Who Put This Clown In Office?

[The Rabbi]

http://news.yahoo.com/s/ap/20080110/ap_on_bi_ge/bernanke;_ylt=AuaZQmuSOtMEP0cWD3QGXB2yBhIF

WASHINGTON - Federal Reserve Chairman Ben Bernanke pledged Thursday to slash interest rates yet again to prevent housing and credit problems from plunging the country into a recession.


The Fed chief made clear the central bank was prepared to act aggressively to rescue a weakening economy. "We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks," he said.

see more in the story.

The Fed's job is not to rescue the economy.  That is Congress' job.  The Fed's job is to insure price stability and the value of the dollar.  With oil and gold, traditional proxies for inflation, going through the roof, the Fed ought to be concerned with inflation.
This was the exact path Arthur Burns went down and it ended with the worst inflation and stagnation in U.S. economic history.

[MrRezister]

Haven't you heard?  Money's never a problem when we can print as much as we like! 

[Finch]

Federal Reserve Chairman Ben Bernanke pledged Thursday to slash interest rates yet again to slow housing and credit problems from inevitably plunging the country into a recession.

Fixed.

Damn, if only we had a presidential candidate who actually saw this as a bigger threat to our nation than "TERRORIST WHO HATE OUR FREEDOMS!!11 OMGWEAREGOINGTODIEWITHOUTTHEWARONTERRAH!!!"

I'm glad we made that tough decision to destroy our economy to do whatever it is that we are doing. Excellent choice.

[The Rabbi]

I dont know that a recession  is inevitable.  But we are at that point in the business cycle where excess needs to be wrung out.  The solution is for the gov't to cut taxes and get out of the way.

[Finch]

I dont know that a recession  is inevitable.  But we are at that point in the business cycle where excess needs to be wrung out.  The solution is for the gov't to cut taxes and get out of the way.

Maybe not inevitable, but they keep adding straws and are getting pretty damn close to breaking it's back.

[Manedwolf]

At some point, when the passengers keep seeing the crew rushing down to the hold with buckets and pumps right in front of them instead of via a service ladder, they begin to become concerned...and stop buying drinks at the bar, stop ordering dinner, etc.

The more he says it's weak, the weaker it will get. Can we say "Self-fulfilling prophecy"?

[French G.]

There is some confusion, someone mentioned the war. That might be spending all of the money we give to the government but probably not since pensions and other entitlements make up the vast majority of the federal budget.

I don't see the war has hurt the economy, they usually help.

What has hurt the economy is really not much except expectations. We couldn't lose money on real estate, everybody was flipping house, stocks are safe, it's the new economy, we can now avoid recession, etc, etc. The only real damage has been done by the usual Greenanke "I have a printing press and I'm not afraid to use it" approach to monetary policy.

[Perd Hapley]

Who Put This Clown In Office?

Why the other clown in office, of course.  (And I don't mean Mike Irwin.) 

[Finch]

I don't see the war has hurt the economy, they usually help.

They may help certain industries, but the overall economy gets screwed when you borrow billions a week and "lower interest rates" to finance said wars.

[Paddy]

Speaking of that other clown, today he called for an end to the occupation of Arab lands by the Israeli military.      How about ending the occupation of Arab lands by the U.S. military, Mr. Bush?

[Headless Thompson Gunner]

Despite popular misconceptions, there are some very powerful disinflationary pressures at work worldwide.  Combine those with the sudden bursting of the housing bubble and the resulting defensiveness of the lending industry, and there is serious risk of deflation.  Bernanke is erring on the safe side, as he should. 

[Finch]

Bernanke is erring on the safe side, as he should. 

Tell me how adding more currency to an already saturated market is safe? How do you solve the problem of inflation with more inflation?

[Headless Thompson Gunner]

Bernanke is erring on the safe side, as he should. 

Tell me how adding more currency to an already saturated market is safe? How do you solve the problem of inflation with more inflation?

Inflation isn't the real concern.  Deflation is. 

[Tecumseh]

George Bush decided to.  Remember he is "The Decider" and we should not question the man.

[The Rabbi]

Bernanke is erring on the safe side, as he should. 

Tell me how adding more currency to an already saturated market is safe? How do you solve the problem of inflation with more inflation?

Inflation isn't the real concern.  Deflation is. 

Except there is NO indication of deflation anywhere.  Commodity prices are not falling.  Labor prices are not falling.  No economy worldwide is experiencing deflation.
OTOH, all the inflationary signals are there, flashing red.

No, the Fed is not paying attention to inflation or deflation.  They are paying attention to jobs and economic activity and trying to "rescue the economy" with easy money.  This is a formula for failure.

[Nitrogen]

While I might disagree with you "wackos" on many other things, I'm glad there's at least somewhat of a consensus here on this.  I heard the news today and was wondering how long it's going to take before the Dollar goes the way the Mark did between WWI and WWII.

[French G.]

They may help certain industries, but the overall economy gets screwed when you borrow billions a week and "lower interest rates" to finance said wars.

We are not borrowing "billions a week" to finance a war. That money, much less than billions a week, is allocated by defense spending bills and the federal budget. Interest rates being lowered have zip zero to do with the war. Short term interest rates are being lowered to encourage more extending of credit by and between large financial institutions.

