Can Bernanke Really Save Us?

The drumbeat for Ben Bernanke to save us is getting louder from Democratic pundits. Brad Plumer at Ezra's place:

So can anything break the economy out of its current doldrums? If natural forces aren’t going to produce a fast recovery, Smith argues, then the Federal Reserve has to step in: “The Fed has to say that it will tolerate more inflation or will be more heavily focused on unemployment. This way folks engaging in long term projects will know that even if the economy picks up they can still expect to experience low financing costs.”

It can't hurt I suppose, but really, didn't we all agree that in a zero lower bound environment, aren't the Fed's tools of limited utility? Isn't government spending to boost aggregate demand the only real tool that works here? Karl Smith, who owns up to a missed call on the economy recovering (he thought a strong recovery was forming in the winter) writes:

The multi-family boom simply did not occur in the way I thought it would. I have talked about this before, but we did see a strong increase in multifamily permitting. We have yet to see as many projects break ground. Additionally, the upswing simply wasn’t as rapid as I had thought. I over-estimated the ability of the multi-family construction sector to respond to changes in underlying demand.

This may be due to financing issues. This may simply be due to the fact it takes more time for an industry to accelerate from a near death than I was counting on. This may be due to fear that a sudden sell off of foreclosed homes would reduce rents. I am not sure. However, the slow response of this sector was a major issue in getting a sustained recovery.

(Emphasis supplied.) I think Smith overestimated "underlying demand." The reason is for housing to pick up, people willing to buy (or rent) houses) has to increase. But the middle class and the working class is doing terribly. Smith, in my opinion, put the cart before the horse - he expected a "if we build them they will come" economy to emerge. It simply does not happen that way in financial crisis depressions (at least that is what Krugman tells me, as well as my own eyes.)

I'm not sure what Smith means by "financing issues," but if he means interest rates, well, we know that's not the problem.

The problem and solution, Smith suggests, lies with the Fed:

Overall, what this means is that policy – particularly monetary policy – has become more important again. If we had a bunch of shocks hitting at once that eased the job of the Fed because it could count on the Natural Rate of interest rising, rather than having to effectively lower the policy rate.

[... T]he current fall in the 10yr treasury is NOT enough. This was a fall that happened because outside factors caused the market to both push back its estimates of when the Fed would raise rate given the current reaction function and because the demand for safe assets increased further.

What we need is a change in the reaction function itself. That’s what matters for pulling the economy upwards. The Fed has to say that it will tolerate more inflation or will be more heavily focused on unemployment. This way folks engaging in long term projects will now that even if the economy picks up they can still expect to experience low financing costs.

(Emphasis supplied.) This sounds an awful like waiting for the confidence fairy talk to me. Are financing costs really the issue? At the zero lower bound? This simply seems incorrect to me. It's lack of demand that is the issue. Pushing interest rates down a half point will not help.

The focus on inflation is the more interesting argument I think. It is the creation of a disincentive to park your money in T-bills and cash. But I'm not sure how the Fed can spark inflation in a depression economy on its own. Coupled with a government stimulus, sure. Without it? The missing ingredient, an increase in aggregate demand, seems to preclude the Fed's ability to push up inflation.

It's election season, so talking about what the Obama Administration did wrong is not something we want to do, but to discuss the situation dispassionately, I think we have to recognize that it is fiscal policy that works now, not monetary policy.

Speaking for me only

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    The Fed tolerate inflation? (5.00 / 1) (#7)
    by Militarytracy on Mon Jun 11, 2012 at 01:07:18 PM EST
    That will lead to deflation in pricing (which will happen anyway though more gradually because the middle class is gone now along with what they could afford) nobody has the money to go into debt for things at this time except the 1%ers.

    There are only so many bookkeeping tricks that show you making a profit too until the tricks are all used up and now the only thing left to do is sell things to people that they want and need and an honest profit.

    The quantitative easing checked deflation but it destroyed my dollar's buying power and my incentive to save because you can't get an interest rate worth anything right now.  They've flooded the economy with "liquidity", so my money isn't worth anything.....yet.

    I'm sick sick sick to death of "Ben Bernanke save us!"  He can't, not after what the deregulation and Titans did.  Honest market corrections will have to happen before true healing can take place.  Hopefully Obama can stave off the naked reality until after the election, but every American is going to come face to face with how and why the New Deal came to be and how and why the banking and finance regulations came to be.

