Is The Fed Losing Faith... In Itself?

Tyler Durden's picture




 

The cracks in the Fed's narcissism started to show at Jackson Hole, where Bernanke's speech did nothing for the market; and as the FT points out, the biggest worry on display was whether these bureaucrats, sitting at the heart of every mature economy, still have the power to influence demand. Lurking behind many debates was this question: if central bank policies are so omnipotent effective, why is the global economy not growing faster? Everyone's favorite honest-dwarf Fed Governor, James Bullard, summarized perfectly:

"I am a little – maybe more than a little bit – worried about the future of central banking. We've constantly felt that there would be light at the end of the tunnel and there'd be an opportunity to normalize but it’s not really happening so far."

 

"What I’m worried about is this creeping politicization."

With monetary financing of governments on the increase (unconditionally by the Fed and conditionally by the ECB), it is clear that more radical options are increasingly mainstream as the textbook is not providing the answers.

 

Via The FT: Not So Different This Time

...

 

There are a few possible reasons why repeated rounds of central bank communication and quantitative easing, as the policy of buying long-dated assets in an effort to drive down long-term interest rates is known, have not brought about a strong recovery.

 

One is that something structural has changed to hold back growth. Speaking from the floor in Wyoming, Donald Kohn, another former Fed vice-chair now at the Brookings Institution, raised the possibility of “something deeper going on”, perhaps related to savings behaviour or the changed distribution of income between labour and capital.

 

Another is that the tools work, even if current conditions blunt their effect. If there are new headwinds, then the answer is to use them more aggressively. That is the mainstream view among central bankers.

 

“A balanced reading of the evidence supports the conclusion that central bank securities purchases have provided meaningful support to the economic recovery while mitigating deflationary risks,” said Ben Bernanke, the Fed chairman, in his remarks at Jackson Hole.

 

A third possibility is perhaps the most alarming for central bankers such as Mr Bernanke, who have staked their reputations on successive rounds of quantitative easing: that it simply does not work.

 

In his presentation at Jackson Hole, Columbia University professor Michael Woodford presented evidence that, to the extent asset purchases have lowered long-term interest rates in the US, their effect was indirect. People saw the purchases as a signal that short-term interest rates will stay lower for longer, he argued.

 

That paper gave the assembled central bankers some food for thought, but will have little bearing on their immediate policy choices.

Woodford's paper (page 83-86 of most note):

mw

 

If the Fed itself is admitting it is becoming irrelevant and obsolete, then perhaps regimes are changing.

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Sun, 09/09/2012 - 22:12 | 2777318 vast-dom
vast-dom's picture

"If the Fed itself is admitting it is becoming irrelevant and obsolete, then perhaps regimes are changing." WTF? The Fed admits exactly what as QE is raging on (as both constant FLOW and Sheeple Ponzi St grand annoucements) and NIRP is full steam ahead and yield curves are fucked every which way????

Sun, 09/09/2012 - 22:23 | 2777354 ghengis86
ghengis86's picture

Can the Fed create more debt that even it can't monetize?

Mon, 09/10/2012 - 02:40 | 2777699 Popo
Popo's picture

The Fed can create infinite amounts of debt.

The issue is that the Fed cannot create consumer demand because demand is a function of both wealth and asset prices, and at 0% rates the Fed is actively destroying wealth -- while driving raw materials, assets, food and energy higher. The Fed itself is killing demand over the long term.

The simplest analysis is this: The Fed is creating margin-compression. (ie: Higher input costs & lower spending power).

0% rates and new debt issuance simply drive the input costs (raw materials) higher, and do nothing for spending power. This is a terminal curve and will mathematically *always* ultimately result in collapse because input costs hit the "ceiling" of consumer capacity. At which point nobody can consume and nobody does -- and output capacity starts to get destroyed.

The only thing the Fed could do to stimulate demand would be to stimulate spending at the grass-roots consumer level through *actual* printing. (ie: The "helicopter" strategy). But this "answer" would simply be the beginning of the terminal blow off, as asset prices soar and currency values collapse. It also exacerbates the problem of the overhang in productive capacity.

Oil prices would ultimately bring that party to an end relatively quickly.

Will they go there? Maybe. But not casually. Bernanke is a religious zealot when it comes to his theories, but he's not a jackass. He knows how to read a chart and he knows where his magical liquidity river flows. The Fed is caught between it's current policy of wealth-destruction/margin-compression and the temptation to stimulate spending through more direct (and economically fatal) measures.

One thing is for certain: The next move is a big one, whatever they decide. And they know it. And for that reason they *won't* move until there is a dramatic market event that allows them to make excuses.

The biggest wrinkle in this entire mess is Iran. One false move and oil prices shoot the moon. If anyone thinks Bernanke's hands are tied now -- just imagine oil at 200% it's current PPB.

Then the Fed is well and truly fucked.

