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An Audacious Plan To Fix The QE Non-Taper And Fiscal Non-Action in One Swift Move
Submitted by F.F. Wiley of Cyniconomics blog,
If you’re anything like us, you may have reached the conclusions that:
- Our elected officials are charting a course to a fiscal disaster.
- The Fed is repeating past mistakes by setting us up for another bust.
After the drama of the debt ceiling debate and the Fed’s non-tapering surprise, we see no reason to doubt these views.
But the latest developments got us thinking, and we have an unusual proposal. Before we share it, we’ll need to provide some background.
Recall that the Fed extended and released its economic outlook at its non-tapering meeting in September, and the Congressional Budget Office (CBO) published new projections at about the same time.
The chart below compares GDP growth forecasts from both institutions, including one path per FOMC member for the Fed’s outlook (from September’s meeting) and a single path for the CBO’s outlook (from figures published in May and used in the latest projections):
Apparently, the CBO’s Kool-Aid is much stronger than the Fed’s. You might even say it’s more hallucinogen than sugary fruit drink. Forecasting helpers aside, though, note that the predictions fit perfectly with themes favored by each institution:
CBO: The buoyant growth projection is merely an annual renewal of a long-standing CBO assumption that we’ll snap back to normal. It’s not so much a forecast but a connect-the-dots exercise of joining today’s GDP with a long-run trend line. It also explains the popular claim that there’s nothing urgent about our debt problem. By assuming a robust recovery, the CBO bends debt-to-GDP projections downward for the next few years, providing a convenient excuse for inaction. (See here or here for the debt charts and further discussion).
Fed: The unspectacular but unalarming growth forecasts are exactly what you would expect from our monetary policymakers. They’re unalarming for the obvious reason – the FOMC can’t just say the economy’s headed down a sinkhole, at least in public. And they’re unspectacular because policymakers have begun to grasp how broken the economy is, even if they don’t accept that their own policies helped with the breaking. Also, the tepid forecasts justify policymakers’ “whatever it takes” story, preserving both ZIRP and QE.
An intriguing solution
Getting back to our proposal, why not just trade the CBO’s economists for the Fed’s economists? One group of forecasters moves from the Eccles Building to the Ford House, and the other moves in the opposite direction. That’s 2.26 miles according to Mapquest, all in the same taxi zone. Relocation reimbursements would surely be unnecessary.
Think about the policy implications:
- With a growth outlook matching the Fed’s figures above, the CBO’s projected debt ratios would no longer bend downward. This wouldn’t completely pull the rug out from under the “deficits don’t matter” crowd, but it should have some effect. We should at least see a little more urgency on measures to fix our fiscal problems.
- As for the Fed, the buoyant outlook reported by the CBO’s economists would make QE less defensible if not redundant. This should encourage policymakers to follow through on their tapering plan, instead of reprising this year’s head fake.
But wait, you say: “Deep down, the CBO doesn’t like delivering bad news; and deep down, the Fed doesn’t want to taper. You can switch economists, but you can’t change outcomes.”
We know.
Even if it were plausible, our proposal wouldn’t necessarily work, and that doesn’t reflect well on the research that shapes public policies.
Which leaves us where?
In all seriousness, CBO and Fed forecasts have been wildly inaccurate, year after year. Evidence shows that these institutions don’t understand our economy. Yet, they refuse to migrate from failed methods to more successful ideas. They may claim to be learning from mistakes, but the basic approach is unchanged. You might say they’re trying to adjust to the automobile age by strapping wheels to a horse.
Take Austrian business cycle theory, for example. Fair-minded people recognize that recent years’ booms and busts were predicted by the Austrian school, even as mainstream macroeconomists were mostly flummoxed. But the mainstreamers refuses to concede that simple truth. Austrian principles are just too far removed from the abstract mathematical modeling that dominates the profession. Acknowledging that real life has proven these principles accurate and the modeling useless would not only devalue resumes but invalidate entire careers.
Unfortunately, much of the establishment considers CBO and Fed pronouncements to be gospel. We know better. The next time you hear someone giving the fiscal “all clear” based on CBO debt projections, pull out the chart above to show what’s really behind them. And the next time you hear someone extolling the Fed’s expertise, point out that a whole school of economists who actually got things right would disagree.
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The CBO predicted the Astros would win the WS this year. I did the smart thing and listened to the Fed and bet on the Cubs.
apparenlty the author still thinks that there is a political/budget fix for this clusterfuck that would benefit the American people.
Hope springs eternal...
Or so they say.
The St. Louis Federal Reserve maligns (politely) the CBO's projections and basically states that the CBO's forecasting is no more accurate than throwing darts at a board.
