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Taylor Rule Founder Warns US Debt Could "Explode"
The other other John Taylor (not the FX trader, nor the guitar player, but the "Taylor Rule" discoverer, which is at the base of all Fed monetary decisions), spoke on Bloomberg TV, and his message was certainly a far less optimistic one than that conveyed by the man charged with putting his rule into practice. "We could get into a situation like Greece, quite frankly. People have to realize it is a precarious situation. The debt is going to explode if we don't make some changes." What changes does Taylor recommend? Why the same that Bill Gross warned about yesterday - that ZIRP4EVA means a liquidity trap pure and simple, and the Fed needs to start rising rates: "the Fed has bought so much of the debt that people don't know how they're going to undo that. They pledged to have interest rates at zero until 2014, but people are saying how can they possibly do that when the economy picks up. This uncertainty had lead people to sit on all this cash. I think if the Fed gets back to the policy that worked pretty well in the '80s and '90s, we would be in much better shape." Ah yes, but the one thing, and only one thing that matters, and that is not mentioned at all, is what happens to the stock market when the Fed officially sets off on a tightening path. Actually make that question even simpler - will the drop in the S&P will be 30%, 40%, or any other greater mulitple of 10% thereof, considering that as we noted previously, the Fed and the other two central banks alone have injected over $2 trillion in just over a year. And about $10 trillion in the past 5. Calculate what the removal of this liquifity would do to stocks...
Taylor interview:
And extracts:
Taylor on the U.S. economy:
"We have to get away from all these temporary things--rebates, monetary policy, quantitative easings, we have to get back to a strategy like we had in the 1980s--monetary policy and fiscal policy. I believe that will get the strong growth. The growth in the early 80s was 5.9% compared to 2.4% we've had in this recovery. There is a lot of evidence that that kind of policy works. Steady as you go, getting the tax rates down and keeping it there, not doing all of these temporary stimulations.
"We could get into a situation like Greece, quite frankly. People have to realize it is a precarious situation. The debt is going to explode if we don't make some changes. What seems to be more important is that people can get back on track, the country can get back on track, with just some sensible adjustments. I argue just bring spending back to where it was in 2007. That's not so long ago. We've had an enormous spending binge in the last few years. If we undo that binge, shouldn't be that hard, we can get back to some sensible pro-growth policies.
On whether the Fed's zero interest rate policy is helping to contribute to the deficit:
"I think it's contributing to the slow recovery because the Fed has bought so much of the debt that people don't know how they're going to undo that. They pledged to have interest rates at zero until 2014, but people are saying how can they possibly do that when the economy picks up. This uncertainty had lead people to sit on all this cash. I think if the Fed gets back to the policy that worked pretty well in the '80s and '90s, we would be in much better shape.
On Greece:
"A walk away would be a default. Nobody wants to do it at this point. The best thing is for the creditors to do as much as they can in conjunction with the Germans and the IMF is there too - to get a deal for Greece so that Greece can grow. Some of these GNP ideas are good, and that way, we get this behind us. They have been kicking the can down the road for years. That's a problem.
On whether credit holders are being unrealistic:
"It's a bargaining. Each side will try to get the best they can. The creditors are arguing that there is going to be contagion. If they don't do a better deal, the Greeks will argue and say hey, we're flat on our back, we have to get some growth. I think the Greeks have an issue here - if they can put in some good economic growth plans that get the economy moving and write down the debt even further. I think that that is the answer to this. It's really how Europe can get back on a growth track."
On U.S. entitlement programs:
"Right now, the entitlement spending is expected to grow way beyond something that anybody expects to be realistic. We just have to contain that growth. In other words, keep the spending from growing even further as a share to GDP. We do that in a way where we use the markets, the rule of law and incentives, it will be a better system. Some proposals out there to reform Medicare, Medicaid and keep spending down will lead to better health care. That is what we should be striving to do.
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I agree sustainability is a serious issue... it stems from a belief that you can have something for nothing...
BTW, the UK is a fucking basket case....
Ciao for niao...
rates do not rise, EVER. this is the new normal. the 80's began the cycle of debt, we're at the other end of the cycle now, and endless zero rates is required just to maintain. the problem, how do we expand the economy is redefined, by redefining this as the new (service) economy. the Greenspan legacy. greater levels of service require greater levels of liquidity, (not capital) the price of GOLD could go to $10000, and it wouldn't mean a thing, gold has no industrial use, and is of no use to the service industry, unless you count Madonnas costume at halftime. all this talk about interest rates rising is done to fool you into thinking the old capital intensive economy is revving up, and you might get your old blue collar job back. the real question for when does the economy pick up, goes to the problem of government borrowing money for next to nothing, and consumer credit costs double digits? if i were president i would put them out of business, print a TRILLION dollars the first day, and pass it around to the poor folks. hard cash in your hand. vote grateful unemployed.