Mon, 09/10/2012 - 02:53 | 2777719 prains
prains's picture

The(n) the fed is well and truly fucked

all is needed is drop the N and that sir is spot fucking on

other than the whole system is run by a bunch of cock sucking donkey fucking weasely shit heads who collectively 

could never get laid on their god given abilities so have resorted to cash hoarding for vag. this was their end game

and we will ALL have to pay dearly for it. 

Mon, 09/10/2012 - 06:08 | 2777810 AldousHuxley
AldousHuxley's picture

END OF THE FUTURE by Peter Thiel

 

Modern Western civilization stands on the twin plinths of science and technology. Taken together, these two interrelated domains reassure us that the 19th-century story of never-ending progress remains intact. Without them, the arguments that we are undergoing cultural decay—ranging from the collapse of art and literature after 1945 to the soft totalitarianism of political correctness in media and academia to the sordid worlds of reality television and popular enter tain ment—would gather far more force.

Liberals often assert that science and technology remain essentially healthy; conservatives sometimes counter that these are false utopias; but the two sides of the culture wars silently agree that the accelerating development and application of the natural sciences continues apace. Yet during the Great Recession, which began in 2008 and has no end in sight, these great expectations have been supplemented by a desperate necessity.

  1. We need high-paying jobs
    to avoid thinking about how to compete with China and India for low-paying jobs.
  2. We need rapid growth to meet the wishful expectations of our retirement plans and our runaway welfare states.
  3. We need science and technology to dig us out of
    our deep economic and financial hole, even though most of us cannot separate science from superstition or technology from magic.

In our hearts and minds, we know that desperate optimism will not save us. Progress is neither automatic nor
mechanistic; it is rare. Indeed, the unique history of the West proves the exception to the rule that most human beings through the millennia have existed in a naturally brutal, unchanging, and impoverished state. But there is no law that the exceptional rise of the West must continue. So we could do worse than to inquire into the widely held opinion that America is on the wrong track (and has been for some time), to wonder whether Progress is not doing as well as advertised, and perhaps to take exceptional measures to arrest and reverse any decline.

The state of true science is the key to knowing whether something is truly rotten in the United States. But any such assessment encounters an immediate and almost insuperable challenge. Who can speak about the true health of the everexpanding universe of human knowledge, given how complex, esoteric, and specialized the many scientific and technological fields have become? When any given field takes half a lifetime of study to master, who can compare and contrast and properly weight the rate of progress in nanotechnology and cryptography and superstring theory and 610 other disciplines? Indeed, how do we even know whether the so-called scientists are not just lawmakers and politicians in disguise, as some
conservatives suspect in fields as disparate as climate change, evolutionary biology, and embryonic-stem-cell research, and as I have come to suspect in almost all fields? For now, let us acknowledge this measurement problem—I will return to it later—but not let it stop our inquiry into modernity before it
has even begun.

ii.

When tracked against the admittedly lofty hopes of the 1950s
and 1960s, technological progress has fallen short in many
domains. Consider the most literal instance of non-acceleration:
We are no longer moving faster. The centuries-long acceleration of travel speeds—from ever-faster sailing ships in the 16th
through 18th centuries, to the advent of ever-faster railroads in
the 19th century, and ever-faster cars and airplanes in the 20th
century—reversed with the decommissioning of the Concorde
in 2003, to say nothing of the nightmarish delays caused by
strikingly low-tech post-9/11 airport-security systems. Today’s
advocates of space jets, lunar vacations, and the manned
exploration of the solar system appear to hail from another
planet. A faded 1964 Pop­u­lar­Science cover story—“Who’ll
Fly You at 2,000 m.p.h.?”—barely recalls the dreams of a
bygone age.


The official explanation for the slowdown in travel centers
on the high cost of fuel, which points to the much larger failure in energy innovation. Real oil prices today exceed those of
the Carter catastrophe of 1979–80. Nixon’s 1974 call for full
energy independence by 1980 has given way to Obama’s 2011
call for one-third oil independence by 2020. Even before
Fukushima, the nuclear industry and its 1954 promise of “elec
trical energy too cheap to meter” had long since been defeated
by environmentalism and nuclear-proliferation concerns. One
cannot in good conscience encourage an undergraduate in
2011 to study nuclear engineering as a career. “Clean tech” has
become a euphemism for “energy too expensive to afford,” and
in Silicon Valley it has also become an increasingly toxic term
for near-certain ways to lose money. Without dramatic breakthroughs, the alternative to more-expensive oil may turn out to
be not cleaner and much-more-expensive wind, algae, or solar,
but rather less-expensive and dirtier coal.


Warren Buffett massively capitalized on both of these trends
with his $44 billion investment, most made in late 2009, in
BNSF Railway—making it the largest non-financial company
in the Berkshire Hathaway portfolio. Under stand ably, the
Oracle of Omaha proclaimed “an all-in wager on the economic future of the United States” and downplayed any doubts he
might have harbored. For present purposes, it suffices to note
that 40 percent of railroad freight involves the transport of
coal, and that railroads will do especially well if the travel and
energy consumption patterns of the 21st century involve a
regression to the past.