    I can't even attempt to make a run for an honest retirement savings via Municipal bonds at this time.  My great Uncle did very well investing in DIA.  It was his last great investment though, and my family was too young and every dollar spoken for then so I did not participate.  Municipal bonds are so gamed now it isn't investment anymore either,  it is all game too with the big playas the only ones walking away from the table with anything....everything

    And I wish to GOD I had never considered refi on our VA mortgage.  I pay a bit extra every month, my total paid out in interest has been slashed by my own self.  But they ring the phone off the hook twice a day. "They" just want to talk to me about it, can they come over to my house please?  And they ask me blatantly on the phone how much my payoff is, it is like the second question out of their mouth.  Gee, why don't I give you my social security number, date of birth, and mother's maiden name too while you are telemarketing me?  I'm just a game, if I answered the door completely nude when they got here it would all be the same to them, no reason to be alarmed, just sell the lady a refi no matter what.  I've run out of ways to tactfully say no.  I'm down to go phluck yourself please, and if you make this phone ring one more time!  So they are gaming the mortgages again, you can bet your grandma's social security on that.

    Tracy, come on up (5.00 / 2) (#9)
    by Zorba on Mon Jun 11, 2012 at 01:24:40 PM EST
    to the mountains of Western Maryland.  At least we'll feed you and your family.

    I can sew (5.00 / 2) (#11)
    by Militarytracy on Mon Jun 11, 2012 at 02:44:33 PM EST
    I think I can still build some fence too :)  A different Great Uncle had me build fence all one summer when I was 12.  At first I thought I had died and gone to hell, then I began to understand how it was done and got used to the heat, and after that I could always say that I helped build that fence....for critters we eat to keep em close enough to eat :)

    From what I know of you (5.00 / 3) (#17)
    by Zorba on Mon Jun 11, 2012 at 05:14:02 PM EST
    and your family, I'm sure that you are able to do a whole heck of a lot, my sister.  You have the proper mind-set and abilities to be just fine.

    This is really funny (5.00 / 2) (#8)
    by NYShooter on Mon Jun 11, 2012 at 01:22:34 PM EST
    If you enjoy graveyard humor, that is.

    After the Bank/Corporate/Government engineered the financial debacle our economy was devastated. So our leaders sprung into action. They showered trillions of dollars on the criminals who's reckless gambling caused the disaster. We gave them 0% loans, Gov't. guarantees, debt forgiveness, and a whole host of other benefits. The government did all these things without extracting a single promise from them to pump-prime the economy, and to help with the recovery.

    Their response: Horde the money, increase their gambling to ever higher, sophisticated degrees, lay off workers by the millions, and double down in their relentless pursuit of crushing the middle class. To them the "recovery" meant getting back to the multi million dollar bonuses they were addicted to.

    And, our Government, our "Leaders," also did their part to help. Laying off countless thousands of State, Federal, and Local workers, reducing, and sometimes reneging on retirement benefits, and, to make sure they left no stone unturned, they began reducing, and then, eliminating unemployment benefits.  

    The American people? They must love this new economy. They just voted to give a mass murdering, job killer an overwhelming vote of confidence in Wisconsin, and are on the road to electing a President who publicly crows, "we don't need cops, firemen, or teachers."

    So, now we look to  Bernanke. He, and his predecessor, Alan Greenspan, were supposed to prevent these kinds of systemic calamities. Instead they cowered before their Oligarch Masters and engineered the Multi-Trillion dollar theft of The People's money and submissively handed it over to them.

    But, Benevolent Ben is hard at work fixing the problem he, and his cohorts caused. Indebting future generation with trillions of dollars of debt didn't do it, so he gave us Qe 1, Qe 2, the tango, no, strike that, the "Twist."

    The problem is we can look all the solutions in the world, but if we are blind to the most basic realities, realities that are staring us right in the face, we are simply doomed. Even school children are taught, "don't kill the golden goose," "don't' bite the hand that feeds you," and even the ancient Pharaohs knew that if you gave your slaves food and water they could work harder & faster.

    The President had his chance, and he blew it. To show the utter hopelessness of the situation, and to illustrate the complete escape from reality his supporters have chosen, those whose eyes and brains are focused on the truth are dismissed as "Obama Haters."  

    Our problems are enormous, but not insurmountable. To solve them, acceptance of the cold, hard realities are required......not more & louder clapping.

    Demand has been the issue for the whole (5.00 / 2) (#13)
    by ruffian on Mon Jun 11, 2012 at 03:32:10 PM EST
    time, not financing of developers or 'job creators'. Helicopter Ben should do a big money drop on the 99%.

    The time for this discussion was 3 yr ago (5.00 / 1) (#14)
    by scribe on Mon Jun 11, 2012 at 03:38:02 PM EST
    or even 4, not now.  It's far too little, too late now.

    this does seem like it could have been (5.00 / 1) (#15)
    by ruffian on Mon Jun 11, 2012 at 03:45:31 PM EST
    a post form 2010. So much time wasted.

    Groundhog Day n/t (none / 0) (#18)
    by Coral on Mon Jun 11, 2012 at 05:27:55 PM EST
    Right (none / 0) (#19)
    by Ga6thDem on Mon Jun 11, 2012 at 07:59:44 PM EST
    but in all fairness all this stuff was talked about here, about how the stimulus would not be enough to do the job etc. None of this a surprise to most of here. I willing to bet the current situation makes most people want to bang their heads against the walls.

