAHAHAAAAAAA

Sat, 10/19/2013 - 03:40 | 4071354 jeff montanye
jeff montanye's picture

I draw the parallel with 9-11.  It is progress to go from the "9-11 report" or the editorial page of the New York Times to thinking "oh, they knew this might very well happen, or was going to happen, and let it because they wanted the results that would flow from it".  Similarly, it is progress to critique, rather tellingly, the effectiveness of Fed policy since 2008 to improve the economy generally and the positions of the working and middle classes, etc. specifically.

That there was likely a far more intimate involvement in 9-11 by aspects of the national security states of the U.S. and Israel and the points Let Them Eat Rand and others made above are, indeed, further steps out of illusion.

But progress has been made even with the first step.

Sat, 10/19/2013 - 08:04 | 4071471 mvsjcl
mvsjcl's picture

Yes, Let It Happen On Purpose is an important first step. With the implication being that it's only the first step on a long and genuinely mind-blowing journey.

Sat, 10/19/2013 - 19:23 | 4072435 Blankenstein
Blankenstein's picture

You are giving the central planners WAY too much credit in the intelligence department.   See LTCM.  

Fri, 10/18/2013 - 22:05 | 4071038 tao400
tao400's picture

It is messed up, and so is how much I am underwater in my gold stocks. On some of them, like gdxj, I am down 80 percent, others not so bad only Down 40 percent. I'm buying the market. Don't fight the fed but do try to jump out of the way before the collapse

Sat, 10/19/2013 - 03:37 | 4071351 OldPhart
OldPhart's picture

The gold and silver in my cabinet seem to float on water.

Any chnce that silver will one day be $4-$5 an ounce or gold $300 to $400?

If it ain't in your hand, you don't own it.

Fri, 10/18/2013 - 22:05 | 4071040 Serfs_Up
Serfs_Up's picture

Is it me or that pic of Berzerky looks like his face when takes a dump.....on our economy?

Fri, 10/18/2013 - 22:09 | 4071046 ebworthen
ebworthen's picture

You CANNOT centrally plan an economy, nor inflation and employment.

You MUST allow failure, the settlement of risk, reward for saving, and the masses to set prices.

If you do not allow the invisible hand of the working responsible savers to operate and at the same time ignore the rule-of-law you guarantee:  graft, failure, and tragedy.

Simple fucking ideas, morals, and ethics - that get lost in the fog of high-thinking, equivocation, and lust.

Fri, 10/18/2013 - 23:50 | 4071225 BlobbyBlueBland
BlobbyBlueBland's picture

Could not have said it better. The problem is cultural as well - we cannot let anyone or anything fail, no matter the consequences. Everybody gets a trophy, lest somebody's feelings get hurt. By the same token, the stock market/banking sector must not be allowed to fall because it wouldn't be fair to see somebody lose on a deal. Welp, now we all lose.

Sat, 10/19/2013 - 03:03 | 4071334 Zero Point
Zero Point's picture

Of course you can centrally plan an economy.

You just can't do it overtly (yet), and have to take into account the generational cycles of human behaviour (the apparent "natural" forces you refer to, like risk and reward).

Something our bankster overlords have being doing for hundreds (perhaps thousands) of years.

The cold, dead, guiding hand of the ancient world order.

Sat, 10/19/2013 - 08:10 | 4071472 mvsjcl
mvsjcl's picture

Yep. Generational memories that span centuries. How greatly does evil embrace the past, while inculcating a society that can't remember yesterday.

Sat, 10/19/2013 - 06:07 | 4071400 Nothing but the...
Nothing but the truth.'s picture

And what you cannot do is fool all the people, all the time about the state of the economy and the misallocation of their money.

Wed, 01/22/2014 - 04:21 | 4354733 RebelDevil
RebelDevil's picture

Ask yourself this question - What is the "invisible hand"? What the fuck is it? Anyone? Bueller?

If it can be logically defined and proved, then it exists a real force.
If not, it is analogous to "The Lord".

Here's a simple law of universe:
"What is rational is real, what is real is rational." - Hegel

I contend that one can centrally plan a good economy, it's just that every central planner we've had so far in the Fed have been irrational and disconnected from reality.  

Fri, 10/18/2013 - 22:09 | 4071052 rustymason
rustymason's picture

I guess it can go on like this forever.

Fri, 10/18/2013 - 23:42 | 4071214 are we there yet
are we there yet's picture

This time forever is different?

Fri, 10/18/2013 - 22:14 | 4071057 dogmete
dogmete's picture

Over indebtedness may be the primary reason for slow growth.  But it seems that too much burden on small business is an enormous problem. The government is destroying the very engine of our economy while it runs up its debts.

Fri, 10/18/2013 - 22:22 | 4071074 ebworthen
ebworthen's picture

Small business is the enemy of the soul-less corporations.

Just look at WalMart and the bling franchise eateries. 

Corporations set up layers of bureacracy, a cultish culture, and an army of lawyers. 

They can grind an individual into dust and break their spirit with their gutless, heartless, mind-numbing procedures, paperwork, and HR departments.