In the past decade, the unresolved energy challenges of the
1970s have broadened into a more general commodity shock,
which has been greater in magnitude than the price spikes of
the two world wars and has undone the price improvements of
the previous century. In the case of agriculture, at least, technological famine may lead to real old-fashioned famine. The
fading of the true Green Revolution—which increased grain
yields by 126 percent from 1950 to 1980, but has improved
them by only 47 percent in the years since, barely keeping pace
with global population growth—has encouraged another, more
highly publicized “green revolution” of a more political and
less certain character. We may embellish the 2011 Arab Spring
as the hopeful by-product of the information age, but we
should not downplay the primary role of runaway food prices
and of the many desperate people who became more hungry
than scared.
While innovation in medicine and biotechnology has not
stalled completely, here too signs of slowed progress and
reduced expectations abound. In 1970, Congress promised victory over cancer in six years’ time; four decades later, we may
be 41 years closer, but victory remains elusive and appears
much farther away. Today’s politicians would find it much
harder to persuade a more skeptical public to start a comparably serious war on Alzheimer’s disease—even though nearly
a third of America’s 85-year-olds suffer from some form of
dementia. The cruder measure of U.S. life expectancy continues to rise, but with some deceleration, from 67.1 years for
men in 1970 to 71.8 years in 1990 to 75.6 years in 2010.
Looking forward, we see far fewer blockbuster drugs in the
pipeline—perhaps because of the intransigence of the FDA,
perhaps because of the fecklessness of today’s biological scientists, and perhaps because of the incredible complexity of
human biology. In the next three years, the large pharmaceu -
tical companies will lose approximately one-third of their current revenue stream as patents expire, so, in a perverse yet
understandable response, they have begun the wholesale liquidation of the research departments that have borne so little fruit
in the last decade and a half.

iii.
By default, computers have become the single great hope for
the technological future. The speedup in information technology contrasts dramatically with the slowdown everywhere
else. Moore’s Law, which predicted a doubling of the number
of transistors that can be packed onto a computer chip every 18
to 24 months, has remained broadly true for much longer than
anyone (including Moore) would have imagined back in 1965.
We have moved without rest from mainframes to home computers to the Internet. Cellphones in 2011 contain more computing power than the entire Apollo space program in 1969.
From the perspective of Palo Alto, a return to the party year
of 1999 appears almost within reach. All that glitters seems to
be golden. Thousands of new Internet startups launch each
year, and valuations of Web 2.0 businesses have surged; and
not entirely without reason, as maybe two to six per year of
these newly minted ventures will break into the billion-dollarplus valuation zone within five years of their founding. In tandem with this new life for the new economy, Google has led a
parallel move towards a near-doubling of wages for the most
talented computer engineers, all in just the last three years.
Beyond the dollars, one must look no farther than The Social
Network to see the ways in which Face book and its 750 million
users have captured the new zeitgeist.
The economic decoupling of computers from everything
else leads to more questions than answers, and barely hints at
the strange future where today’s trends simply continue.
Would supercomputers become powerful engines for the mi ra -
c u lous creation of wholly new forms of economic value, or
would they simply become powerful weapons for reshuffling
existing structures—for Nature, red in tooth and claw? More
simply, how does one measure the difference between prog ress
and mere change? How much is there of each?

iv.
Let us now try to tackle this very thorny measurement problem
from a very different angle. If meaningful scientific and technological progress occurs, then we reasonably would expect
greater economic prosperity (though this may be offset by
other factors). And also in reverse: If economic gains, as measured by certain key indicators, have been limited or non -
existent, then perhaps so has scientific and technological
progress. Therefore, to the extent that economic growth is
ea si er to quantify than scientific or technological progress,
economic numbers will contain indirect but important clues to
our larger investigation.


The single most important economic development in recent
times has been the broad stagnation of real wages and incomes
since 1973, the year when oil prices quadrupled. To a first
approximation, the progress in computers and the failure in
energy appear to have roughly canceled each other out. Like
Alice in the Red Queen’s race, we (and our computers) have
been forced to run faster and faster to stay in the same place.
Taken at face value, the economic numbers suggest that the
notion of breathtaking and across-the-board progress is far
from the mark. If one believes the economic data, then one
must reject the optimism of the scientific establishment. In -
deed, if one shares the widely held view that the U.S. government may have understated the true rate of inflation—perhaps
by ignoring the runaway inflation in government itself, notably
in education and health care (where much higher spending has
yielded no improvement in the former and only modest im -
provement in the latter)—then one may be inclined to take
gold prices seriously and conclude that real incomes have
fared even worse than the official data indicate.