    Yes, of course you're right, Ga (none / 0) (#21)
    by NYShooter on Mon Jun 11, 2012 at 09:14:59 PM EST
    I certainly didn't think I was breaking any new ground here, merely trying to encapsulate into a few short paragraphs how we got here.

    I agree with all the comments expressed here; "banging your head on the wall" is exactly the feeling most of us have. What do you do with a President who has ignored not just a bunch of "no nothing" bloggers,  not just the advise of many, many of the world's greatest, most experienced economists, but his own freakin eyes to boot?

    As we head into the final five months of the campaign we are stuck in a truly depressing predicament: Our President appears helpless, trapped by his own paralysis, pitifully waiting for each economic report, and praying that maybe, just maybe there's a tiny kernel of news in there that could be spun as something positive.

    And, I'm not even confident that if he announced some big "job creating" initiative now it would do much good for his ratings. The feeling might very well be, "Now? Now you offer something? Where you been these past 3-1/2 years, fool?"  They'll think, "Just another out-of-touch politician."

    Nope, the only thing that might help now is to tell the truth, a real mea culpa. "We screwed up. We were wrong. I listened to the wrong advisors for way too long. While the Republicans did everything they could to insure we didn't get a recovery, willing to hurt all Americans for cheap political advantage, I, as President could have done so much more. For starters, I could have made better use of the bully pulpit in letting you know what was going on."

    And then, for starters I would announce the firing of his entire economic team and replacing them with those experts who have been right all along, and ignored all along. And I would tell the American people that my only instruction to them would be, "for every action you want me to propose, I want the answer to this question: How does this help the American people Right Now, Today?"  and to fund this "Stimulus Program" I would form a task force of the best & brightest DOJ attorneys to immediately analyze how the massive transfer of wealth, from the vast middle and lower classes to the tiny group of geniuses that did this to us, having the intent of clawing back as much money as possible, and if crimes were committed, prosecuting them with the same vigor they used in robbing us.

    Hey, what Obama's done hasn't worked, and what he's doing now isn't working either.

    Desperate times, desperate measures. Time to aim for the bleachers.


    That tactic or strategy (none / 0) (#31)
    by BTAL on Tue Jun 12, 2012 at 09:07:47 AM EST
    would work just like McCain's campaign suspension nonsense.  

    But, I hope someone in Chicago hears & heeds your advice.


    We need to collectively recognize ... (5.00 / 1) (#20)
    by Donald from Hawaii on Mon Jun 11, 2012 at 08:38:08 PM EST
    ... the absurdity and foolhardiness that's presently inherent in our current macroeconomic system. Corporate profit is being increasingly consolidated and privatized in the hands of a relative few select "movers and shakers," while the attendant financial risks engendered from ever-greater numbers of overleveraged buyouts are being socialized among the masses, most prominently in the form of recent and future taxpayer financial bailouts for those megabanks and firms deemed "too big to fail."

    Left free and unfettered to do as it damned well pleases, capitalism will continue to consolidate to the eventual point where it will begin to consume itself -- not unlike a snake which, in the absence of further suitable prey items, grabs itself by its own tail and commences to swallow.

    John Maynard Keynes clearly understood that. So did Franklin Roosevelt. It's a shame that the greedy mental midgets currently posing as Wall Street's "Masters of the Universe," along with their slavish allies in Washington, don't seem to get it.

    Any society that encourages and tolerates great disparity between its wealthiest members and everyone else, is a society that seeks only to ensure its own eventual demise, and sooner rather than later.

    From Richard Posner:

    "So the big question is, given capitalism, what else does a country need in order to prosper? We know that it doesn't need abundant natural resources or a large population. But it needs a legal and political system that protects property rights, allows a large degree of economic freedom, minimizes corruption, controls harmful externalities (like pollution) and subsidizes beneficial ones (like education), distinguishes between equality of opportunity (which it promotes) and equality of incomes (which it promotes only to the extent of combating poverty), welcomes and assimilates skilled and wealthy immigrants, and (related to protecting economic freedom) avoids public ownership or control of economic enterprises. To create and maintain such a legal and political system a country also requires a culture of respect for business success, of competition and risk-taking, and of consumerism--since, as Keynes argued, consumption drives production."


    "The institutional structure of the United States is under stress. We might be in dangerous economic straits if the dollar were not the principal international reserve currency and the eurozone in deep fiscal trouble. We have a huge public debt, dangerously neglected infrastructure, a greatly overextended system of criminal punishment, a seeming inability to come to grips with grave environmental problems such as global warming, a very costly but inadequate educational system, unsound immigration policies, an embarrassing obesity epidemic, an excessively costly health care system, a possible rise in structural unemployment, fiscal crises in state and local governments, a screwed-up tax system, a dysfunctional patent system, and growing economic inequality that may soon create serious social tensions. Our capitalist system needs a lot of work to achieve proper capitalist goals."

