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Guest Post: Larry Summers Admits The Fed Is In A Liquidity Trap
Submitted by Lance Roberts of STA Wealth Management,
I recently wrote an article entitled "What Is A Liquidity Trap & Why Is Bernanke Caught In It?" wherein I discussed the definition of a liquidity trap as:
"A liquidity trap is a situation described in Keynesian economics in which injections of cash into the private banking system by a central bank fail to lower interest rates and hence fail to stimulate economic growth. A liquidity trap is caused when people hoard cash because they expect an adverse event such as deflation, insufficient aggregate demand, or war. Signature characteristics of a liquidity trap are short-term interest rates that are near zero and fluctuations in the monetary base that fail to translate into fluctuations in the general price levels."
Importantly, this evidence is mounting that the Federal Reserve has now become trapped within this dynamic. The boost in asset prices caused by the increased levels of liquidity in the system has benefited the wealthy while doing little to jumpstart the real economy. As I stated previously:
"However, the real question is whether, or not, all of this excess liquidity and artificially low interest rates is spurring economic activity? To answer that question let's take a look at a 4-panel chart of the most common measures of economic activity - Real GDP, Industrial Production, Employment and Real Consumption."
"While an argument could be made that the early initial rounds of QE contributed to a bounce in economic activity; it is also important to remember several things about that particular period. First, if you refer to the long term chart of GDP above you will see that economic growth has ALWAYS surged post recessionary weakness. This is due to the pent-up demand that was built up during the recession that is unleashed back into the economy. Secondly, during 2009 there were multiple bailouts going on from 'cash for houses', 'cash for clunkers', direct bailouts of the banking system and the economy, etc. However, the real test for the success of the Fed's interventions actually began in 2010 as the Fed became 'the only game in town'. As shown above, at best, we can assume that the increases in liquidity have been responsible in keeping the economy from slipping into a secondary recession. Currently, with most economic indicators showing signs of weakness, it is clear that the Federal Reserve is currently experiencing a diminishing rate of return from their monetary policies."
From this standpoint it was shocking to see someone, particularly Larry Summers, actually discuss this issue during a recent CNBC interview stating his case on why it is wrong to rely on monetary policy as the main driver of the economy.
The important point is that, for the first time that I am aware of, someone has verbally stated that we are indeed caught within a liquidity trap. This has been a point that has been vigorously opposed by supporters of the Federal Reserve actions.
Of course, the lack of transmission of the current monetary interventions into the real economy has remained a conundrum for the Federal Reserve as the gap between improving economic statistics and the real underlying economic fabric continues to widen. As Larry states, we are indeed in uncharted territory. With the direct manipulation of interest rates near impossible, it leaves only verbal (forward guidance) and liquidity (increases of excess reserves) policy tools available. The problem is that these tools have never been used to such a massive extent before in history. While analysts and economist continue to suggest, with each passing year, that stronger economic growth is coming; it has yet to be the case. As discussed previously, this is a tell-tale sign of a liquidity trap.
My belief all along has been and remains that a well thought out combination of both fiscal and monetary policy is the correct remedy for what ails the U.S. economy currently. However, up to this point, the Fed has been the "only game in town" to quote the famous words of Senator Chuck Schumer. I have to admit that I was pleasantly surprised by Larry Summers view point as I believe that it is the correct one at this late stage of the current economic recovery cycle.
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Well, duh?
Big man, pig man, ha ha, charade you are
You well heeled big wheel, ha ha, charade you are
And when your hand is on your heart
You're nearly a good laugh
Almost a joker
With your head down in the pig bin
Saying 'keep on digging'
Pig stain on your fat chin
What do you hope to find?
When you're down in the pig mine
You're nearly a laugh
You're nearly a laugh
But you're really a cry.
So THAAAATS why Summers turned down the FED job. At least he's smarter than Yellen... Whatever that means.
Whenever I see larry Summers, over $600 trillion in derivatives comes to mind.