This dismal and straightforward conclusion tends to be
obscured by a range of secondary issues, which are important
but do not really change the larger point about trends since
1973:
? Mean incomes outperformed median incomes (inflationadjusted in both cases), and there was a trend towards greater
inequality. Median incomes rose by only 10 percent. Mean
incomes rose by 29 percent, which works out to a glacial pace
of only about 0.7 percent per year—much slower than in the
preceding four decades.
? Non-wage benefits, mostly health care, increased by about
$2,600 per worker, for an additional 0.2 percent per year since
1973. So if the U.S. government has underestimated inflation
by only 0.9 percentage points per year, then mean wages and
benefits have been completely stagnant.
? Corporate profits increased from 9 percent to 12 percent of
GDP—again, a significant but easily exaggerated shift.
? Women were hired in the 1980s and men were fired in the
2000s.
? College graduates did better, and high-school graduates
did worse. But both became worse off in the years after 2000,
especially when one includes the rapidly escalating costs of
college.
? The era of globalization improved living standards by
making labor and goods cheaper, but also hurt living standards
through increased competition for limited resources. Freetrade advocates tend to think that the first effect dominates the
second.

? Economic progress may lag behind scientific and technological achievement, but 38 years seems like an awfully long
time.


The economic future looked very different in the 1960s. In
his 1967 bestseller  The American Challenge, Jean-Jacques
Servan-Schreiber argued that accelerating technological prog -
ress would widen the gap between the United States and the
rest of the world, and that by 2000, “the post-industrial societies will be, in this order: the United States, Japan, Can a da,
Sweden. That is all.” According to Servan-Schreiber, the difference between the United States and the rest of Europe
would grow from a difference of degree into a difference of
kind, comparable to the difference between Europe and Egypt
or Nigeria. As a result of this steady divergence, Americans
would face less pressure to compete:
In 30 years America will be a post-industrial society. . . . There
will be only four work days a week of seven hours per day. The
year will be comprised of 39 work weeks and 13 weeks of
vacation. With weekends and holidays this makes 147 work
days a year and 218 free days a year. All this within a single
generation.
We need to resist the temptation to dismiss ServanSchreiber’s space-age optimism so that we can better under stand how the consensus he represented could have been so
terribly wrong—and how, instead, for many Americans, the
Fourth Commandment (“Remember the Sabbath day, and keep
it holy”) has been effectively forgotten.


V.
Like technology, credit also makes claims on the future. “I will
gladly pay you a dollar on Tuesday for a hamburger to day”
works only if a dollar gets earned by Tuesday. A credit crisis
happens when earnings disappoint and the present does not
live up to past expectations of the future.
The current crisis of housing and financial leverage contains
many hidden links to broader questions concerning long-term
progress in science and technology. On one hand, the lack of
easy progress makes leverage more dangerous, because when
something goes wrong, macroeconomic growth cannot offer a
salve; time will not cure liquidity or solvency problems in a
world where little grows or improves with time. On the other
hand, the lack of easy progress also makes leverage far more
tempting, as unleveraged real returns fall below the expectations of pension funds and other investors.
This analysis suggests an explanation for the strange way
the technology bubble of the 1990s gave rise to the real-estate
bubble of the 2000s. After betting heavily on technology
growth that did not materialize, investors tried to achieve the
needed double-digit returns through massive leverage in
seemingly safe real-estate investments. This did not work
either, because a major reason for the bubble in real estate
turned out to be the same as the reason for the bubble in technology: a mistaken but nearly universal background assumption about easy progress.

Without fundamental gains in
productivity (presumably driven by technology), real-estate
values could not go up forever. Leverage is not a substitute for
scientific progress.

 
VI.
The technology slowdown threatens not just our financial markets, but the entire modern political order, which is predicated
on easy and relentless growth. The give-and-take of Western
democracies depends on the idea that we can craft political
solutions that enable most people to win most of the time. But
in a world without growth, we can expect a loser for every winner. Many will suspect that the winners are involved in some
sort of racket, so we can expect an increasingly nasty edge to
our politics. We may be witnessing the beginnings of such a
zero-sum system in politics in the U.S. and Western Europe, as
the risks shift from winning less to losing more, and as our
leaders desperately cast about for macroeconomic solutions to
problems that have not been primarily about economics for a
long time.


The most common name for a misplaced emphasis on
macroeconomic policy is “Keynesianism.” Despite his brilliance, John Maynard Keynes was always a bit of a fraud, and
there is always a bit of clever trickery in massive fiscal stimulus and the related printing of paper money. But we must
acknowledge that this fraud strangely seemed to work for
many decades. (The great scientific and technological tailwind
of the 20th century powered many economically delusional
ideas.) Even during the Great Depression of the 1930s, innovation expanded new and emerging fields as divergent as
radio, movies, aeronautics, household appliances, polymer
chemistry, and secondary oil recovery. In spite of their many
mistakes, the New Dealers pushed technological innovation
very hard.
The New Deal deficits, however misguided, were easily
repaid by the growth of subsequent decades. During the Great
Recession of the 2010s, by contrast, our policy leaders narrowly debate fiscal and monetary questions with much great er
erudition, but have adopted a cargo-cult mentality with respect
to the question of future innovation. As the years pass and the
cargo fails to arrive, we eventually may doubt whe ther it will
ever return. The age of monetary bubbles naturally ends in real
austerity.
On the political right, we are seeing a quiet shift from the
optimism of Jack Kemp to the pessimism of Ron Paul, from
supply-side economics to the Tea Party, and from the idea that
we can combine tax cuts with more spending to the idea that
money is either hard or fake. A mischievous person might even
ask whether “supply-side economics” really was just a sort
of code word for “Keynesianism.” For now it suffices to
acknowledge that lower marginal tax rates might not happen
and would not substitute for the much-needed construction of
hundreds of new nuclear reactors.