This is why .gov and corporations collude; they understand each other.

A small business with ties to a community is their worst enemy.

Fri, 10/18/2013 - 23:11 | 4071153 dick cheneys ghost
dick cheneys ghost's picture

''A small business with ties to a community is their worst enemy.''

 

thats why I love the craft beer movement in this country......they are stickin to the Man......if this could be replicated on a mass scale, with other products........we might have a chance...

~~~~

Sat, 10/19/2013 - 07:37 | 4071450 Zero Point
Zero Point's picture

RIP Popcorn Sutton.

 

Sat, 10/19/2013 - 11:22 | 4071707 dick cheneys ghost
dick cheneys ghost's picture

what a story.........Thanks, never heard of him before........cant wait to try his likker

Fri, 10/18/2013 - 22:20 | 4071068 q99x2
q99x2's picture

I want to know how, if the FED has made fellow bankers more money than at any other time in the history of the world, they don't know what they are doing?

Quit listening to that type of reasoning. That is based on the way things partially worked sometime in the past.

But yes the FEDs failures are mounting based on old school ideas of the way things worked.

Fri, 10/18/2013 - 22:21 | 4071070 CrashisOptimistic
CrashisOptimistic's picture

I'll offer up for ZH Friday night consideration a perspective too rarely heard.

Okay, the Fed has QEed enormous amounts of money and we don't have job growth, significant GDP growth, or any semblance of return to "normalcy". 

Why is it always presumed that if the Fed didn't print money, this would somehow be better?  Why don't people instead recognize the systemic forces creating destruction of society and then subsequently recognize that printing money is the only thing concealing that relentless death and slowing it?

EROEI erosion is deadly.  Automation is defining about 1/2 of society as permanent burdens for the other half.  Demographic erosion is global.  India's average age is 27 and 60 million of their citizens are over 65 years old -- with no Social Security program to speak of.  Relentless, grinding burden that is never going to stop until population totals are eviscerated.

When faced with this, does Fed printing really represent anything significant?  Positive or negative?

Fri, 10/18/2013 - 22:26 | 4071084 dogmete
dogmete's picture

yeah, it's a rip off.

Fri, 10/18/2013 - 23:08 | 4071157 dick cheneys ghost
dick cheneys ghost's picture

QE is the TELL that the dollar is on its death bed..........

Fri, 10/18/2013 - 23:26 | 4071191 Bazza McKenzie
Bazza McKenzie's picture

Since the ECB, BOJ, and BOC are all rapidly printing money also, are you claiming fiat in general is on its death bed?

Fri, 10/18/2013 - 23:36 | 4071208 dick cheneys ghost
dick cheneys ghost's picture

it sure looks that way.........the sooner the better

Fri, 10/18/2013 - 23:09 | 4071159 infinity8
infinity8's picture

"Why is it always presumed that if the Fed didn't print money, this would somehow be better?  Why don't people instead recognize the systemic forces creating destruction of society and then subsequently recognize that printing money is the only thing concealing that relentless death and slowing it?"

Because THAT, along with "Relentless, grinding burden that is never going to stop until population totals are eviscerated." is Scary.

Sun, 10/20/2013 - 12:15 | 4073551 RaceToTheBottom
RaceToTheBottom's picture

"Why is it always presumed that if the Fed didn't print money, this would somehow be better? "

1)  If you believe Keynesian thought, you are thinking that the economy is like a cash for clunkers deal, you print money to even out the bottom of the cycle, not really talking about the fact that you are stealing future economic growth. 

2)  That is the best case, but since printed money was not allocated to the economy, instead it went to the banksters who applied it for their profits not the economy well being.  Therefore we stole future economic growth and mis-applied it to the wealth class that both needed it least and invested it to the least effect (stock-market fictional growth).

You can see why people are saying it is both generational and economic class warfare.

Fri, 10/18/2013 - 22:22 | 4071072 Make_Mine_A_Double
Make_Mine_A_Double's picture

Excellmont article.

Certainly leads to the obvious conclusion that this FED is a political animal whose actions have been dead fucking wrong from the beginning of QE1 when what was needed were higher interest rates not boat loads of non backed Monopoly money.

And it's been getting worse every day since.

Fri, 10/18/2013 - 22:28 | 4071093 dogmete
dogmete's picture

Yep. Fed = political animal. 

Amen.

Fri, 10/18/2013 - 23:54 | 4071230 BlobbyBlueBland
BlobbyBlueBland's picture

"Wrong" implies it was all an "accident".

Fri, 10/18/2013 - 22:39 | 4071094 bigbucksr
bigbucksr's picture

The only things that can jump start this Global economy and can eliminate the excess supply of plant capacity and labor is a major world war or a huge apparent natural disaster (HAARP). That's what fixed the economy 60 - 70 years ago and that is what will fix it now. The fed can restraIn aggregate demand but has no means of restraining aggregate supply once aggregate supply totally overwhems aggregate demand as the situation exists today. The question is where will the tremendous destruction take place in order to rebalance aggregate supply with demand? The goal of course is to not only destroy the aggregate supply but also the debt that goes with it. We know Japan is toast due to radiation with its high debt (both us and japan debt) all owed to its own people. If you eliminate the Japanese people perhaps via an earthquake/tsunami/radiation, u not only eliminate aggregate supply, but also remove a lot of debt holders. Who else holds a lot of debt? I don't mind who owes a lot of debt, but who is owed the debt. I am thinking of a big country in the far east. My guess is that they are next on the hit list. Middle east is next. With lots of assets to be taken...imho