    That said, we're off to Pleiku and the Central Highlands. Aloha.

    Thank gawd (5.00 / 2) (#22)
    by Towanda on Mon Jun 11, 2012 at 11:32:32 PM EST
    yer back.

    What?  The burning question is not whether Ben Bernanke can save George Zimmerman?

    This is all correct. (none / 0) (#1)
    by Buckeye on Mon Jun 11, 2012 at 11:05:50 AM EST
    Politically speaking, Obama cannot do what is needed to help our economy as well as win this election on the economy.  I know this is beating a dead horse, but a poorly structured and inadequately sized stimulus plan, Geitner as Treasure Secretary, and throwing away the leverage he had during the Bush tax cut extension negotiations cooked his goose.  Obama no longer has any control over his own destiny is now at the mercy of external factors that only look ominus (the impending Euro disaster, BRIC countries slowing down, etc).

    He is completely dependent on watching the global economy hoping it does not sink the US economy further, and completely destroying Romney's character to win.

    Regardless of what happens this November, our country is not going to get the policy it needs.  In other words, things are going to get worse IMO.

    It's unfortunate but (5.00 / 1) (#2)
    by Ga6thDem on Mon Jun 11, 2012 at 11:41:40 AM EST
    true. There's nothing Obama can do at this point and he failed to do the right thing when he had the power to do it.

    Character assassination might be able to get him reelected. I mean it worked for George W. Bush back in 2004.


    With one big difference (none / 0) (#4)
    by Buckeye on Mon Jun 11, 2012 at 11:57:21 AM EST
    when Bush got reelected, we were at full employment (or close to it).  The economy had recovered, consumer confidence was 30 point higher than today and the right track/wrong track number was 40 points higher than today.  Still, if Kerry found ~50,000 people in Ohio to vote for him instead of Bush, Kerry would have won.  Do you think Kerry (as bad as he was as a candidate and as bad as his campaign was) would have found 50K votes in Ohio if we had back then today's economy?  The answer is yes and then some.  If the 2004 election was 6 months sooner or 6 months later, Kerry would have won.

    I kind of see (none / 0) (#5)
    by Ga6thDem on Mon Jun 11, 2012 at 12:17:44 PM EST
    this election as something fraught with problems for both candidates. It's not like Romney is offering any solutions to our economic problems other than the failed supply side solutions of the past. Romeny also has to beat the extremely negative view voters have of the GOP.  Obama has to overcome all the things that he has failed to do to rectify the problems in this country. The negative impression of the GOP and the demographics are probably going to keep it close but it probably won't be enough for Obama to win as it looks right now.

    Romney also has to beat the impression (5.00 / 1) (#16)
    by TeresaInPa on Mon Jun 11, 2012 at 03:45:33 PM EST
    that he is a robot from another galaxy, doing a poor imitation of a human being. He just doesn't quite get the vernacular or the appropriate facial expressions.

    Tend to agree. (none / 0) (#6)
    by Buckeye on Mon Jun 11, 2012 at 12:47:46 PM EST
    If I was forced to bet, I would be on Obama losing 4-5 points.  The fact that he is running against Romney, changing demographics, and that it was not that long ago America said goodbye to one of its worst Presidents will keep it relatively close for a while.

    Financing Issues (none / 0) (#3)
    by ScottW714 on Mon Jun 11, 2012 at 11:41:46 AM EST
    Now you actually have to have good credit and a down payment to get into a house, whereas before just about anyone who wanted a house got in one.

    Stated income, 100% financing, and interest only loans, along with many other practices are simply tools that will be used rarely, if at all.  Thinking those were going to remain the same seems disingenuous at best.

    Not really sure how that applies to the argument, he was thinking all those schemes were going to continue, but that is the way I read his comments.

    And I agree, financing costs are at their lowest rates ever.  That clearly isn't the problem.

    I think he is talking about financing to build (none / 0) (#12)
    by ruffian on Mon Jun 11, 2012 at 03:30:50 PM EST
    multi-family complexes, like apartments and condos. If the demand was there for people to move into them, developers would be able to get financing to build them.

    That said, there is a brand new apartment complex being built a mile away from my house. It will be interesting to see how fast it ills up. Maybe that will be an indicator of recovery. Or maybe not, since the rumor is it is low-income housing.


    Financing issue (5.00 / 1) (#23)
    by gyrfalcon on Tue Jun 12, 2012 at 12:45:08 AM EST
    isn't a question of interest rates, it's a question of whether anybody's willing to lend.  From everything I hear from both sides, banks are simply unwilling to lend to anybody who isn't a gold-plated zero risk borrower.