VII.
We have seen that even the simple question of whether a technology slowdown has occurred is far from straightforward.
The critical question of why such a slowdown seems to have
occurred is harder still, and we do not have the space to tackle
it fully here. Let us end with the related question of what can
now be done. Most narrowly, can our government restart the
stalled innovation engine?
The state can successfully push science; there is no sense
denying it. The Manhattan Project and the Apollo program
remind us of this possibility.

>>>>>> Free markets may not fund as much basic research as needed. <<<<<<

On the day after Hiroshima,
the New York Times could with some reason pontificate about
the superiority of centralized planning in matters scientific:
“End result: An invention [the nuclear bomb] was given to the
world in three years which it would have taken perhaps half a
century to develop if we had to rely on prima donna research
scientists who work alone.”
But in practice, we all sense that such gloating belongs to a
very different time. Most of our political leaders are not engineers or scientists and do not listen to engineers or scientists.


Today a letter from Einstein would get lost in the White House
mail room, and the Manhattan Project would not even get started; it certainly could never be completed in three years. I am
not aware of a single political leader in the U.S., either
Democrat or Republican, who would cut health-care spending
in order to free up money for biotechnology research—or,
more generally, who would make serious cuts to the welfare
state in order to free up serious money for major engineering
projects.

Robert Moses, the great builder of new York City in
the 1950s and 1960s, or Oscar niemeyer, the great architect of
Brasilia, belong to a past when people still had concrete ideas
about the future. Voters today prefer Vic tor i an houses. Science
fiction has collapsed as a literary genre. Men reached the moon
in July 1969, and Woodstock be gan three weeks later. With the
benefit of hindsight, we can see that this was when the hippies
took over the country, and when the true cultural war over
Progress was lost.
Today’s aged hippies no longer understand that there is a
difference between the election of a black president and the
creation of cheap solar energy; in their minds, the movement
towards greater civil rights parallels general progress everywhere. Because of these ideological conflations and commitments, the 1960s Progressive Left cannot ask whether things
actually might be getting worse. I wonder whether the endless fake cultural wars around identity politics are the main
reason we have been able to ignore the tech slowdown for so
long.
However that may be, after 40 years of wandering, it is not
easy to find a path back to the future. If there is to be a future,
we would do well to reflect about it more. The first and the
hardest step is to see that we now find ourselves in a desert, and
not in an enchanted forest."

Mon, 09/10/2012 - 06:45 | 2777820 economics9698
economics9698's picture

Do you have any original thoughts?  Fuck the cut and paste.  If you want to bring attention to a author you really like cut and paste a paragraph or two and then give a link to the rest of the article.  When you cut and paste a fucking novel it fucks up my enjoyment of reading ORIGINAL post by thinking people with high IQs involved in finance, academic life, bond markets, and rare people of talent and intellect.

Stop fucking up this message board and think for yourself.

Mon, 09/10/2012 - 08:09 | 2777903 AnAnonymous
AnAnonymous's picture

Very 'American' article. The rise of the 'american' world is as shown today the result of the incredible theft streak 'Americans' have been performing.

Science and technology will keep progressing but the failure in analysis by ascribing to science and technology the success of the 'american' world will remain.

Science and technology wont deliver because they are not the root cause of the 'American' success.

The root of the success of the 'American' world is theft.

Can science and technology help theft? Yep.

Can science and technology make up for the lack of opportunity to thieve? Nope.

Tue, 09/11/2012 - 01:05 | 2780840 akak
akak's picture

Go murder a Tibetan monk for Mao --- it is, after all, the Chinese Citizenism thing to do.

Mon, 09/10/2012 - 04:39 | 2777783 OldPossum
OldPossum's picture

That is exactly what our OCCUPY movement predicted a year ago. Nobody took notice.

OCCUPY the Fed!

Mon, 09/10/2012 - 06:56 | 2777829 dexter bland
dexter bland's picture

"The issue is that the Fed cannot create consumer demand because demand is a function of both wealth and asset prices"

Consumer demand is a function of people feeling relaxed and comfortable about spending in the knowledge you won't lose your job or be unable to find a new one and that spending is within your means. QE has managed to increase wealth and asset prices (for those who have wealth and assets), but hasn't made typical (POV) consumers feel relaxed or comfortable about spending or their employment situation.