The fact that Larry turned down the job is the #1 indicator that things will fall apart in the next several years.
The FED job is the top aspirational goal of all finance types, it is equivalent to being president in those circles and forever enshrines them in history (as they see it).
The only reason someone like Larry would turn down the top spot is if they worry that the risk of holding the position during the wipeout outweighs the benefit of holding the role. The benefit of holding the role is high, so the risk in Larry's view must be higher.
Larry is privy to more real economic data then Yellen is, this is why he turned down and she accepted...
And that is why Yellen got the job. Is Larry pissed?
Oh shit.
This is probably the last guy I ever wanted to concede the point I been making for years now. You all are my witnesses. I been stating over and over again, that we're caught in a Liquidity Trap. A monetary phenomenon brought about by non-monetary factors, those being a Credibility Trap.
Thanks a lot, Larry.
jeeesh!
Why not somebody in whom I've a great deal of respect.
Then again, better late than never.
Nice of you to hang Janet out to dry under this circumstance.
LOL
PS... I'm not sure Larry turned down the job "voluntarily"
Just watch Paul defer on Yellen's approval without a complete Fed Audit
But he looks so good eating crow:)
Now we know why Summers was not nominated to head the Fed...he basically is telling the world that the Obama administration has failed to create an enviroment conducive to jobs and growth because their has been no adjustment in fiscal policy from the legislative and executive branches. God knows the Repugs have tried to push some plans through only to be ki-boshed by the Destructocrats. Unfuckingbelievable the amount of damage the lying asshat in the white house has done to our economy, yet his entitled sheeple lap up is bullshit like it was ice cream.
Oh fuck me!
Yeah, Liquidity Trap one way, and Golden Valleys the other. The Fed is DISPOSABLE!!!!
US Gold Treason
http://twoshortplanksunplugged.blogspot.com.au/2013/10/us-gold-treason.html
knuckles - you are the only guy that gets it. i like watching the rookies, but they will learn saying he turned it down. summers didn't turn down anything. he wanted it bad, and infact, what's he got to do at the moment? fuck all. he wanted that acceptance to the club real bad, even if he knows the truth. now he tells the truth, sour grapes. he's just that kind of guy. what did we call it as kids? 'sore loser'? i promise you one thing, he's totally out of the club now.
"... things will fall apart in the next several years."
Several ?
"Insufficient demand" - For what Larry? There are 7+ billion (and growing) people all competing for a better standard of living. There is plenty of fucking demand you corrupt piece of shit.
americans are the number one consumer, and we're already obese, living in homes that are too big, filled with too many things, driving cars that are too big, taking out 2nd mortgages for student loans...etc...in other words the sheeple are fully fleeced...there is no more macro demand....and the population curve is changing....
"..and the population curve is changing...." - bullshit. Especially not with all the "fucking" going on...
Billions a chinese, latin amercia, mexico, india....there's plenty of demand. Only problem is you'd have to actually apy people wages. can't have that, where the hell would we get slave labor from??
Um, for-profit prisons?
>> Summers turned down the FED job.
I'm pretty sure Larry turned down the Fed job for the same reason I wouldn't charge a machine gun nest naked and unarmed, there wasn't a chance in hell he was going to make it. Larry didn't turn down the job because of some intellectual brilliance.
let's see. first, timmy disappears, then ben says bye and then larry begs off. then they give the job to a woman while a black guy is in the white house. as a topper, larry makes sure to be on the record as predicting failure because the politicians won't do their job and the bankers don't have the right tools. you can't make this stuff up. the only question left is when does the sh*t hit the fan.
My belief all along has been and remains that a well thought out combination of both fiscal and monetary policy is the correct remedy for what ails the U.S. economy currently.
Er, yeah, that's right, the central planners in the Fed are insufficient, we need the combined wisdom of them and gubment to save us!
Give me a fucking break. The correct remedy for waht ails the US economy is to allow asset prices - ie, capital - to reflect real-life yields.