    Who in the housing construction industry is in that category these days?

    The righties blame bad rule-making on Dodd-Frank, which, they say, imposes many of the same restrictions on smaller banks as on the big boys.  I have no idea whether that's true or not, but I hear it constantly.

    The lefties tend to blame it on... I'm not clear waht they blame it on other than bad grace on the part of the banks.  Really?  Even smaller regional and local banks?  I don't know that, either, but it seems to me unlikely.


    Bernanke can't do much positive (none / 0) (#10)
    by TJBuff on Mon Jun 11, 2012 at 01:45:32 PM EST
    but the Fed has to make it clear it won't raise interest rates the minute inflation goes over 2%.

    Inflation (none / 0) (#24)
    by gyrfalcon on Tue Jun 12, 2012 at 12:50:53 AM EST
    Y'know, I do wish those of you who advocate a nice dose of inflation to cure our economic woes would give just a nod, just a little nod, to those of us on the lower end with no hope of increasing our income to whom the word "inflation" strikes utter terror into our hearts and minds.

    Inflation may be a great cure from the point of view of people with a little disposable income, but for the rest of us, it sounds like a death knell.

    I'm with you -- I'm on a fixed income (5.00 / 2) (#27)
    by Towanda on Tue Jun 12, 2012 at 02:58:46 AM EST
    it seems, although I'm still working -- but with no raises in six years, and now the huge hit to my take-home pay by my governor, so he (and the feds) nicely can maintain the high tax level on my purported salary.  I'm actually taking home what I did ten years ago from my fulltime job.

    So I'm working two jobs, just to try to maintain life for our family.  What is this "disposable income"?  Sounds good.  Can I haz sum, pleeze?

    Now, my spouse needs to retire -- again -- going on 70, as he is.  I hope that his kids can get stable, as we can't keep helping them much longer.


    I feel your pain (none / 0) (#44)
    by gyrfalcon on Tue Jun 12, 2012 at 11:12:24 PM EST
    I feel like a hamster on a wheel, running faster and faster and working more and more hours of less and less tolerable work just to keep the rate of drop in my income from accelerating even faster.

    Oh, do let's talk about how inflation doesn't have any impact on those of us with no disposable income to speak of.  I'm so.... moved ... by that fantasy.


    Where did you read that comment? (none / 0) (#46)
    by NYShooter on Tue Jun 12, 2012 at 11:16:34 PM EST
    "Oh, do let's talk about how inflation doesn't have any impact on those of us with no disposable income to speak of."

    I don't know anyone who would make such a foolish statement.


    Can't imagine (none / 0) (#53)
    by gyrfalcon on Thu Jun 14, 2012 at 12:01:14 AM EST
    Must have been some awul person posting under your name.

    Comment #36

    "Finally, generally, and historically, seniors have less disposable income than when they were working full time, and so are affected less by inflation, simply because they buy less things."


    Magical Realism (none / 0) (#55)
    by Dilbert By Day on Thu Jun 14, 2012 at 03:12:12 PM EST
    Comment #36

    "Finally, generally, and historically, seniors have less disposable income than when they were working full time, and so are affected less by inflation, simply because they buy less things."

    This is equivalent to claiming that price inflation in consumer essentials, is offset by senior discounts at movie theaters and McDonald's.

    Many seniors recycle, reuse and repair, rather than discard, replace or upgrade. They're often forced to substitute with lower priced, lower quality products for more expensive items , e.g., processed foods for whole foods. When food substitution isn't an option, they pay higher prices for diminishing portions just like everybody else, or go without.

    In a zero-bound rate environment, the nominal return on the 10 year bond is negative (below the rate of inflation), and the Fed is artificially twisting the curve to keep it that way.

    Fixed income retirees with minimal savings, and without the benefit of investment income are perpetually engaged in a frazzle of frantic footwork as they struggle to maintain....a declining standard of living - The Golden Years.  


    Inflation (5.00 / 1) (#29)
    by Ga6thDem on Tue Jun 12, 2012 at 06:44:07 AM EST
    would be good for me ONLY if it was contained in the housing market but as far as I know that has never happened and inflation usually affects the price of everything which overall would not be good for me either.

    And worse (none / 0) (#45)
    by gyrfalcon on Tue Jun 12, 2012 at 11:13:49 PM EST
    the "official" inflation figure doesn't count the stuff we have to buy even if we have no "disposable income"-- ie, food, energy and housing.

    I'm sorry to hear (none / 0) (#25)
    by NYShooter on Tue Jun 12, 2012 at 01:13:41 AM EST
    of your limited financial condition, Gyr.

