"If you're going to panic, do it fast and beat the crowd." ~ Jesse Livermore

Saturday, March 2, 2013

No exit from the Fed's madness

No way out--and no exit from the Fed's madness--

TCW.com - And All Our Yesterdays: " . . . The Fed has dutifully sat by the patient’s side for over four years. But when Mr. Bernanke originally administered his concoction of zero rates and quantitative ease, the Fed was confident that these truly extraordinary monetary actions were emergency measures from which “exit” was a year, at most two, away. The Fed had diagnosed the “patient” as suffering from a shortage of aggregate demand and concluded that the doctor needed to “manufacture” consumption so as to get the patient back on the playground. The Fed commanded short rates be zeroed out and quantitative easing initiated. To what end? According to the Fed’s essentially Keynesian logic, the negative rate environment facilitated by these policies foster an intertemporal shift away from savings and towards consumption. In so doing, consumer demand is lifted and realtime economic growth is enhanced. Additionally, the never-this-low in recorded history level of mortgage rates is intended to spur a “wealth” effect by pumping up the housing market. According to theory, if you get enough people spending and enough people feeling wealthy, the demand side of the economy will throw a party, inducing businesses to hire, leading us to a sustained prosperity. . . . So now we live one of the great economic experiments of all time. . . . we may well come to see that much of what is called “stimulus” today is merely a convenient term for redistributing wealth and resources according to the priorities of the Fed and the national government. If so, then we will find that the reconfigured economy of tomorrow will be inefficiently constructed. Perceived stability today just might be setting us all up for a sucker punch of stagflation tomorrow. And tomorrow does eventually come."

Fed Signals Possible Slowing of QE Amid Debate Over Risks - Bloomberg: "At the December meeting, Fed officials were “approximately evenly divided” between those favoring a mid-2013 end to purchases and those advocating a later date, according to minutes from the gathering. Chairman Ben S. Bernanke has pledged to buy bonds until there’s a “substantial” improvement in a labor market burdened by 7.9 percent unemployment. The minutes released yesterday didn’t indicate a discussion about when to end quantitative easing. “They’re changing the debate toward when to scale it down rather than debating the point where it suddenly ends,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. “With the economy looking more solid than they feared a few months ago, financial-sector risks take on more importance.”"

SCHILLER: A history of the national debt - Washington Times: " . . . .The CBO says the current debt trajectory will shave 1.7 percent off GDP by 2022. The U.S. Senate hasn’t passed a budget in four years. Congress sidesteps fiscal responsibilities by passing continuing resolutions that provide “temporary” and “emergency” funding for Uncle Sam. Without those budget Band-Aids, the government would have to shut down, as it did on 17 occasions from 1976 to 1996. . . . The public is fed up with soaring debt and Congress‘ inability to exercise fiscal restraint. People have near-zero confidence in Congress, which spills over into their perceptions of the economy. They see runaway deficits, soaring debt and a complete lack of fiscal leadership. These perceptions restrain investment spending, deter consumer purchases, constrain bank lending and slow foreign investment. The end result is slower economic growth and persistently high unemployment. When economists such as Paul Krugman claim that the United States still can afford larger deficits and debt, they fail to understand the psychology of market participants and the consequences for market behavior. The markets are saying, “Enough is enough.”" Read more: http://www.washingtontimes.com/news/2013/feb/19/a-history-of-the-national-debt/#ixzz2LSubfDjd 

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