Quite the opposite. Consumers now have a sense that the economy is teetering on the brink of depression, dependent on Fed monetary infusions, and that they are just one disagreement with the boss away from unemployment with little hope of ever returning to the workforce. QE can do nothing about this.

If Bernanke did actually drop hundred dollar bills from a helicopter then its likely people would just stash them under their mattress or use them to pay down debt rather than go on a wild economy-boosting spending spree. That's why he is able to feel comfortable about inflation, but also why it will never work.

Mon, 09/10/2012 - 07:04 | 2777834 Sandmann
Sandmann's picture

Nicely put. We are probably seeing the end of our economic system and society. Ever since the Club of Rome spouted off about resource scarcity in 1969 and we were told that resources were increasingly finite we have had Governments create Credit on an infinite basis. So those who were taught to turn off lights and conserve energy in 1973 now watch another generation drive ever bigger SUVs and burn lights and fossil fuels like they are suddenly infinite simply because Credit is.

It is the Collateral Problem. There is too much debt for the physical assets on the planet and simply not enough raw materials to keep China on its current path unless the rest of the world wants a precipitous decline in living standards. Western Mercantilism was a pretty sound way of keeping Westerners in economic well-being whereas open markets fuelled by infinite credit may not long-term be the way to buy all manufactured and agricultural produce from China. It is simply a variant on the old Coolie Policy of importing Chinamen to build railroads - now we buy the turnkey railroad from China and they install.

Jardines had nothing to seel the Chinese that they wanted so the trade surplus had to be eroded through opium. Now it is simply selling off Western factories rather like English aristocrats used to seel their libraries to fund their gambling debts, or find rich American heiresses in need of a title to keep the show on the road

 

Mon, 09/10/2012 - 09:50 | 2778142 khakuda
khakuda's picture

Yes, nicely put.  It's incredible that the Fed can't see what seems obvious.

I was thinking about it another way, too.  If I have $100,000, I have earned zero in 2009, 2010, 2011 and 2012 and am going to be guaranteed zero for at least for more years at this rate, if not more.  If I had received even 4% a year, that would be $32,000 I could have spent over 8 years to boost the economy and it could continue indefinitely, each and every year for my life.  In fact, the inflation of my costs has made me want (and able) to spend even less.

Savings and investment is a source of sustainable wealth creation, debt based consumption is not.  The Fed misses this key point.

They also miss that purposefully debasing currency to create inflation can't work if WAGES don't keep up.  In a global labor market, with a still huge differential between US and Chinese rates, they are only inflicting pain.

Mon, 09/10/2012 - 12:15 | 2778694 Turin Turambar
Turin Turambar's picture

In an oversimplified respect ZIRP and free money robs future demand for today.  Think of cash for clunkers.  Once everybody has purchased future desires today due to cheap money, what's left to buy other than necessities moving forward?  The smart muppets are simplifiying lives, cutting overhead, and reducing/eliminating debt.  You know, those things that lead to fiscal stability.

Sun, 09/09/2012 - 22:26 | 2777358 Aziz
Aziz's picture

There will always be another excuse for the lack of recovery. Never a mea culpa.

"Oh! It is the zero bound! THAT is why QE is not producing recovery"

See Woodford's paper on Wallace Neutrality and nominal GDP targeting working via the expectations channel. 

http://marketmonetarist.com/2012/08/31/michael-woodford-endorses-ngdp-le...

 

Sun, 09/09/2012 - 22:27 | 2777365 saturn
saturn's picture

End the FED on its 100th jubilee, lol! Send Bernanke to apply for real work, megalol!

Mon, 09/10/2012 - 06:48 | 2777823 economics9698
economics9698's picture

I second that.

Sun, 09/09/2012 - 22:30 | 2777370 knukles
knukles's picture

Jesus people...

The only thing going on is a Liquidity Trap.

When in one, the CB can print to the fucking high heavens and there simply is no response...
To wit: Over simplified but nonetheless reasonable.
Reason #1:  As MV=PT, while M is increased by Cb injections of high powered money into the banking system, V simply declines as there is no incentive to borrow to finance activities whilst in the middle of a de-leveraging cycle.
Simple
Reason #2:  The reason for the Liquidity Trap is the Credibility Trap within which we reside.  The system cannot move forward as long as it remain held within the fraudulent relationship between financial enablers and the formal power structure in which laws are applied inequitably in favor of the wealthy, the system is methodically looted at the expense of those otherwise responsible for consumption (individuals) and prospects for cogent policies remain aloof within which fear of economic failure overwhelms any portent of optimistic outcomes.  The system has been capture by a very few in control of creation and enforcement of laws with impunity... Grand Theft Country

 

Sun, 09/09/2012 - 22:37 | 2777393 saturn
saturn's picture

Do you think they know or care that it is because the system canot be trusted anymore? I think the people in power are ready to deploy very extreme measures to try to keep the system alive at all cost as long as possible. It has always been this way in history. Only bloodshed made old system crumble and a new, more fraudulent (but longer lasting) emerge. I wonder what level of fraudulency humankind achieves after this turns into a fullblown revolution, can't wait, lol!