    But, to your point, there are many seniors with sub-par incomes who have a small "stash," accumulated over a lifetime of savings, sitting in a bank account and collecting virtually nothing in interest. So, for them, an uptick in inflation also means an uptick in interest paid. The thinking is that purchases by seniors, by their very nature, are limited, and, thus, an increase in inflation would not be onerously hurtful. But an increase in interest rates would be beneficial.

    Of course, if you have no savings, that explanation is moot.


    The idea that inflation is... (5.00 / 1) (#28)
    by Gandydancer on Tue Jun 12, 2012 at 05:28:09 AM EST
    ...good for those dependent on savings is insane on its face.

    And inflation won't translate into higher interest rates as long as the Fed is making newly printed money available at one "window" or another at a lesser rate. Why would anyone turn to savers for the marginal dollar if they're available from Bernanke for nothing?


    Interest payed on excess reserves (5.00 / 1) (#34)
    by Dilbert By Day on Tue Jun 12, 2012 at 11:41:25 AM EST
    Where is the incentive for banks to loan money into the stagnant private sector, when they can earn a risk free rate of return by holding those freshly printed $ on deposit with the fed?

    Not to mention the direct correlation between QE and the spike in risk assets, as banker prop desks will invariably seek higher yields through commodities & equities speculation. The resulting 'wealth effect' failed to spark a sustainable recovery, instead, leaving producers with higher input costs, past on to consumers in the form of higher prices at the check-out counter.

    The vaunted 'wealth effect' was as realistic as the 'jobless recovery.'      


    sure, that's correct, and (none / 0) (#35)
    by NYShooter on Tue Jun 12, 2012 at 11:52:23 AM EST
    I agree with your conclusions.

    Generally, and historically, (none / 0) (#36)
    by NYShooter on Tue Jun 12, 2012 at 12:21:52 PM EST
    higher inflation has led to higher interest rates. That's just a fact.

    Also, generally, and historically, savers benefit from inflation as it pertains to higher interest being paid.

    Finally, generally, and historically, seniors have less disposable income than when they were working full time, and so are affected less by inflation, simply because they buy less things.

    But, if you want to use an outlier for an example and extrapolate it to negate what has generally been the experience of history, be my guest. But, using an outlier to disprove historical fact.......that is insane.


    Seniors on a fixed income (none / 0) (#43)
    by gyrfalcon on Tue Jun 12, 2012 at 11:10:06 PM EST
    are less affected by inflation because they're poorer.  Did I get that right?  You really said that?  Do you actually believe that?  Do you know any old people trying to get by on SS?

    I didn't think so.


    It's hard to believe, but you... (none / 0) (#47)
    by Gandydancer on Wed Jun 13, 2012 at 01:08:11 AM EST
    seem blissfully unaware that there is a difference between nominal and real interest rates, never mind the existance of a tax wedge.

    You also fail to distinguish between reliance on savings and reliance on transfer payments.

    Cyclic behavior of interest rates is superimposed on a secular inflationary trend. When debasement of the currency becomes dominant it is to be expected that the result will be outliers all the way down.


    People like Karl Smith (none / 0) (#26)
    by cal1942 on Tue Jun 12, 2012 at 01:33:43 AM EST
    should never be taken seriously.

    The man hasn't a clue.

    A supply side fool.

    "Redistribution of wealth" ... (none / 0) (#30)
    by Robot Porter on Tue Jun 12, 2012 at 07:21:47 AM EST
    this is a phrase that scares politicians and even forces more than a few liberals to wave "shh" fingers and suggest a "different framing".

    But no economic plan that isn't truly redistributive, fundamentally and at its core, will solve our current economic woes.

    The days of polishing off the old blame, finding a new way to game the system and spinning the wheel one more time, are over.

    Every year the average lower middle class American causes hundreds of thousands of dollars to be generated in the banking system, but takes away only thousands. And that usually as leveraged debt. The weak plus side of an asset/liability equation. The scales must be balanced much further in the average individuals favor.  They must benefit more from the capital they generating.

    Anything short of this and we'll be back just where we are now in a few years.  And at that time the public might not be interested in solving these problems calmly and peaceably.

    Fantasy world (none / 0) (#32)
    by Slado on Tue Jun 12, 2012 at 10:52:15 AM EST
    Is what those asking for more printed money are living in.

    Look at these charts.  This is the money supply and real inflation.   Take a real hard look.

    So we've printed all this money and what has it gotten us?


    We have a spending and debt problem.   The Fed filled the whole with money and the economy is barely limping along.  

    The economy tried to correct itself in 2008.  Instead of biting the bullet the Fed and bipartisan government printed money to re-blow up the bubble.

    The next time it crashes will be even more painful.

    Not a matter of if, but when.