Looks like they've managed to get the ponzi/pyramid scheme started up again. Extend and pretend baby! Lets keep the party going! Hopefully this will last a bit.
Unfortunately, this is about keeping the government spending and the banks alive. This guy's concerns are accurate. But they are not the priority of the people printing all the money. They will continue to print and lie about how much they are printing. They think it is perception management and not math. We can't stop the coming hyperinflation any more than we could stop George Bush from invading Iraq.
The Fed balance sheet will get a whole hell of a lot bigger before it ever gets smaller because we don't pay interest on debt the Fed owns. They pay that interest back to the Treasury. It maintains the illusion of a debt backing, but it is pure printing that is not meant to be undone. The Fed wants to buy all the debt.
"They will continue to print and lie about how much they are printing."
When you have the accountants and the lawyers working for you, why would you need to keep the accounting books in order?
It maintains the illusion of a debt backing, but it is pure printing that is not meant to be undone.
Yes, Fed is the "bad bank of last resort" where all the other banks dump their worthless securities (and get full par payment for them).
There's no way Fed's balance sheet can ever be unwound. There's no way Fed can sell all that worthless paper on the market. Nobody wants it.
On top of that, trying to sell some of it would take dollars out of the money supply, which would collapse stock and bond markets when people realize Fed is tightening.
Yes, Fed must keep printing and buying debt, because there's so much debt to be bought, and nobody else wants it.
The US government alone issues $150 billion of new debt every month. Somebody has to buy it or the US government collapses.
The only reason Wall Street buys it is they can flip it to the Fed for a profit.
Isn't fascism great? It puts the individual welfare costs into perspective too when you consider the amount of corporate welfare going on (from taxes not being paid to what you wrote). It's been said many times on here already I'm sure, but I really appreciate all that I have learned from my fellow ZH'ers. Thanks to all of you who share your expertise!
I sure wish somebody would address the very significant widening of the gap between Brent ($118) and WTI ($98)...the gap has grown by $10 -all within the last two weeks or so. However, nobody is talking about it.
You might be interested in this from this A.M...
Brent WTI back to $20
Thanks much!!
ZIRP isn't some temporary "transitory" mechanism for getting the economy going again. It's with us from now on. There's no way Fed can ever raise interest rates again. There's just too much debt.
There's no way Fed can ever tighten again either. Start taking currency out of circulation (what tightening is) and the stock market crashes, the bond market crashes, Wall Street crashes.
Ongoing never-ending ZIRP is the end-game for a currency. The last breaths of a dying currency.
ZIRP paves the way for an explosion of currency printing, which collapses the value of said currency. It's called hyperinflation.
That's what's coming. ZIRP guarantees it's coming.
It's already started. USD has lost 40% of its value since 2007.
Yoda: "AWKITEOTWIWB" (as we know it, the end of the world, it will be"
the fed is blinded by the fact it only sees its hammer. the hammer works well for the banks that own the fed.
for the people and gov of USA it has produced massive debt and debased dollars (FRN's)
the Fed will rapidly default when the time comes and it's owners have isolated themselves from the Feds debts
so far the plan is working..NWO draws ever closer..will our military and law enforcement understand this asymmetric attack in time.( if FBI recent actions along with TSH and HLS are indicators the answer is NO).
Taylor Rule Calculator
from wiki: In economics, a Taylor rule is a monetary-policy rule that stipulates how much the central bank should change the nominal interest rate in response to changes in inflation, output, or other economic conditions. In particular, the rule stipulates that for each one-percent increase in inflation, the central bank should raise the nominal interest rate by more than one percentage point. This aspect of the rule is often called the Taylor principle.
Taylor's Rule and the Fed - Economics
Part I Taylor’s Original Rule:
i_t=?_t+r^*+0.5(?_t-?^* )+ 0.5(y_t) Equation (1)
Overall, by focusing on policy responses to the Fed’s basic goal variables, the Taylor rule implicitly captures policy responses to the many economic factors that affect the evolution of those goal variables.