Sun, 09/09/2012 - 23:40 | 2777518 Michael
Michael's picture

Since the last time The Supreme Court of the United States of America ruled on the legality of the 16th Amendment, we have not had a ruling on it since then.

We should bring to todays SCOTUS the question, "Is the 16th Amendment Law of the Land, and can you show us a copy of the law?"

Especially since all the members of SCOTUS who had previously reviewed it are dead?

 

Mon, 09/10/2012 - 00:01 | 2777551 Michael
Michael's picture

What our dear leader President Obama gave to us is ming boggling.

It's also in Korean language subtitles.

Now I know why he got the Nobel Peace Prize.

Thanks for showing us it President Obama.

PROPAGANDA | FULL ENGLISH VERSION (2012)

http://www.youtube.com/watch?v=6NMr2VrhmFI&oref=http%3A%2F%2Fwww.google.com%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3Dpropaganda%2520north%2520korea%2520documentary%26source%3Dweb%26cd%3D2%26ved%3D0CCYQFjAB%26url%3Dhttp%253A%252F%252Fwww.youtube.com%252Fwatch%253Fv%253D6NMr2VrhmFI%26ei%3Dc1BNUObRK4-68wTfn4H4CA%26usg%3DAFQjCNEO9kvD9fOiiYR7gbzTHN_9dVVn1w

Mon, 09/10/2012 - 01:15 | 2777651 Michael
Michael's picture

Since corporations are now people, we should tax them like people paying the (AMT) Alternative Minimum Tax.

Mon, 09/10/2012 - 02:32 | 2777704 Michael
Michael's picture

I hope LynnyB is doing OK?

Mon, 09/10/2012 - 03:09 | 2777730 Michael
Michael's picture

Why, in Relationship with Human Nature, do we Request a Gold Standard?

Mon, 09/10/2012 - 03:20 | 2777735 Michael
Michael's picture

We have to get our government and FCC to break up the monopoly of the MSM.

We all know the truth, Who owns Reuters and AP, the Rothschild's.

We all know who owns the 6 big news networks if you've seen this, especially the last 10 minutes of it;

PROPAGANDA | FULL ENGLISH VERSION (2012) Notice their censoring it now?

http://www.youtube.com/watch?v=6NMr2VrhmFI&oref=http%3A%2F%2Fwww.google.com%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3Dpropaganda%2520north%2520korea%2520documentary%26source%3Dweb%26cd%3D2%26ved%3D0CCYQFjAB%26url%3Dhttp%253A%252F%252Fwww.youtube.com%252Fwatch%253Fv%253D6NMr2VrhmFI%26ei%3Dc1BNUObRK4-68wTfn4H4CA%26usg%3DAFQjCNEO9kvD9fOiiYR7gbzTHN_9dVVn1w

And further who owns them;

Media Military Complex- Same 6 owners for Media & Defense Ron Paul coverage investigative journ pt 2

http://www.youtube.com/watch?v=fz_bjew709I&feature=my_liked_videos&list=LLdSnTNA6aMtwMSA6x2vyTYw

And I just got done skewering the previous ZH thread from the WSJ after ten minutes of research with Google, that should tell you something is wrong.

Maybe this will help;

Matchbox Twenty - Back 2 Good (Video) 

http://www.youtube.com/watch?v=Rg93Lac49-Y 

Mon, 09/10/2012 - 03:56 | 2777763 Michael
Michael's picture

We'll what do you think we should do now Michael?

Michael: I think we should should take repossession of our fucking country. I think we should make Washington D.C. buildings our Management HQ, and employees work at doing the work the people authorize ONLY!

Or you're fired.

Mon, 09/10/2012 - 05:18 | 2777794 sharky2003
sharky2003's picture

dude...are you really having a conversation with yourself??

Mon, 09/10/2012 - 06:39 | 2777817 Papasmurf
Papasmurf's picture

That can reduce arguements. 

Mon, 09/10/2012 - 15:26 | 2779457 Michael
Michael's picture

I told you already, their free talking points memos for all media to use tomorrow.

Mon, 09/10/2012 - 00:23 | 2777583 bigkahuna
bigkahuna's picture

Grand Theft Country indeed. People are arming themselves to the teeth though. I do not believe it has gone completely undetected. I hope that the shooting never starts/it never comes to that--but after we see the ginormous and repetitive frauds over the last 12-13 years (with rare exception - ebbers, madeoff, etc) how can that inspire confidence in civilian law enforcement (aka just-us?)

Sun, 09/09/2012 - 23:48 | 2777529 FreedomGuy
FreedomGuy's picture

I don't think the Fed will admit it is irrelevant. It is relevant but there are limits to its power. I think there is a bigger issue in the U.S. economy and maybe the world in general. It is the fact that government itself is the problem the Fed cannot solve. It is governments, not just central banks and the Fed running serious short, mid and long term debts. The U.S. through Obamacare and never ending always expanding regulations is strangling it's own economy. The Fed cannot fix all those things. The Fed cannot find the next Jobs, Gates, Starbuck's, etc. However, government can constrain, crush and prevent all of them.