    One more thing (none / 0) (#33)
    by Slado on Tue Jun 12, 2012 at 11:12:40 AM EST
    State spending up 14%

    Federal Spending at highest levels since WWII

    Doesn't seem like there's much of a demand issue here BTD?  At least not when it comes to demand generated by taking money from Paul to give it to Peter.   Which is all you're doing when the government spends money.  

    I guess we could start WWIII.   That would create some demand.

    Government is doing all it can do and its not working.   At what point do we stop digging?


    I disagree (none / 0) (#37)
    by PatHat on Tue Jun 12, 2012 at 12:36:23 PM EST
    "We have a spending and debt problem.   The Fed filled the whole with money and the economy is barely limping along."

    At 2% interest, the debt is not the biggest concern. At BTD spoke of originally, this is a DEMAND problem. People are either unemployed (increasing state and federal spending on them), or worried about being laid off (not spending). The people with all the cash are not investing it because nobody wants to buy anything. They insist on getting a return on this money, so they invest it in derivatives or other risky investments while the rest of the country flounders. This isn't rocket science. Get people working and the demand will increase.

    Last comment. With money being so cheap, why are credit card interest rates still at 11, 15 and 23%? Oh yeah, because the banks got rid of the usury laws.


    What you just said is the exact definition (none / 0) (#38)
    by Slado on Tue Jun 12, 2012 at 01:09:18 PM EST
    of a debt problem.

    Our citizens are in debt.  Their net worth has been drastically reduced by the explosion of the housing bubble.

    Hence the demand problem.   When you are in debt you can't spend money which means that there is no demand etc...

    Our government is spending record levels of money and printing record levels of money yet no demand.   Hmmmmmmm, wonder why?

    Could it be because no one has any real money and our actual wealth is non existent?   That's my theory.  

    All this federal spending and money printing is just moving money around in circles.   The few and privileged are making money because that's what they do.   They work the system and they are benefiting from the exchange of cheap money while not doing what they would normally do which is create wealth.  Why shoudl they?  who will they lend it to.   Small buisness is so burdened by bad debt and goverment that they can't do what they do which is create wealth on a small scale.

    The demand you so long for can't be created by government programs because government can't create wealth.   It can only redistribute wealth that would not otherwise be done by the private sector for the common good.  

    Obama's policies are self defeating.  You rob money from certain businesses to give it to others but the rest of us don't get to do what actually creates real demand, wealth creation.

    Only sustained growth in the private sector creates wealth.   A new product, a new source of energy a new idea creates wealth and real demand.  See the computer, see a new discovery of oil etc...  

    Until government reduces it's influence in the economy and stops mucking it up with these failed fiscal and spending policies we will continue to see at best anemic growth and at worse another crash.

    It's not that hard.   Demand comes from wealth.  Not the redistribution of wealth through government planning.


    why should the banks (5.00 / 1) (#39)
    by NYShooter on Tue Jun 12, 2012 at 02:05:10 PM EST
    be the only ones to re-distribute wealth?

    no one is calling them Commies.


    I am not saying government (none / 0) (#40)
    by Slado on Tue Jun 12, 2012 at 03:43:27 PM EST
    doesn't serve a purpose.  There must be a social safety net, someone needs to pay cops and firefighters etc..

    I'm only saying we average 18% of GDP in tax revenue.   The federal government has to figure out how to pay it's goodies out with that much money.

    They are currently at 27% and climbing and the revenues have dipped to 15%.

    Something is not working and using more money we don't have isn't the answer.


    The "something" that happened (5.00 / 1) (#42)
    by PatHat on Tue Jun 12, 2012 at 03:48:03 PM EST
    was the moneylenders crashing the system. Yes, I agree. Something needs to be done about them. The percentage of GDP is misleading since the GDP is shrinking faster than the debt is rising.

    But this is all known. Some just feel that tightening our belts is something we need to suffer through...regardless of whether it accomplishes anything.


    Governments (5.00 / 1) (#41)
    by PatHat on Tue Jun 12, 2012 at 03:44:42 PM EST
    can spend money on needed infrastructure improvements that require American citizens to build. They are the lender of last resort. The banks wont lend. The corporations wont build.

    The Federal Govt can give money to the states so they can hire back those police, firefighters and teachers that Romney thinks are not necessary. Austerity during a depression is never the right answer...look at Europe. It's about to go belly up. Protecting the bondholders when millions of Americans no longer have the hope of a decent job will only encourage a revolution of sorts. Budget deficits at the lower interest rate boundary are not as worrisome as 10% unemployment with little prospect for the future.

    Maybe Jefferson was right. Gonna get me some 2nd Amendment protection, I think.


    Think a bit further. (none / 0) (#48)
    by Gandydancer on Wed Jun 13, 2012 at 01:41:32 AM EST
    At 2% interest, the debt is not the biggest concern.

