One of the central tenets of the Federal Reserve and most central banks throughout the developed world in the modern era has been their ability to stay above the political fray.
With a few notable — and fairly disastrous — exceptions, the Fed has acted without fear of political retribution from the executive branch, although the chair still has to testify to Congress and the president periodically.
The assumption of independence, however, has come under fire in recent months. After President-elect Donald Trump floated the conspiracy theory that the Fed was intentionally manipulating interest rates to help President Barack Obama and Hillary Clinton, a hostile congressional questioning of Board Chair Janet Yellen in September, and the possibility of Trump packing the Board of Governors with sympathetic members, it no longer is a given that the Fed will be able to maintain its freedom going forward.
When I (and others) book a job three months in advance, the contractor can hire more workers knowing when checks will be coming in. My visibility creates the contractors visibility. The predictability of revenue creates the opportunity for economic expansion and job creation.
The Federal Reserve is operating monetary policy using a simple formula:
Lower interest rates across all maturities ALWAYS increases economic growth.
My personal example proves this formula to be flawed. I think the formula is more complicated:
Lowering interest rates across all maturities has both positive and negative consequences. As interest rates approach zero, (with the prospect that they will remain so for years to come) the negative consequences outweigh any benefits.
The idea that lower interest rates are hurting savers is an old one. The question is, “How significant are the negative consequences of low interest rates?” The multi-decade efforts in Japan to reflate an economy with low interest rates is a shining example of policy that has not worked.
Read this article, you will have, in nutshell, exactly our economic situation. Read at least some of the comments. If you filter out the hyperbole of a few, the comments form a kind of crystal ball, with some sobering predictions.
Posted in News and Views
Tagged bailout, banks, Depression, financial institutions, meltdown, money, people hate banks, Recession, stimulus package, The Fed, They are all a bunch of bastards
‘You can take the blue pill and wake up in your bed and believe whatever you want. Or you can take the red pill and see how far down the rabbit hole goes…’ That line from ‘The Matrix’ applies to this piece by Giordano Bruno. If you’re having a tough time wondering how the stock market can go up while people are losing jobs and homes, this will give you something to hang your hat on.
WARNING: You can’t unlearn this information.
This may be a highly distasteful proposition, but just for a moment, I want you to sit back, and imagine that you are a member of the corporate banking elite. You are a walking talking disease ridden power mad pustule who naively believes himself intellectually superior to the vast majority of humanity and above the inherent laws of conscience, honor, and general good taste. You are a villain in the purest sense, in that you not only do great harm to the world, you actually SEEK to do great harm to the world, if only to benefit yourself and your exclusive circle of “friends”; a clan of degenerate blood thirsty sociopaths with delusions of omnipotence that stalk the night like Armani wearing Chupacabra exsanguinating the joy from poor unsuspecting cultures. You are capable of anything, and sadly, you take “pride” in this fact…
Another jobless recovery?
Wednesday, July 22
Posted 11 a.m. Eastern
Fed Chairman Ben Bernanke’s appearance before the House Financial Services Committee yesterday lacked any unexpected revelations. One point in his prepared remarks did catch my attention, however.
“Although the unemployment rate is projected to peak at the end of this year, the projected declines in 2010 and 2011 would still leave unemployment well above FOMC participants’ views of the longer-run sustainable rate.”
Reading between the lines, Bernanke seems to suggest we’re in for another jobless recovery. My own opinion is that it will be the mother of all jobless recoveries. Sure hope I’m wrong.
Regarding the economy: On July 31, the initial estimate of second quarter economic output, affectionately known as Gross Domestic Product, or GDP, will be released. There is a possibility that the economy, either based on initial estimates or subsequent revisions, will eke out some growth.
Now, let’s not get too far out over our skis but be cautious about interpreting this if it should come to pass. Here’s why: Any growth posted by the U.S. economy will largely be due to a shrinking trade deficit, as imports (what we buy) have fallen much faster than exports (what we sell). So bottom line, any growth in the U.S. economy during the second quarter is more testament to the resilience of foreign consumers than it is American consumers.
For more of Greg McBride’s posts, go to: Fed Blog: Making sense of the Federal Reserve.