Fri, 10/18/2013 - 22:48 | 4071097 Trucker Glock
Trucker Glock's picture

I don't understand why people spend time trying to make sense of what the FED is doing, then conclude the FED misunderstands things.  Those fucking thieves know exactly what they are doing and rely on the stupidity of the populace to get away with it.  Analysis of what's going on doesn't wake anyone up.  Only explaining to the populace how they are being robbed will get their attention - MAYBE.

Stop using banks and convert currency to money, or it will be stolen.  If possible, cut consumption.

This going to end badly.

Edit:  WTF am I talking about?  America won't wake up.  They'll just blame EVERYTHING on "the other party" or the Chinese.  Fucking sheep.

Sat, 10/19/2013 - 07:24 | 4071436 Urban Redneck
Urban Redneck's picture

What do you expect, especially since the Sheeple, the Bankster Class, and Federal Reserve all suffer different mutations of the same basic psychological dysfunction- MARXISM.

All labor has value, but some labor is more valuable than other labor.

Of course if the sheeple or Central Banksters actually read Marx, they might figure out that he would ridicule some of the valuations they ascribe to modern labor (given the lack of actual skilled and productive labor engaged in production which seeks compensation), and as for the Bankers, I don't think Marx intended for his work to be how-to manual for the captains of capital to pillage the stock of useful idiots who were supposed to labor to underwrite his and his successors' lives of leisure.

There is a perverted and SYMBIOTIC relationship between the Banker Class and the Useless Eater class (in the long run it is fatal for the Useless Eater class, but Sheeple/Useless Eaters don't think long term or more than step/handout ahead). The product of this congress of perverts is the mis-allocation of society's capital.

If you confine yourself to Böhm and Minsky you are reduced to interest rates (the hammer for all nails in the central banker's tool chest, and the the entire apparent scope of the studies cited) but interest rates only matter at the margin. Low interest rates are a luxury which affords less productive uses of labor and capital to survive, for example if you start with a baseline that a 20% IRR is the cutoff for a good economic decision - there are significantly more opportunities when interest rates are at 0%. However, if there is NO return of capital (much less with positive interest) then the investment is unwise under ANY circumstances. Except (perhaps) for the present- where the central bankers will underwrite the private bankers' subsidy to, and investment in, useless eaters. Because bankers eek a living by skimming AUM and flow, and the FED is making up for it on volume and making the private bankster more than whole in the process, besides somewhere down the collateral chain of bullshit paper promises there are real houses and indentured students who will become property of the banks when interest rates rise.

---

The fact that central bankers don't move beyond interest rates or address more fundamental issues implies that NO, THEY REALLY DON'T GET IT, and those few* in the banker class who really do understand it, will make out like bandits now, and make a real killing when the sweet siren song of low interest rates stops. (In fairness CBs often utter the right words when at certain microphones, however, since they are simultaneously baffling decision makers with bullshit, the message is never received, and that message is always contradicted by the CB's actions and dollars, which speak infinitely louder than words.

---

*Most people in the Banking and Financial Services Sector are also sheeple (and useless eaters) they're more overpaid than their non-bankster brethren, but they are actually just small minded little workers and useful idiots sitting in their cubicles/silos focusing on their little assigned task (which most of them barely comprehend) on the big bankster/mic/globalist economic factory production line. Seriously, from Bankers to Bilderboogers a SIGNIFICANT chunk of these people have no clear understanding of the larger picture, much less its artistic composition- they are crippled by normalcy bias, incomplete education, egos even larger than their wallets, and addictions to mental masturbation that pass for PRODUCTIVE labor.

There are also a large number of people in finance who see the shit and who can see the fan-- some are gripped by fear and paralyzed, some are determined to play on until the tides do them in, and some think they have lifeboat standing by.

Among those there is a population of greedy cunts (they're not whores since, in their mind, it really is all about them and their "needs")- they excel at fisting muppets and schlepping shitty deals and often exhibit a strange predilection towards GS. The number of survivors among this crowd is questionable, especially since they also have tend to exhibit cannibalism when their usual diet of muppets is in short supply.