Another banker trying to cover his tracks in history......BWAAAAAA......too funny
That's why he didn't take the chairmanship position. He knows this is about to fall apart.
Bob, you may be right. Never thought I'd hear a Fed guy actually utter the phrase "liquidity trap". That's supposed to be done by keyboard jockeys like me (having said this since the first day I showed up at ZH).
Larry that prick was smart enough to not take the FED job, he didn't want to fall on the sword. At this point how can anyone defend what the FED and the USG is doing concerning monetary policy?
Bullish!
So Summer turns to autumn leaves, falling in Indian summer blaze, and soon to winter.
That says it all!
see im a good guy
give me a big important position
i wont fuck it up--signed larry dummers
Politics at it's finest. Throws soon to be Fed chair Yellen and the money plunderers under the bus and elevates himself above the fray at the same time. For a dumb ass fuck up like Summers I got to hand it to him on this one.
And that is why they cut out Larry's legs from under him and went with yellow stain. I still don't like Larry but we don't need moar of the same when it isn't working as is.
Can't help but wonder if old Larry is busy poisoning the well for Janet.
Possible. I still think they threatened to drop some dirt on him if he didn't voluntarily drop out of the race since if nothing else he seems to come off like someone who will go against the script once he gets his position and the powers that be wanted the safest choice possible with no competition.
you would seem to be correct. because he was really close. and if he was that close, he was connected enough to know what the playbook was, even
at the time that he screwed up the harvard endowment, which means, he knew which way the ball was going to be tossed, but thought he could still end run and prove smarter. loose cannon. tough to get ahead.
"...at this late stage of the current economic recovery cycle."
Really? We're nearing the end of the recovery cycle? Hmmm...one of us really must be an idiot.
Maybe he meant "late" as in "deceased."
Janet got the job because she didn't talk like this...
Janet is TWICE the man summers is......
She's gonna need some cojones....
Janet is at least 3x the man Larry is. My god, will someone harpoon that beast???
Janet got the job because, she's dumb enough to take it.
She certainly looks the part. She's got a face for radio, no doubt about that.
I heard a rumor that Larry Summers and Alan Greenspan are starting a hedgefund.
They are, and it is rumored to be called Homina Homina and Homina
Hava Nagila
"Homina Homina and Homina"
Thats good.
How about Short Term Capital Management (very short term).
Funny, I heard a rumor that Larry and Alan take turns shoving their heads up each other's asses...
QE can be summed up like this old drug commercial.
I do coke so I can work longer,
So I can earn more,
So I can do more coke........
Wash, Rinse, Repeat
and the best part is someone starts singing I am chasing rainbows at the end of it. They forgot the unicorn part though
https://www.youtube.com/watch?v=XGAVTwhsyOs
"people hoard cash because they expect an adverse event such as...insufficient aggregate demand"
"Insufficient aggregate demand" merely means business conditions are crummy and there's no reason to invest.
Makes sense - would YOU start a business now?
Yet the Keynesians HATE this, calling it "criminal", "theft"., "stealing from the state" and such nonsense.
What do you expect from liberals?
I expect truth and justice; but I'm an oxymoron.
"people hoard cash because they expect an adverse event such as...insufficient aggregate demand" "Insufficient aggregate demand" merely means business conditions are crummy and there's no reason to invest."
I thought it meant they expect the government to steal any asset they buy and leave within the custody of a business subject to federal regulation, as the entitled vote themselves one final 2 year all expense paid orgy of Ripple and Obamaphones on the tab of the dwindling number of workers left to fund the free shit army.
My bad.
Re: What do you expect from liberals?
Do I REALLY need to repost what Cheney said about Reagan proving something about deficits?
Liberal echo chambers are presently blaming the Obamacare debacle on the legislation not going far enough (should've gone single payer!).
And they call themselves the reality-based community.
Re: reality-based community
And entitled OldFarts living the socialist highlife off the backs of younger people is reality?