"The CBO’s budget projections are widely followed by economic policymakers, investors, and other financial participants. In this paper, we analyze 34 years of CBO budget projections in an attempt to determine the extent to which policymakers and the public should rely on such projections. It is not our intent to malign the CBO. Rather, our purpose is to ascertain whether the process that produces the baseline budget projections yields reasonably accurate results, given the constraints they face. Our results suggest several conclusions.
First, and not surprisingly, projections for longer horizons are considerably worse than those for shorter horizons.
Second, despite the better performance at the 1-year horizon, the CBO’s 1-year-ahead pro- jection errors are not significantly better than the projection errors made by simply using the previous year’s deficit/surplus as the forecast of the next year’s deficit/surplus. That is, the CBO could do no worse if it made its 1-year-ahead budget projections using a Random Walk model.
Third, the CBO’s cumulative 5-year projections are considerably worse than projections from the RW model; however, none of the differences is statistically significant.
Fourth, no component of the revenue or expenditure forecasts is obviously more important than the others for either the 1-year or 5-year cumulative projections. Hence, there appears to be no area where the CBO could improve its overall performance by simply improving its per- formance in a particular revenue or expenditure category.
Fifth, the CBO’s performance is significantly worse during recession years relative to non- recession years. Hence, recessions appear to account for at least part of the CBO’s relatively poor projection performance. However, the CBO’s budget projections are not statistically significant from those made by the RW model during non-recession years. In a similar vein, the performance of the CBO relative to the simple RW does not appear to be affected by the CBO’s errors in forecasting key economic variables.
Finally, we find no significant change in the CBO’s budget projection performance over the past decade relative to our 2001 analysis. The CBO’s projection errors are of similar magnitude and are just as biased as for the previous period. If past behavior is a guide to the future, our analysis suggests that projected future deficits will likely be larger than those currently projected."
http://research.stlouisfed.org/publications/review/12/01/21-40Kliesen.pdf
I think we need a one way trip to the Potomac for all these PHD's
First Rule of Bankruptcy: When faced with certain Bankruptcy and subsequent Liquidation of assets, transfer all good assets and equity into a newly created entity, and hang the creditors with the toxic assets and debt of the old.
China’s Bretton coup d'état: http://twoshortplanksunplugged.blogspot.com.au/2013/10/chinas-bretton-coup-detat.html
Is this why our Society is f*cked?... Pat Condell's latest vid There's no Racist like a Liberal Racist... "...Lower expectations for non whites is very progressive, and allowed to permeate Western Society like an insidious slime. Brown skinned Islamist extremists, (and dare I also include Obama) get a free pass while white skinned Mormons are equally "bat sh*t crazy", but P L's will happily ridicule them... because its all about skin colour. ...Deep down, Progressive Liberals don't really believe non whites are capable of being equal to whites...hence their double standards." https://www.youtube.com/watch?v=vz4PjxSmtoI
What's the breakdown in cause of death for cancer patients who actually die from cancer vs those die from the effects of chemo therapy?
What is the survival rate of cancer patients who accept their condition and refuse chemotherapy (as well as aggressive Alternative/Austrian medicine)?
What's the efficacy of popping sugar-pills to cure cancer?
Yeah, we're fucked.
Placebos work about 30% of the time.
One guy cured his cancer by watching comedies.
e.g....Norman Cousins - humor & vitamin C
The succes rate for chemo therapy over the long term is appalling. The only ones to benefit from chemo therapy are the drug companies. As with many things, the cure for cancer has been around for a long, long time. Just google vitamin B17, aka Laetrile or Amygdalin
The debt has to be repudiated.
Viahj wrote, "apparenlty the author still thinks that there is a political/budget fix for this clusterfuck that would benefit the American people."
Contrast this with what the author wrote:
From the article...
"But wait, you say: “Deep down, the CBO doesn’t like delivering bad news; and deep down, the Fed doesn’t want to taper. You can switch economists, but you can’t change outcomes.”
We know.
Even if it were plausible, our proposal wouldn’t necessarily work, and that doesn’t reflect well on the research that shapes public policies."
Apparently you, Viahj, cannot read.
sure...if only the Fed had a rosier outlook they would stop monetizing the debt and if Congress had a more realistic outlook, they would miracously balance the budget. yeah right. there is no cure and if there was, it wouldn't be for our benefit.
WE KNOW.
It will not work. There is no fucking cure!!! There are NO POLITICAL SOLUTIONS.
I KNOW THAT. The AUTHOR KNOWS THAT.
YOU KNOW THAT.
YOU DID NOT READ THE ARTICLE,
Furthermore...YOU DID NOT READ MY POST!!!
The odds are the Cubs will win. Won't they?
The "difference" between the present Keynesian paradigm and the Austrian view is reality!
Life does not operate through a mathmatical model that obeys formulas formed by "economists".
Whereas the Austrian school of thought looks at life as chaos, that we attempt to control.