Then there is the comparatively small population of true fucking psychopaths who do know exactly what they are doing and who will most likely get away with it. But at this point you're several steps into a Pareto distribution- you can't plot a normal distribution of the Satanic Bankster Quotient using George Soros' observed #s (without significant statistical or sample manipulations to keep HI down).

Sat, 10/19/2013 - 10:31 | 4071649 kumquatsunite
kumquatsunite's picture

Excellent Points, however, what we need to worry about NOW in order to stop all this is the following quick points:

1. Stop all immigration. We done full up. Our schools have been massacred in a free-for-all of "let's not worry about teaching our own children, as long as we can pat ourselves on the back for having 145 languages in the school."

2. All green cards must be suspended. We have 350 million people in the US. Are they saying they can't find US citizens who can do coding? Gufaw!!

3. Our water tables our being depleted in order to send Our Water out of the country. Without water, we die.

4. We have become a country that is now comprised of pseudo-countries within our borders. Somalis in Minnesota but we are supposed to celebrate Muslims who believe American women should have their heads cut off? Chinese who come to this country for birth-right citizenship? (A corruption of our Constitution, by the way.)

5. Welfare is the giant teat of Marxism. Oboma is stuffing the govt full of Democrats in every position, overpaid, stupid, idiots who work two hours a day. Cut the govt by 2/3 and we'll have a start.

6. Next president should be focusing on white Americans. The GOP and Rand Paul are pandering to Mexicans and gays. Seriously? If he wants to put the heads of white, straight Americans in that lock he should be tarred and feathered. Once conservatives cede their thinking and choices to those groups we are done for. Let them come to us. Mexicans should be herded up and sent back to Mexico. It's a great country with great natural resources. We are being pillaged and ravaged by them. AS to the gays, 2% of the population but they have taken over Hollywood and turned your children into groomed-to-be sex partners. Avalanched with sexual material, including in the grade schools, no disgrace is greater to this country. Gays aren't content with doing what they want, YOU are required (marxism!) to approve and applaud their crime against nature.

Take back your country. The Fed can do nothign as long as the onslaught of foreigners continues to take our jobs and take our country. Gays support this because a weak country is to weak to hold up against their media machine.

Fri, 10/18/2013 - 22:34 | 4071103 grid-b-gone
grid-b-gone's picture

Steve Forbes, "We're going to have a lot of turmoil in the coming years, but it's going to be the kind of turmoil that leads to positive things."

http://www.youtube.com/watch?v=iFDe5kUUyT0

The plug at the end detracts from the public service message, but the point is still valid.

Fri, 10/18/2013 - 22:37 | 4071104 Yen Cross
Yen Cross's picture

 Nominal interest rates and tax multipliers?  WTF?

   Delusional 101.

Fri, 10/18/2013 - 22:50 | 4071128 rawsienna
rawsienna's picture

debt is future consumption denied and is enabled and sustained by negative real rates -  savings is the opposite. With the exception of the very wealthy, most Americans are desperately long debt and short savings.  Wealth effect is weak because the only people it benefits are those with excess savings (those with more savings than needed for retirement (future consumption)).  THose who are short savings own too little in stocks to  make up the difference between what they will need in retirement vs what they have saved.  In fact, they might even be better off if the current stock prices were lower  - can buy more future spending -- instead they fall further behind and run the risk of getting in the market at high valuations with lower future expected returns.  THe Fed is really fucked up.  Their response to the weaker than predicted growth is that have not done enough.  Sadly, Yellen is one of those believers. The view rising stock prices as validating their policy ( the believe that stocks are forward looking - perhaps they are but not when the fed is manipulating it).. I can go on but tired.  

Fri, 10/18/2013 - 22:50 | 4071129 Reaper
Reaper's picture

The great fallacy or the media sanctified heresy is, "There is no worse heresy than that the office sanctifies the holder of it." ~ Lord Acton. Greenspan, Bernanke or Yellin are or would be appointed as Fed Chair. Do their failures to predict outcomes, sanctify their qualifications? If they repeat past failures, expecting success, is that their qualification? It is not what they say or promise, but what results. Failure.

Fri, 10/18/2013 - 22:59 | 4071140 lolmao500
lolmao500's picture

Black swan incoming?

http://www.jpost.com/Defense/Report-Israel-mulls-destroying-missiles-tra...

Report: Israel mulls destroying missiles transferred from Syria to Hezbollah in Lebanon

Israel has information on the location of long-range missiles transferred from Syria to Hezbollah in Lebanon and is considering taking military action to destroy the weapons, Kuwaiti newspaper Al-Jarida reported on Friday.

Fri, 10/18/2013 - 23:23 | 4071186 ChaosEquilibrium
ChaosEquilibrium's picture

A ruse?....could be that Israel has NO clue where the missiles are located...attempting to force Hezbollah into moving them quickly.....with 24/7 Birds in the sky!

Sat, 10/19/2013 - 01:26 | 4071278 yogibear
yogibear's picture