Git yer hands off my government motorscooter, I'm ENTITLED to that 3rd hip replacement surgery. Why don't you cut some real socialism.
The true-beleiving dumbasses of both Teams haven't been living in reality because everybody loves the socialist scam they are living off of or getting rich off of.
When the OldFart leaches cut their medicals scam tell me about Obama-care being a socialist scam.
Duplicity, ask for it by name!
The old farts are off the playing field. Now let's see how you young hot shots do.
How does "hoarding cash" aka "saving" hurt demand? When we put the money in the bank, the bank lends it out again don't they? The money gets spent, the banks get their rakeoff, how does that slow the velocity of money?
<--- Maria uses a thong
<--- Maria does NOT use a thong.
I do not think the word "use" means what you think it means. Perhaps she does indeed "use" the thong to say, balance a table properly in a restaurant. Or perhaps to clean the rear view mirror. I will upvote on the basis you mean she wears, or hypothetically would leave on my floor, this mysterious and rare thong clothing item.
you are correct.
O you didn't hear? Ever since the surgery he wears briefs now....
Larry has an absolute stranglehold on the obvious.
If I never hear the word "taper" again, it will be too soon.
I am glad that Larry S has brought up the Fiscal side of things.
Perhaps Larry would like to talk about the costs of the subsidies the US provides to corporations from small Mom and Pop farms to the largest defence contractors and WS Banksters.
You are going to improve the fiscal position of the US a hell of a lot more by hitting the big players rather than chasing some welfare cheat's Obama phone (not that it should be tolerated).
Maybe Larry can talk about Bang for Buck?
Re: welfare cheat's Obama phone
WHAT?! You mean that guy that wanted to drowned the beast in the bathtub wasn't going to drowned Big-MIC too?
I'm sure all the REAL "Conservatives" would have wanted ALL the Big-Gov scams equally trimmed back, don't ya think?
I bet the last real conservative is the only member in that other mythical beast, the free market.
Haven't seen any of those in a coon's age....
I have a way out of the Liquidity Trap for Summers:
It involves some 'leveraging' (depressing a lever), which then causes the excess Tapered products to be flushed out of the system. Caution: A manual Taper Decongester may have to be used with excessive Tapers congesting the system.
OO Larry the will sick dick for coke hooker Summers. You are an utter waste of matter. You are a fraud and a bad joke of yourself. I wouldn't trust you with a single dollar you rat fink. Look how you beg and pander like a disease ridden gypsy.
Did you also not pay your illumanti dues on time on you rejected hack? There isn't a crazy enough conspiracy theory to explain the levels of your ineptitude.
I sure picked a bad day to stop believing in "Keynesians" !
i guess he lerndid them complikated werds at hahvahd
liquidity trap = fuck job joo fest ponzi scheme skimming operation
Yo, as long as Pinkman continues to cook, we'll be OK to BTFATH, Bitchez!
The economy isn't going to recover until the bad debt is cleared from the system through a default mechanism. Unfortunately, the holders of that debt don't want to see that happen, and they've got plenty of policymakers in their pockets.
No Larry is only saying this solely because he will not be the Fed Chairman. I can assure you it would have been a print-a-thon had he be chosen. He can be truthful now because THEY ARE ALL AWARE of the ponzi in place but now he can snipe but rest assured it would have been talking out of the left side of his mouth if he was installed.
yes mr. mccloy. sour grapes. they all now. and deep in the future after the crash, when one of the (greenbeans will be dead and probably yellin also), bennie will say 'but i gave you all the opportunity to be rich, you should have sold at the top. there was nothing else i could do.
Soon Summers, Greenspan and Bernanke can comment from afar and mock Yellen as she fails.
Committee to Save the World Reunion tour
THAT is why he is not the incoming fed.
He is honest. Shame on him!
I heard a lot of fancy words blown out of the mouth of that guy. It's so much easier to visualize when we go back to what we got taught in high school economics: the Fed is pushing on a string.