In other words - "the ONLY thing certain in life is death." This is reality.
Just started reading Rothbard's Man Economy and State. Big book but very interesting. Austrian school thinking just makes sense on a basic logical gut level. It's almost too easy to see how the other team is going to play this out. They can't and won't stop. Krugman and Bernanke et al will never admit failure.
Yes. Murray Rothbard is a great read.
Also, read "The Ultimate Foundation of Economic Science" by Ludwig von Mises published in 1962, just over ten years before his death. It can still be found in its entireity, in pdf format - mises institute dot org.
The only function of economic forecasting is to make astrology look respectable.
John Kenneth Galbraith
Human Action and reaction trumps quasi gumnut bureaucrats with scientific calculators and tarot cards? The hell you say!
Especially after they droped 50k to learn how to read those tarot cards from the gypsy wagon down the street.
LMFAO!!! And it's not even April Fool's Day. Funny, funny, stuff. What's even funnier is that someone in Washington DC is going to think that this is a great idea. What a bunch of fools they are, and what a bunch of sheeple American's are. I say, Isn't it time for the Revolution? electanewcongress.com SERFS UP AMERICA!
Even more audacious: End the FED
For bonus audacity: End the CBO
You all don't understaaaand....
We need moar falsified analysis and forecasts - you know... for science!
JUST smash this in people's faces!
http://patrick.net/forum/?p=1230886
Replace the CBO and Fed with a crowdsource website. The wisdom of crowds will clearly outperform the wisdom of the thieves.
Main difference being that CBO isn't supposed to predict external economic activity, they're supposed to predict the impact of proposed legislation on the deficit. In their eagerness to manipulate CBO scores, Congress made many idiotic, implausible rules that they have to follow -- like assuming that legislation that's been delayed every year for almost 50 years (eg the Medicare "doc fix") will go into effect next year.
In all seriousness, CBO and Fed forecasts have been wildly inaccurate, year after year.
It's becoming very tiresome when writers don't acknowledge that the forecasts that they are parsing are nothing more than lies. Damn lies.
The FED needs to send every household $3 Million tax-free.
It's less than one month of QE.
You're off by a factor of 1000, but that's a good point. $3000 to every household goes into the economy much faster than $3000 to a big bank. Of course that means inflation is much faster to appear too, which is the problem. Big Ben's inflation is designed to work like slow-acting rat poison on the middle class... by the time we feel its effects we don't remember how we got it.
I stand corrected, thanks.
This hangover didn't help in my calculations.
Agree, FED Warfarin in low and slow doses. If they gave the money directly to households the detrimental effects of QE on society would be immediate. No one would go to work and inflation would happen almost overnight.
Besides, the Wall Street parasites need someone to make their lobster bisque and clean their mansions.
Moral Hazard - it will appear in physical form sooner or later.
Sort of disagree in that many of the little people would invest in the very same banks and the banks get their money anyway, maybe more after all the interest lumped on top of the debt the numbskulls will definitely overspend. This way it's the same as giving the money to the bank and all the little people think they actually get something.
Sort of like getting a little lube rather than being ass raped dry.
How is that "disagreement"?
Yes the Banks would end up with the money if $3,000 were distributed to every American. Yes they may get to expand the amount of Money due to Fractional Reserves Requirements.
(I am not sure how you assessed that Interest would be generated from a Private Recipient. It is the same amount of Interest if the Fed borrows it and distributes it to the taxpayer as the Interest as if it were indirectly funneled to the Banks through Government Spending. The Financing Expenses are equivalent.)
The end result is an immediate increase in Monetary Velocity, Price Inflation, if distributed to the population, ebworthen is correct.
That is what ebworthen wrote.
Damn...You know that this is the second post which I have read in the past five minutes where the person who "read" it had apparently not comprehended that which they read?
Did you also drink too much last night?
Ebworthen makes an arithmetical mistake which is due to Hangover. Then you seem to miss his point.
Then viahj makes an assessment that the author of the article believes that there is a "Political Solution" when it is apparent that the author does not.
Furthermore Viahj misses the POINT that the CBO and FOMC Numbers are INCOHERENT, suggest two different FISCAL POLICY paths and that you can POINT OUT THE CONTRADICTION INHERENT with the two sets of projections.
(Which...actually was pretty humorous since his blog is a COMIC.)
Sundays are good for Hangovers I guess. I don't think the Comments section are going to be insightful today.
That goes against what happened with the tax rebate checks mailed out in 2009. It was hoped that the recipients would use the money to buy stuff, as they had in 2003 with the Bush $300. But most recipients used the Obama $300 to pay off debt rather than buy new stuff, pissing off the elites to no end.