Usually when it quiets down you can expect something to happen.

The US was dead set on going to war with Syria. Obama will find another country to demonize and go to war with.

Fri, 10/18/2013 - 23:23 | 4071187 Bazza McKenzie
Bazza McKenzie's picture

Hmmm, Israel KNOWS where these missiles are, is thinking of destroying them, BUT releases its supposed knowledge and intentions to an Arab outlet!!

More likely, Israel doesn't know where they are, but hopes this misinformation will cause them to be moved and that it may then detect their location during the move.

Fri, 10/18/2013 - 23:00 | 4071143 HowardBeale
HowardBeale's picture

Just watched Bill Still's movie, Jekyll Island; can't imagine why any of the Rothschilds are alive...

I can only conclude that not enough People knew; well, they know now...

Fri, 10/18/2013 - 23:09 | 4071160 dick cheneys ghost
dick cheneys ghost's picture

is this on UTube yet???

cant wait to see it...

Fri, 10/18/2013 - 23:42 | 4071213 Seize Mars
Seize Mars's picture

..."Federal Reserve Policy Failures Are Mounting..."

Uh, sorry to break it to "Lacey Hunt," but the FED is a raving, smashing success. They haven't failed at ANYTHING.

Anyways, wasn't "Lacy Hunt" a late 80's porn star?

Fri, 10/18/2013 - 23:51 | 4071226 Yen Cross
Sat, 10/19/2013 - 01:34 | 4071283 Yenbot
Sat, 10/19/2013 - 16:28 | 4072166 Seize Mars
Seize Mars's picture

Yen: epic. Seriously.

Sat, 10/19/2013 - 00:43 | 4071250 alfbell
alfbell's picture

 

 

Martin Armstrong asserts that the original FRB policy was only to lend to the private sector (businesses) during the bust phase of the business cycle, in order to maintain liquidity and stimulus so that businesses (thus the economy) could continue forward. But Congress had the FRB start buying bonds during WWI. They did the same for The Great Depression and again for WWII. As a result, Congress became addicted to the ability to borrow and create deficits, thus this monetary policy has been in place since WWI (shortly after the FRB was created). I wonder if Armstrong is correct? Are there any FRB historians out there that can validate or invalidate Armstrong's assertion? If it is valid, that would mean to me that the whole FRB conspiracy viewpoint is false, and... Congress (or maybe more accurately, the Military Industrial Congressional Complex) is the true enemy of the people and responsible for our economy imploding under all of this debt.

Sat, 10/19/2013 - 07:39 | 4071449 Urban Redneck
Urban Redneck's picture

Armstrong is correct, but I would question the conclusion you draw from that fact (in regards to the "whole" conspiracy) -

https://mises.org/daily/3828

Sat, 10/19/2013 - 09:15 | 4071539 shovelhead
shovelhead's picture

True.

You don't need a conspiracy to explain facts. Congress likes deficit spending and FRB likes the profits from making that spending possible.

It's a love shack for a sweaty couple that anyone who uses FRN's pays for the rent.

Sat, 10/19/2013 - 00:46 | 4071253 Kirk2NCC1701
Kirk2NCC1701's picture

Given that the Fed is owned by its shareholders (JPM, GS, etc), you can be sure that they doing exactly what they are supposed to: Make its shareholders richer via the largest wealth transfer in human history, using the Fed, fiat, FRB and compound interest.

All else is deception, misdirection and BS, to fool the masses into remaining calm while being led to regular shearings and generational fleecing.

Sat, 10/19/2013 - 08:24 | 4071489 GrinandBearit
GrinandBearit's picture

Bingo!

It's amazing how so many people cannot understand this... or they're simply not willing to accept it.

Sat, 10/19/2013 - 09:50 | 4071588 Hedgetard55
Hedgetard55's picture

+55

Cut them no slack, Ben, Greenscam and all the rest know exactly what they are doing, transferring middle class wealth to the .01%, everything else is a smokescreen, including all the academic "studies" they commision by "PhDs". When SHTF, they must be brought to the bar of justice.

Sat, 10/19/2013 - 00:56 | 4071258 sangell
sangell's picture

so what we are left with is. Academic economists don't know what they are doing. The Fed is run by Jewish academic economists. Until that is reversed millions of if not billions of people will be ruined to sustain a financial elite composed of Jews. I believe there was an Austrian who had a solution to this problem.

Sat, 10/19/2013 - 01:37 | 4071285 Yenbot
Yenbot's picture

I believe there was an Austrian (Jew) who had a solution to this problem.

Fixed it for ya. Never trust that kinda guy, or proven-loser solutions.

Sat, 10/19/2013 - 01:11 | 4071266 Mareka
Mareka's picture

Looking at the actions of the FED as an entity dedicated to managing the money supply to the greatest benefit of the nation, it appears to be failing in every category. 

Looking at the actions of the FED as an entity dedicated to benefiting the banking industry, all of their actions make perfect sense.

Sat, 10/19/2013 - 01:22 | 4071275 yogibear
yogibear's picture

Yes we can double the debt from $17 trillion to $34 trillion. People need to have the full faith and confidence  the US banana republic can spend it's way to becoming Zimbabwe-like.

Yellen will enable even more financial recklessness. Welcome to the animal farm.

Sat, 10/19/2013 - 01:38 | 4071286 Sizzurp
Sizzurp's picture