You put unfunded national entitilements, bankrupt government at city, state and Federal levels and regulations that hinder and strangle and the Fed can only do so much.

Having said that, I still think their policy prescriptions are wrong and in fact, make things worse, but central banks cannot fix bad government in economic terms. Put another way, no central bank policies of any sort could have fixed the Soviet Union.

Mon, 09/10/2012 - 00:32 | 2777592 bigkahuna
bigkahuna's picture

It would be interesting if they just got up and walked out telling reporters "we're irrelevant" though.

 

I wonder if that would be bullish?  

--oh yeah, f'ing sarcasm--

Mon, 09/10/2012 - 15:12 | 2779408 FreedomGuy
FreedomGuy's picture

That won't happen but I could see them walking out and saying something like, "We're outta here. We've done all we can. The rest is up to you."

Mon, 09/10/2012 - 02:28 | 2777702 ABG LINE
ABG LINE's picture

Bunch of PhD. faggots.

Sun, 09/09/2012 - 22:07 | 2777303 killallthefiat
killallthefiat's picture

This has been in the cards.  The TPTB have wanted a gold standard for a long time and it only locks out central bankers, but not the ones with the gold. 

You had better have some, and not just a  few ounces, ZHers

Mon, 09/10/2012 - 00:23 | 2777581 Jungle Jim
Jungle Jim's picture

How many ounces had we better have, then? Are we talking about tens, or hundreds, or thousands?

Mon, 09/10/2012 - 01:29 | 2777657 Likstane
Likstane's picture

How big is your boat?

Mon, 09/10/2012 - 01:40 | 2777661 Oh regional Indian
Oh regional Indian's picture

There is however a slight possibility that only gold in CB vaults, marked just so, will be 'marked to market" and  "free to trade".

Given all the hoopla around Au/Ag and the general metals complex, to imagine there isn't a giant trick up their sleeve would be foolish at best.

ori

Mon, 09/10/2012 - 06:36 | 2777816 Ace Ventura
Ace Ventura's picture

Indeed. To imagine they will simply "allow" the peasantry to benefit from a general gold standard, without some form of caveat that effectively nullifies their ability to participate......is wishful thinking.

EXPECT them to pull a fast one when the time comes. And expect them to enforce it with extreme prejudice. Unfortunately, nothing will get fixed until the vampires perched at the top of the global financial pyramid, along with their familiars in government (at all levels)....are physically removed from the picture.

We all know what it will take in order for that to happen, and it won't be pretty or clean.

Mon, 09/10/2012 - 08:36 | 2777955 spentCartridge
spentCartridge's picture

Pb

Sun, 09/09/2012 - 22:09 | 2777309 Heroic Couplet
Heroic Couplet's picture

Ben Ber. and the Fed and the IMF do not hold elective office. Argentina and Iceland told the bankers to take a flying leap.

Sun, 09/09/2012 - 22:09 | 2777310 SafelyGraze
SafelyGraze's picture

"Woodford's paper (page 83-86)"

you made it to page 86?

Sun, 09/09/2012 - 22:09 | 2777311 max2205
max2205's picture

Counter psyc ops in motion

Sun, 09/09/2012 - 22:10 | 2777312 S474NtheD3v1L
S474NtheD3v1L's picture

now that's change i can believe in

Sun, 09/09/2012 - 22:10 | 2777313 PSEUDOLOGOI
PSEUDOLOGOI's picture

sounds like they want one world currency only. except they have that China and Russia problem, at the moment...

Sun, 09/09/2012 - 22:10 | 2777315 francis_sawyer
francis_sawyer's picture

For sure I'm gonna get junked for saying this...

But FED exasperation, in my eyes, is following IN LOCK STEP with Jew exasperation... (vis-a-vis 'Iran/Israel' rhetoric, elections, AIPAC meddling, NWO, NDAA, etc.)...

Just saying... Look back a few months/years from now & you'll probably be able to chart it on a graph...

Sun, 09/09/2012 - 22:32 | 2777373 dolph9
dolph9's picture

The Jews don't control the spread of information on the internet, that's another key point.  The most they can do is keep the goys entertained with some porn.

The holohoax and israel propaganda industries don't pass muster on the internet.

Sun, 09/09/2012 - 23:17 | 2777467 Non Passaran
Non Passaran's picture

Adolph, the fact that you and your friend Sawyer find the Internet entertaining is not a proof of Zionist conspiracy.

Sun, 09/09/2012 - 23:26 | 2777484 otto skorzeny
otto skorzeny's picture

"Adolph"- ha-we could be so lucky. ahhh-but to dream. plus it is spelled A-d-o-l-f you dumbass

Mon, 09/10/2012 - 03:11 | 2777731 TwoShortPlanks
TwoShortPlanks's picture

LOL +100

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