There in lies the rub when they are in debt they will use the money to deleverage when they aren't they will use it on consumables. You can't stimulate a deeply in debt household and economy until it sufficiently delevers first or enough that it is confident that spending on consumables won't derail the deleveraging process. In bizarro world that is Congress and the stock market they do the exact opposite.
601(d)..... just buy the dips... they just did a 1240 dip now its 1353 just buy the dips, stack don't ever sell as this is long term investment - physical only. pre-33s.
I personally don't believe these 'institutions' (POS) are wrong.
I believe they are lying.
The entire 'system' is fraudulent and deception based. Particularly with the installation of a certain 'President' who goes by the moniker of Barack H. Obama.
IT'S ALL A LIE.
The lie is the nation itself at this point and the only question is why do they so revel in making this lie so obvious?
I'm certain that there is an objective.
"ALL WAR IS DECEPTION"
And so in truth this is war.
I am in 100% agreement with this, and wonder why the perspective is not the basis for discussion of what the Fed and CBO in reality are.
Even the writer guy's entitled cynicism seems as so much distractionary disinfo because he is obviously not cynical enough ... to trust.
Forecasts by most economists fall into the same category as promises by politicians.
Its all about the dollar now. They don't care about the deficit, they don't care about the $17 trillion, they don't care about signing off the budget, they don't care whether Wall St steals all the money.
The only thing that matters now, is if the rest of the world says "dollars? we don't need your stinkin' dollars".
So then they'll sneak a one-for-one $ to the new SDR currency from the BIS, create a world currency in favor of the Fed, and drag the rest of the world down with them.
Who is gonna stop that?
The criminals of the government and banks are morally broke. That can only be 'fixed' by removing them and their heads.
An American citizen not a US subject.
The Four Rs
Rejection: Quit paying, quit obeying , quit playing
Revolution: It is inevitable, so prepare, as they are.
Retribution: Is there really any place for these sociopaths and criminals in a restored civil and Constitutional society?!
Restoration: Restore the Constitutional republic.
Excellent.
yeah ... i don't think it's koolaid they are drinking at cbo ...
The CBO's “forecasts” have nothing to do with revised historical values of GDP. They have to do with austerity measures and macro-economic policy.
In a matter of three years, according to the CBO “forecast”, the budget deficit will be reduced from 7 percent of GDP in 2012 to 2 percent in 2015. A budgetary shift of this nature can only be implemented by “economic shock therapy” leading to socially devastating cuts in public expenditure, which will inevitably result in a wave of civil unrest. (That's what DHS is preparing for).
Built into these “forecasts” is the presumption that drastic austerity measures leading to major cuts in government spending will be carried out over a ten year period (2013-2022) thereby reducing the size of the budget deficit as well as its percentage ratio to GDP. We are not dealing with statistical concepts, the CBO “forecasts” through these 2013-2012 figures a process of fiscal disintegration and impoverishment of the American people.
The so-called CBO “estimates” for 2013-2022 are based on the assumption that austerity measures (which have not yet been formally adopted) will lead to the downsizing, phasing out and/or privatization of a large number of State programs including medicare, medicaid and social security. How else would it be possible to slash the budget deficit from 7 to 2 percent of GDP in 3 fiscal years?
Medicare, Medicaid and Social Security represented in FY 2012, 45 percent of total government expenditure.
Meanwhile, legislation has been launched in the House of Representatives to drastically curtail the Food Stamp program over a ten year period (FY 2013-2022)
As the man said, " we know what has to be done, we just don't know how to get re-elected once we've done it."
So they won't face the truth, they won't cut anything.
The CBO's “forecasts” have nothing to do with revised historical values of GDP. They have to do with austerity measures and macro-economic policy.
So ... this rise in GDP predicted by CBO would then be mostly government expenditures on expansion of the police state and creation of a forced labor system for tens of millions of the unruly. Right?
What other "productive activity" would be going on when DHS is rounding people up and killing them?
It doesn't matter who is doing the spending, whether it's producing or destroying, all that matters is that money is being spent on something or other.
If "reeducation camps" don't suffice, they'll implement the Final Solution.
Hitler and Stalin would be proud of how we've taken their ideas and made the public beg for it.
http://www.youtube.com/watch?v=Ed3blMnyREY
Nothing is based on austerity as there can be none. Everything is based on fantasy growth figures. That's how the deficit is supposed to drop.
I have a better solution, one which I acknowledge was suggested by Jim Milstein....."Sell Alaska!" Think it over, we could get a pretty penny for that isolated piece of American territory with fewer voters in total than in one of New York Cities boroughs.
Trade an actual asset with vast natural resources for fiat paper that would only be frittered away anyway? I'll pass on that one.
An even more modest proposal: Trade all those economists for the sweat off Miley's ass.
Let's have a contest to see which of them can be more accurate forecasting *last* year's economy.