As much as I would like to believe that sanity will prevail and these academic fools will wake up one morning and come to the stark realization that this whole experiment with negative value debt based money is a complete failure,  I have come to the conclusion that they are trapped in a core belief system for which there is no escape.  They seem destined to drag western civilization into a new dark age, likely without ever realizing that it was all their fault. This is their religion, complete with massive doses of magical group think.  No salvation awaits us.

Sat, 10/19/2013 - 04:58 | 4071376 yogibear
yogibear's picture

Indeed. Their realizing a reset is needed. A Ponzi scheme is finite.

Sat, 10/19/2013 - 05:14 | 4071382 Poor Grogman
Poor Grogman's picture

At least it will all be recorded on the ZH archives.

Sat, 10/19/2013 - 06:35 | 4071407 Dr.Engineer
Dr.Engineer's picture

This is one of the best articles I've read all year.  I posted it to Facebook.  Recommend you do as well.  We need to get the message out.

Kill the Fed!

Sat, 10/19/2013 - 07:34 | 4071446 Snoopy the Economist
Snoopy the Economist's picture

This is comical. The economics community creates models and conducts studies which ulimately proclaim that the feds policies do not work.

Well all we had to do was look at where the feds printed money goes and we determined very quickly that the fed is corrupt and their policies are not in the best interests of the people - only the corrupt banks benefit. One look at the FSA tells you this aint gonna end well.

Sat, 10/19/2013 - 08:17 | 4071481 shovelhead
shovelhead's picture

TBTF Banks are the corpse at this extended wake. Retouching the makeup and adding more flowers around the casket can't mask the stench of death and is making everyone present sick to their stomach.

Bury the bloated gasbags and get on with the living.

 

Then I woke up and it was just a dream.

Sat, 10/19/2013 - 08:22 | 4071486 GrinandBearit
GrinandBearit's picture

The Fed know exactly what they are doing. 

All of this has been calculated and pre-planned. 

 

Sat, 10/19/2013 - 08:42 | 4071507 Sufiy
Sufiy's picture


Shadow Statistics.com John Williams: Very Serious Trouble in this Next Year - Weaker Dollar and Hyperinflation


John Williams is very respected economist who is providing  the real economic data, which is not massaged by the government desires and wishful thinking. His view at the crucial juncture for US Economy and Health of US dollar us very important to share now.   Gold celebrates today "The Deal" and it looks like that Debt Ceiling Raise Does Mean Increase in the Amount of debt after all. http://sufiy.blogspot.co.uk/2013/10/gold-catalyst-john-williams-very.html#

Sat, 10/19/2013 - 09:54 | 4071569 shovelhead
shovelhead's picture

Debt Ceiling Raise Does Mean Increase in the Amount of debt after all.  

 

Obama's pulling a scam I learned at 15

"I promise I won't cum in your mouth..."

Upon reaching the inevitable denouement, the line became: "Swallow. The hormones will make your tits grow bigger."

WINNING.

Plato may fault the argument for a number of reasons, but the outcome remained that as her enthusiasm for this practice increased, so did her bustline.

Most girls at 15 don't read much Plato.


Sat, 10/19/2013 - 09:02 | 4071508 Sufiy
Sufiy's picture

 


 

 

Sat, 10/19/2013 - 08:53 | 4071520 lakecity55
lakecity55's picture

When I was a kid, my grandfather (b1900) always told me the more money the government takes, the less there is for private business. When I asked him what would be the end effect of this, he replied, communism or fasicism (he actually said we would be like the USSR or NAZI Germany).

Taxes used to be the least of our worries. Since 2009, the government has seized control of automakers, now healthcare, etc. You can argue fine points, but the basic problem is socialist central government vs freedom and free markets.

I know this is stating the obvious, but it comes down to that. It appears some variant happens in each empire, civilization, etc simply because of human nature. We hear the terms 'social justice' and 'progressive' which are two synonyms for communism.

America, as I understood the term, is finished. It cannot be regained except by armed revolution against the central government. That is not going to happen. You have two options: leave now or asap for another country, or try to get outside urban areas and prepare to get off the grid and actually be prepared to hide out.

The current Administration, led by a social justice/progressive president, allied with Islamic influences, has been trying to instigate a violent response to its unconstitutional authoritarianism. At some point in the near future, they will succeed.

Prepare as best you can. These authoritarian types always overreach. There may be an opportunity to catch them at a weak point and avoid violence. Let us hope so.

 

Sat, 10/19/2013 - 09:28 | 4071555 the 300000000th...
the 300000000th percent's picture

I aggree with most of this article exept for the part about the velocity of money slowing and inlation going down. Both of those claims are sophomoric academic non-sense. The text book might tell you that the velocity and inflation are gowing down, but thats because the book text book was written by a keynesian idiot, the same book that all of the academic fed members consult.

Sat, 10/19/2013 - 09:38 | 4071573 loonyleft
loonyleft's picture

It has been historically documented that central bank tools are well suited to fight excess demand and rampant inflation

No....it....hasn't...... 

This is the same thought arguments that if the US hadn't stepped in to WWII, we would all be 6' tall white german speaking residents.

Makes for a good Star Trek episode......that's about it. 

Sat, 10/19/2013 - 10:33 | 4071652 shovelhead