    It's a fiat currency. The Fed is the willing buyer of last resort at whatever interest rate the Treasury decodes to offer T-Bills at, and it can also sop up other demand for dollars through whatever "windows" or "special facilities" it chooses to construct for that purpose. Is it really that easy to keep debt from becoming much of a concern?

    If not, what's the limiting principle?


    In a depression (none / 0) (#49)
    by PatHat on Wed Jun 13, 2012 at 10:26:26 AM EST
    debt is not as big a concern as getting people back to work. Our economy is based on people working, making money to buy stuff, which makes it profitable for companies to make stuff, who then hire people who make money, pay taxes, etc. Isn't about 90% GDP based on internal transactions?

    It is obvious that bailouts and tax incentives are not convincing the moneyholders to spend their cash. Even 0% interest isnt enough to get them to spend on new projects, equipment, etc in this time of very very low demand. The federal govt is there for the people. It should help the people when help is needed.


    So what's the answer? (none / 0) (#50)
    by Slado on Wed Jun 13, 2012 at 12:04:49 PM EST
    As Peter Schiff says, the government/FED needs to get out of the way.  It will be painful but what we have now is just more pain dragged out over years instead of months.  The politicians here and in Europe are trying to replicate a bubble.   A bubble that was never sustainable.   They are using the tactics that led to bubble to put off the inevitable crash.

    It can't be fixed.   Only letting the crash happen and starting to rebuild the right way will lead to a growing middle class.  Otherwise the rest of us are screwed while the politicians and elites try to put back together the mess they created.

    A quick exceprt...

    The same "damn the torpedoes" mentality dominates economic thinking with respect to the U.S. economy as well. Years of artificially low interest rates, and government subsidies that direct capital towards certain sectors and away from others, has created an economy with too little savings and production, and too much borrowing and consumption. The ultra-low interest rates currently supplied by the Fed serve to perpetuate this unsustainable artificial economy. Higher rates would work quickly to redirect capital to the more productive sectors. But high rates could bring deflation and liquidation, which few economists are prepared to risk.

    We have too many shopping malls selling stuff, but not enough factories making stuff. We have too many kids in college studying liberal arts, and not enough in the workforce acquiring skills that will actually increase their productivity. Banks are loaning too much money to individuals to buy houses, and not enough money to entrepreneurs to buy equipment. We have too many tax-takers riding in the wagon, and not enough taxpayers pulling it. The list is long, but the solutions are short.

    We need to let interest rates rise to market levels, and allow the economy to restructure without government interference. We need to stop beating a dead horse and hitch our wagon to an animal that can really pull. The process will be painful for many, but like ripping off a band-aid, the pain will be over relatively quickly. However, since a painful restructuring means recession, politicians resist the cure with every fiber of their beings. So instead of a genuine recovery, one that will provide productive jobs and rising living standards, we get a phony recovery that produces neither.

    We're already in a depression (none / 0) (#51)
    by Slado on Wed Jun 13, 2012 at 12:08:42 PM EST
    A depression that will be stretched out over decades while the FED and Washington try to fix what they already broke with the same policies.

    No stimulus could have fixed the hole we dug over decades of bad fiscal and fed policy.  BTD and other complain that it wasn't big enough.

    10 Trillion wouldn't have been big enough because it wouldn't have worked.


    so you are saying (none / 0) (#52)
    by PatHat on Wed Jun 13, 2012 at 01:41:50 PM EST
    we need to go thru a 1930's type Depression, destroy lives and families, so that magically the capitalist economy will make everyone's life better? Or do you suggest we need another FDR to create the programs to PULL us out?

    Mr. Schiff says we buy too much and dont make enough. Whose fault is that? The manufacturing sector looking for bigger profits by moving manufacturing to China or the consumer for demanding plush toys and gadgets from China so we can save maybe 30% and cut our own throats in the process?

    We need to get out of this depression by a massive federal stimulus, and then work our way out of our debt situation by deciding on butter instead of guns. Sustainable renewable energy instead of fossil fuels. Now THAT would be the way to a sustainable future.

    Obviously, I am no economist, but Mr. Schiff seems to think the reason capital is not flowing into these areas (or other sectors) is low interest rates or tax gimmicks. Businesses are sitting on trillions of dollars and you are telling me they cant find a place to make a ROI of a couple of percent over the Fed rate? No, they are not investing because nobody is buying anything!

    Obviously, you're no economist. (none / 0) (#54)
    by Gandydancer on Thu Jun 14, 2012 at 11:13:01 AM EST
    Oh, well. Neither is Krugman nowadays.

    FDR didn't pull this country out of the Depression. THAT went on and on and on. See Amity Shlaes.

    "Sustainable renewable energy instead of fossil fuels. Now THAT would be the way..." Yeah, more Solyndras and Leafs. Just the ticket. Or we could print money and pay people to dig holes and fill them up again. Same effect. Enrich the friends of pols and debase the currency. Just what we need more of.