Part II Estimating the Taylor Rule with Dynamics: i_t^*=?_t+r^*+?_1 (?_t-?^* )+ ?_2 y_t+?_3 y_(t-1) Equation (2)
Adjustment of the actual level of the funds rate: ??i?_t=?( i_t^*-i_(t-1) )+??i_(t-1) Equation(3)
By substituting equation (2) into (3) ??i?_t=??-?i_(t-1)+?(1+?_1 ) ?_t+r?_2 y_t+?_3 y_(t-1)+??i_(t-1) Equation(4)
so, yeah! accoding to slewie's total lack of fukingRulez: this could = doom, BiCheZ!!!
i = national debt + credit card debt + ?(target inflation rate of 100%) divided by Greenspan's optics prescription - Bernanke's temporal lobe follical count * Delta GDP * (food stamp participants - # Pizza's and 2 liter sodas sold).
Slewie, this keeps coming out on paper as = "doom", and when I use my calculator the only answer it will display is "MF-GLOBAL3".
L0L!!!
MFG3
it's what's for breakfast, BiCheZ!!!
This guy Taylor is pure genius. Who would ever have thought that if we just fix the problems they will go away? Gosh.
Why does he hate America? The TRUE warning is that World Debt will "explode".
Y'all have to go into Galt Gulch and start a new way of doing things
right after y'all stop saying y'all, ok, asswipe?
and please don't "forget" where y'all are posting, again, you shitforbrained moron!
Well, if Daisy is there with a jug of moonshine and a blanket I'll think about it.
ah sure do hope fer y'all's sake himn's 'g'ewe-frend' ain't a-called "daisy"!
Yeah yeah yeah, long rates have to go up. Haven't we heard that line before? This aint a free market anymore, Maynard.
With all deference to John Taylor, what part of "We're Fucked" doesn't John Taylor or anyone else get? I mean we've just listened for the last year as all the geniuses told us how a Greek default would be avoided and now they are swiftly spiraling down the toilet bowl. Like anyone with half a brain should have known.
The situation in the United States is exactly the same, we are just lagging Greece by a few years on the path to self destruction. Everyone claims they see green shoots but they are lying out their butts because the deficit numbers on many fronts are out the whazoo huge. The only thing that will save the little guy when we go Greek is if he has insulated himself from the economy by Going Galt. http://www.futurnamics.com/goinggalt.php
I agree. He suggests the "grow out of your debt" fix for Greece that is absolutely impossible at their current debt level. He also suggests a reduction of US fedgov spending to 2007 levels which would instantly send the US GDP into deep negative territory. That would be a proper route to a long-term fix for the US, but it will not happen until the market forces it as there is no real fix for our problems that doesn't involve extreme economic pain. And that's why no matter what is required to truly fix things, nothing to realistically address the problem will be done by governments until it is forced by the markets.
The love of debt is the root of all evil.
What a clown.
If you did a word cloud on his statements, you'd see "Grow, growth, growing".
Someone please send him the memo that growth ad infinitum is impossible. He thinks by going to the policies of the 80-s and 90's we would have sustainable growth.
Douh!
bingo!
just a little better job in the centralPlanningTMDept, and even greece and the usa could "grow" beyond their present troubles, but they hafta be careful, 'cause have you heard what too much [money =] debt can dooooo....????
all kidding aside, what could the guy say, here?
this guy is a high enuf ranking playa to be called in to balance off the chairsatan's testimony with some good ole GOP economics! that's about it, here. move along...
besides, cut him some slack b/c he has a phD in Econ, and is pretty close to the edge, judging from this! if he'd said: 'wtf are you asking me for? i'm an economist, not a criminal!' they just woulda sent him over to jonStewart for the interview, instead
A system based on usuary is destined to become this. there is a reason that it was illegal for 1000 years and a moral hazard since the dawn of money creation.
Fuck this system, load up on as much debt as you can and default. Buy gold with it and file for bankrupcy. elite do it with the companies they create and bankrupt every day.
Global Debt Crisis
The greatest private fraud of human history.
Who are the great fraudsters who are becoming the murderers of the human kind? How does the economy "illness" threaten Democracy and the freedom of people?
http://eamb-ydrohoos.blogspot.com/2012/01/global-debt-crisis.html
---------------------------------
By knowing what happened in indebted Greece, where loan sharks created “bubbles” and the current inhuman debt, one can understand the inhuman plan in total ...understand where this plan started just to bring all states at the same end ...understand how this type of plans are established...
Authored by PANAGIOTIS TRAIANOU
Does this guy call himself an econmist? What about the required 3% growth that our debt-based monatarty system requires? What about the "unrealistic" returns that have been CONTRACTED to investors in these ponzi-schemes?
This guy need own show on fantasy island!
if you want economic growth you need more inputs and/or higher efficiency in translating the inputs into output. bonds/currency are just a transfer mechanism - a red herring.
and when you look at physical input numbers you see that they haven't increased since oh about 2005 or so.