shovelhead's picture

Not at all.

Reduce credit, increase interest rates and that cures both ills by reducing the supply of money and increasing it's cost.

Demand is limited to cash buyers and inflation is reduced by removing liquidity and slowing velocity.

My humble offering is naturally missing a lot of peripheral nuts and bolts, but, in essence, I think my overview of the machine is sound.

My preference is that the marketplace is free to impose these changes in it's natural competitive function, but if the machine has buttons and levers, as it does, you can be sure the temptation to push and pull them will be irresistible to those with access.

BTW: Europe would be speaking Russian, not German.

 

 

Sun, 10/20/2013 - 09:17 | 4073212 OldE_Ant
OldE_Ant's picture

Actually while you and Hall may disagree if you think about the observation you may reverse your position.

There are myriads of ways to safely slow down a moving train, but only a few to safely speed it up if stopped.  This is precisely what has been observed with our financial system.

Right now the engine is dead and loading up the train with more goods to get it rolling only works on a downhill stretch, if at all.

As Hedgetard55 rightly pointed out: "For a nation to prosper and be healthy, it needs three things. Free markets, sound money and the rule of law. WE CURRENTLY HAVE NONE OF THESE."  I will add (4) that even if we had the above the sheer amount of debt the nation (and western world) is saddled with would rightly kill the economy.

To those who see the FED serving their masters in wealth transferral and obfuscating with their papers.  You are likely correct but again realize that 'rule of law', and 'sound money' would likely have prohibited such excesses.  Notice the first thing destroyed was 'sound money' by the CBs.  Once we lost any rule of law via (TBTF) those in power had free reign to rape and pillage the economy, nation, and its peoples and are doing it in full haste.  Notice the last to go was 'free markets'.

Japan not being the worlds reserve currency has been allowed it's shenaniagans the US being the world reserve currency will only be allowed such BS for so long.

Great observations by yes even the Ph.Ds that monetary policy can't do shit to grow an economy, but sure as shit can slow it down.  Which is exactly where we are today.

Sat, 10/19/2013 - 09:42 | 4071578 XRAYD
XRAYD's picture

 

  • A take on our times, from a 150 years ago.

    "Thus in "Lombard Street" (1873), in which he offered advice for dealing with financial crises that central bankers still honor, if mainly in the breach, Bagehot traced British financial instability to the Bank of England's special privileges, which, by restricting other banks' ability to issue circulating notes, caused them to employ Bank of England notes rather than gold as their cash-reserve medium. Yet Bagehot was content simply to point out the Bank's duty to place the public interest ahead of its own. As for withdrawing its privileges, he wrote: "You might as well try to alter the English monarchy and substitute a republic. . . . Nothing but a revolution would effect it, and there is nothing to cause a revolution."

    Includes his interesting take on politics and the "magic" that holds nations together -

    ""We have in a great community like England," he said, "crowds of people scarcely more civilized than the majority of two thousand years ago." ... He feared politics would otherwise degenerate into a contest over which party could most convincingly promise the moon to ignorant voters.

    http://online.wsj.com/article/SB10001424052702304213904579095363873665336.html?KEYWORDS=Bagehot

Sat, 10/19/2013 - 10:01 | 4071604 Hedgetard55
Hedgetard55's picture

My time spent here at ZH has shown me a great truth. For a nation to prosper and be healthy, it needs three things. Free markets, sound money and the rule of law. WE CURRENTLY HAVE NONE OF THESE.

Sat, 10/19/2013 - 10:26 | 4071639 Trimmed Hedge
Trimmed Hedge's picture

But why is Bernanke crying?!?

OMG, I so want to give him a hug...

Sat, 10/19/2013 - 10:58 | 4071672 SKY85hawk
SKY85hawk's picture

In part 3. Academic Studies    Robert E. Hall wrote

"The combination of low investment and low consumption resulted in an extraordinary decline in output demand,

I hear Harry Dent out in the hallway.

Someone should let him in!

While you're at it consider the lessons of history:

http://www.zerohedge.com/news/2013-05-01/former-fed-governor-warsh-admits-there-no-plan-b

-           The effectiveness of monetary policy was last discredited in the 1970s. The persistent attempts to revive growth with easy money led to stagflation.

Who remembers the 1970's? 

It was a time of Stagflation.

The 'Bob Hope" generation entered their 'spend less-save more' life stage.  OUR Parents!

It should be clear that the baby-boom is now in the same life-stage.

Not one Politician will admit they are helpless to restart Economic Growth! 

They will wait this thing out, just like before.

Even if it takes 11 to 15 years!

 

We must demand cuts in Government spending, to match cuts in government revenue.

Anyone who can suggest how to elect political representatives that don't have to BUY votes by SELLING favors would do a really good thing for the world!

 

Sat, 10/19/2013 - 11:26 | 4071711 shovelhead
shovelhead's picture

The lucky Millennials will be the ones who's parents die off before they do a reverse mortgage to replace their lost 401ks and retirement savings/pension. A few will able to afford and grab some low hanging fruit as losses on real estate take their eventual toll on banks.