Why is it the last 15 years we seem to be led by the worst possible characters during a time when we needed good leaders the most:
Clinton - definition of is, impeached, disbarred
Bush - 911, Iraq, Prescription Drug bennie, out of control spending, TARP
Pelosi/Reed - an absolute incompetent Congress
The Bamster etal - Obamacare, stimulus, Dodd-Frank
Boehner - incapable of communicating a vision, budget battles, debt ceiling
Bennie - QE to infinity
And all the rest of the recent rascals.
We have lost our way, the only option is to repent. I do not expect that anytime soon.
sschu
Re: Why is it the last 15
15 years? The country has been hooked on the debt narcotic since Johnson's and guns-n-butter ensured the Merican dumbasses didn't mind trying to exterminate the Vietnamese.
Johnson, Nixon, Reagan... it's been immorality and evil for 60+ years.
You are right to have a longer historical perspective. It is a 60+ year cycle that is nearing its end in a super debt cycle collapse.
The last decent president was Grover Cleveland, although some would say that Coolidge wasn't too bad.
That's "reset" not "repent". There, fixed it for 'ya!
Thanks, but the correct word is repent. Our problems are so big, so complex, so self-induced and unsolvable by our own means the only option left is to repent and appeal to our God. Anything less seals our doom. FWIIW, sschu
I have to blame the Boomers for this one--they have held the voting majority for that entire period of time. It is that generation's majority preferences that we are witnessing, and those people, unfortuantely, are a bunch if drug-addled, brainless fools. Please understand that I didn't say all Boomers are that, it's just that infantile and simplistic attitudes have a way of taking hold and so we have the worst aspects of a whole large generation of people being magified and the result is hopelessly incompetent leadership that panders to adults who behave like children. Almost no one from that group is ready to retire or even saved for it because they are children who believe that everyone else will make accomodations for them no matter what. It's what they have been taught over and over again--entire cities were brought into existence because of the Boomers. The reason we have fast food, strip malls, and the "Happy Motoring" culture that Mr. Kunstler complains about is all because of his generation! It's what they collectively wanted, and they got it good and hard.
I am of the boomer generation and I agree that the incredible social, political, and cultural screw ups can be pinned on us. After being a revolutionary generation in the 1960's we made our long march through all American institutions and proceeded to revert to authoritarianism, cronyism, malfeasance, disinformation, spinmeisterism, and marxism. We deserve the pain we are heading into.
""It is the common fate of the indolent to see their rights become a prey to the active. The condition upon which God hath given liberty to man is eternal vigilance; which condition if he break, servitude is at once the consequence of his crime and the punishment of his guilt." – John Philpot Curran: Speech upon the Right of Election for Lord Mayor of Dublin, 1790
The vigilance required is almost entirely needed for one's own government, *not* enemies abroad. I'm pretty sure the Founding Fathers were a lucky mistake, and the erosion of what they put in place has been going since well before the advent of the boomers. (Lincoln completely trampling laws and rights setting the pattern of unbridled gov abuse comes to mind as a watershed moment in history). Consider the possibility that the problem has passed well beyond the possibility of being remedied by "voting"...
"I have to blame the Boomers for this one--they have held the voting majority for that entire period of time. It is that generation's majority preferences that we are witnessing, and those people, unfortuantely, are a bunch if drug-addled, brainless fools. Please understand that I didn't say all Boomers are that, it's just that infantile and simplistic attitudes have a way of taking hold and so we have the worst aspects of a whole large generation of people being magified and the result is hopelessly incompetent leadership that panders to adults who behave like children. Almost no one from that group is ready to retire or even saved for it because they are children who believe that everyone else will make accomodations for them no matter what. It's what they have been taught over and over again--entire cities were brought into existence because of the Boomers. The reason we have fast food, strip malls, and the "Happy Motoring" culture that Mr. Kunstler complains about is all because of his generation! It's what they collectively wanted, and they got it good and hard."