HTG, I believe major inflationary pressures are at work because any official calculation of inflation ignores food and energy. Well energy costs are driving the food costs($5 gallon of milk) and a paycheck gets a lot less than it did a year or two ago. Drive down consumer confidence, people pull back in their shell, Fed lowers rates some more to encourage spending, money gets less useful. I suppose next we will see the "oil bubble" in the stock market and oil's eventual price fall will get blamed for jerking the economy around. Last February I though we'd be recovering by now, but I was wrong, the level of denial in the financial markets is dragging the larger economy down. Oh well, my pitiful stock portfolio is nothing but speculative gold and oil stocks right now, so I await more bad news.  

[longeyes]

Good grief, The Rabbi and I agree.   

What's good for Goldman Sachs is good for America.  Let's not forget that.

[Headless Thompson Gunner]

Manufacturing costs around the world, and hence the price of goods, are way down.  Manufacturing wages are generally down too.  Both will only get worse as more developing economies join the global marketplace.

Housing costs form one of the largest expenses in the average American household's budget, and those are falling precipitously.  All signs indicate that they'll continue to fall. 

I think the Fed is just now starting to get firm data on just how much liquidity got sucked out of the market when the bubble burst.  I don't think they like what they're seeing. 

The defensiveness of the lending industry is only going to compound all of these problem.

Right now, it looks as though high oil and metals prices are all that's propping prices up.  Yet those commodity prices have as much to do with speculation in the futures markets as they do any real increase in cost.  I'm hearing more and more average people, people who don't really understand or follow the markets, talk about commodity futures as if they easy risk-free investments with guaranteed high returns.  That sort of sentiment among the general population is one of the first indications that a bubble is forming.  Given the highly leveraged nature of most of those investments, a panic sell situation is creepily plausible.  That could severely exacerbate disinflationary problems.

Back in the late '80s Japan experienced the synergistic effects of cheap foreign  goods, lower manufacturing wages, a real estate bust, and a lending industry that was scared to lend.  (Sound familiar?)  Deflation set in and wrecked their economy.  Their central bank couldn't fix it, not even by cutting rates to 0%.  Their economy still hasn't fully recovered. 

Still think there's no reason to fear deflation? 

Inflation isn't ideal, but at least it's tolerable, at least it can be managed somewhat by the Fed.  Deflation is disastrous.  It wrecks an economy and can't easily be reversed.  We're far better off taking the risk of inflation rising a point or two in the short term if it ensures we won't fall into a depression.

Bernanke and the FOMC did the right thing.

[The Rabbi]

You are positing high commodity prices AND deflation.  That just won't wash.  You cannot compare Japan to the U.S.  Conditions are radically different.  The housing bubble was just that, a bubble.  I have seen several in my life time, none of them resulted in deflation.
The Fed is not paying attention to the money supply, which has been growing steadily over the last 12 months.  How do you have an increasing money supply and deflation?  You don't.

[Paddy]

As I understand it, recession means a contraction of both money and credit.  The Fed can offset the money contraction, but can they do anything about credit?  So what if we have an expansion of the money supply, and a contraction of credit?  What happens then?

The basic problem IMO, is that we're a consumer based economy.  Every year the news reports how retailers are wailing and gnashing their teeth over Christmas sales, like we're supposed to care.  If there are too many of them for the rest of us to support, let 'em go out of business, for all I care.

A consumer based economy needs money in order to consume.  In order to get money, you have to produce something of value.  We don't produce nearly enough for our size, and that's why we're a debtor nation. Unless this changes, it won't have a good end.

[The Rabbi]

Your knowledge of economics sucks.
Let's start with recession.  A recession is not a contracting of money supply.  A recession is a decline in GDP for some number of consecutive quarters, three maybe.
The Fed can fiddle with interest rates but unless there is business confidence no one will be interested in borrowing money to build or expand a business.  Japan experienced this when their rates fell to essentially zero and lending didnt pick up.

[Paddy]

heh. You're funny.

A recession is not a contracting of money supply.  A recession is a decline in GDP for some number of consecutive quarters, three maybe.

That's the Cliffsnotes version.

Negative GDP growth is a symptom of an underlying problem(s). The causes include contraction in the money supply (tight money), unemployment (lowering demand), decline in consumer confidence, oil prices, war, artficially low interest rates, and other factors.  A huge decline in the money supply accompanied the Great Depression because Panicked people withdrew all their money from the banks.  Less money means less production.  Tight money was also responsible for more recent recessions.

[The Rabbi]

Thats not the Cliffsnotes version.  That is the economic definition.  Sorry if that doesnt accord with what you "know" to be true.

[Paddy]

I don't disagree with the 'economic definition' (which you got wrong, btw.  It's 2 quarters of negative growth, not simply a 'decline in growth'.) I'm pointing out to you that there's more to it.  To say simply "Recession is a decline in  GDP growth for 2 or three quarters" begs the question "why was there a decline in GDP growth?  What happened? What other factors are involved?"  Doesn't just happen out of thin air dontcha know.