The middle class will be replaced by a renter class and a low/no growth environment with high interest rates.

They're going to get deleveraging in spades but I doubt that it's going to be beautiful.

Got Disco?

http://upload.wikimedia.org/wikipedia/commons/6/6c/Plastic_%22WIN%22_sig...

 

 

 

Sat, 10/19/2013 - 11:26 | 4071712 TrustWho
TrustWho's picture

The Great Depression EXPERT was WRONG. MIT should revoke his PhD!

Sat, 10/19/2013 - 12:17 | 4071767 joego1
joego1's picture

I think that this statement sums up the whole problem;

"Eugen von Böhm-Bawerk's brilliant insight that debt is future consumption denied"

I wonder why it takes a genius to figure that out.

 

Sat, 10/19/2013 - 12:45 | 4071792 RMolineaux
RMolineaux's picture

Apparently, policy makers have been frightened by the initial impact of the possibility of tapering bond purchases by the Fed.  This impact, however, was felt only and briefly in the securities markets in April and May of this year.  The impact is mostly psychological, and if more than that - perhaps halting the irrational rise in the stock market -  may even be beneficial in the long run.   Policy makers are clearly responsive to the stock market - both for political effect and personal enrichment.  It is time to stop talking about the "wealth effect."   It is bogus.

Sat, 10/19/2013 - 13:38 | 4071899 moneybots
moneybots's picture

"The impact is mostly psychological, and if more than that - perhaps halting the irrational rise in the stock market -  may even be beneficial in the long run."

 

The rise in the stock market isn't irrational.  The money pumping has to go somewhere.

The Nasdaq gapped up on Friday, after ramping up at a faster clip from the Oct. 9 low.  In the space of a week from a recent low, the S&P was at an all time high.  The Russel 2K is up 31% this year.

Beneficial in the long run, was letting the 2008 crash, run its course.  That wasn't allowed to happen.  Instead, we are waiting for the next bubble to burst.

 

 

Sat, 10/19/2013 - 13:06 | 4071830 moneybots
moneybots's picture

"One possible reason why the Fed have consistently erred on the high side in their growth forecasts is that they assume higher stock prices will lead to higher spending via the so-called wealth effect. The Fed's ad hoc analysis on this subject has been wrong and is in conflict with econometric studies. The studies suggest that when wealth rises or falls, consumer spending does not generally respond, or if it does respond, it does so feebly."

 

Real income has declined what, 8%?  There is your wealth effect.  43% are earning no more than 10 an hour.  The inflation adjusted minimumm wage of 1968 would be about 10.50 now.  There is your wealth effect.

The wealth effect really only applies to a few people at the top of the income pyramid.  It hasn't been trickling down to the rest of us.  Debt is not wealth.

Sat, 10/19/2013 - 13:24 | 4071871 moneybots
moneybots's picture

"The September 2013 level of 3.1 is the lowest in the entire 100-year history of the Federal Reserve. Until the last five years, the money multiplier never dropped below the old historical low of 4.5 reached in late 1940. Thus, LSAP may have produced the unintended consequence of actually reducing economic growth."

 

Also known as pushing on a string.  Proving once again that math is smarter than the FED.

Sat, 10/19/2013 - 13:36 | 4071887 theprofromdover
theprofromdover's picture

So where will be the tipping point? All those in control are on on side of the scales; they outweighed the rest of us by tonnes, but are losing blubber by the day.

Hope against hope- I wonder whether someday soon, a smart editor on CNBC (we can surely dream), will tell his muppet crew to start speaking the truth, and expose the crass and criminal stupidity, the corruption, the manipulation, and the shredded constitution.

They must sense where their audience lies, and even a regime mouthpiece as weak as them can finally waken up and swing behind their mass audience.

 

Sat, 10/19/2013 - 13:52 | 4071927 Ned Zeppelin
Ned Zeppelin's picture

The mistake is in imaging for one moment that the Greenspan-Bernanke-Yellen Fed has failed to accomplish its goals. You should in fact assume that they have achieved their goals handsomely. They are just not the stated goals.

Now you get it.

Sat, 10/19/2013 - 14:42 | 4072014 Eric L. Prentis
Eric L. Prentis's picture

Congratulations to Lacy H. Hunt, Ph.D., on his excellent article entitled,Lacy Hunt Warns Federal Reserve Policy Failures Are Mounting.” And to the Zero Hedge writers group (Tyler Durden), for posting this exceptional analysis.

 

Sun, 10/20/2013 - 07:48 | 4073126 quikwit
quikwit's picture

"If the Fed were consistently getting the economy right, then we could conclude that their understanding of current economic conditions is sound. However, if they regularly err, then it is valid to argue that they are misunderstanding the way their actions affect the economy."

Mis-understanding, or interests adverse to the population?

Sun, 10/20/2013 - 11:46 | 4073510 RaceToTheBottom
RaceToTheBottom's picture

So basically the summary is that in gratitude of being bailed out and proving the free money to give themselves huge bonuses, the banks have decided there is nothing of value to invest in and are holding the bailout money as reserves against the worsening economic picture they are creating....

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