The boomers are shuffling off the playing field. Now we get to see what a great job your generation does.
Hell has no fury like a woman scorned.
If there was any more liquidity, the planet would be one big ocean with no continents. I think Al Gore (asshole) has postulated something about that.
Can we just get real here for a moment? The entire idea of "QE" is a sham. Wall St does not pump the economy just as the tail does not wag the dog. The entire scam was designed to transfer taxpayer money to the central banks. This has nothing to do with curbing unemployment, which is actually now at about 30% or higher than during the Great Depression. None of the other numbers issued by the U.S. government are believable either. And why is anything that comes out of Larry Summer's mouth or any other orifice newsworthy?
Re: The entire scam was designed to transfer taxpayer money to the central banks
Yeah, it's almost like the "Liberals" and "Conservatives" weren't paying attention for the last 60+ years as long as their favorite political Team kept the debt-spice flowing to their favorite Big-Gov scams.
I mean, WhoCouldaKnowed that never having to pay for anything could lead to bad results. Surely not Krugman.
Uh, duh. This is exactly the argument for moar QE if you are trying to stimulate--to reduce LONG TERM interest rates. Monetary econ 101.
"My belief all along has been and remains that a well thought out combination of both fiscal and monetary policy is the correct remedy for what ails the U.S. economy currently."
With 17 trillion in federal debt and Obamacare, it is too late for that combo.
I'm sure I don't get the magnificence of the Summers, but if a liquidity trap is signified by low interest rates would not exiting a liquidity trap just blow up the monetary system as .gov cannot finance itself at higher rates?
No Shit!
And he was the guy that single handedly volunteered to start it all by removing G-S 15 years ago.
Oh and to add to this.
He's saying this because he got shafted as Chairman at the Fed.
Vicious little bitch, isn't he. Typical keynsian. They'll scratch each other's eyes out rather than be collegiate...just like their mentor, the Rothschild backed satyr and boy fiddler, JM Keynes.
The Fed is a 100 year old institution. When you turn 100 incontinence is usually one of the least of your worries. We are right on schedule
Order uncle Bennie some depends!
Response for Lance Roberts STA Wealth Management.
You mention the Keynesian liquidity trap. Run a system of creating money for decades the invevitable end game is the liquidty trap. How so? After decades of central bankers creating money the amount of money held by the majority of the population is too small in respect to the TOTAL VALUE OF THE SYSTEM. At that point you are in the liquidity trap with no way out. Do you think there is one? By defining what I have expressed it would mean the majority of the population being returned a larger portion of the total monetary system and then you are out. NOT GOING TO HAPPEN so you are stuck in this liquidity trap that is in reality another way of expressing there are too many with not enough to really change the economic outcome.
Its not a liquidity trap:
"Its a liquidity shit abyss." "Whats a liquidity shit abyss Mr. Lehey?" "A liquidity shit abyss Bubbles, is when central bankers print so much money that it turns into liquified shit, where the winds of shit churn the liquified shit into a spiraling liquidity shit storm that sucks up everything into it including you Bubbles - its why they call it a liquified shit abyss because once you're in it, you can never come out the same - never come out the same Bubbles."
'
'
'
One of the great poets and philosophers of the late 20 and early 21 centuries.
http://www.youtube.com/watch?v=5R8At-Qno_o A collection of Lahey Shitisms!
•?•
V-V
you cant help but find yourself giggling like a little school girl at all the shitisms. +100 for making me laugh.
People are not hoarding cash because they fear deflation - they are hoarding cash because they fear inflation is going to make food and other necessities more expensive, and the economic collapse caused by tapering is going to collapse the economy and probably cause them to lose their jobs.
If investors are hoarding cash, its not that they fear deflation - it's because the EXPECT deflation when all the bubble level assets collapse.
Thanks, Larry. Next up: name the past Presidents and Reserve Board Chairmen, as you clearly only have hindsight vision. Schmuck.
. its the politicians fault