Thursday, August 18, 2011

Finally Coming Around?

Rick Perry's comments this week about the Federal Reserve confirmed that the Fed has made itself a legitimate campaign topic, but there were signs in recent months, including this interesting entry from Bill Kristol, that Republicans as a party would start to co-opt this issue. They had ceded it to Ron Paul and a few others because Fed rate policy has meant an ongoing bailout of the financial sector. It will be interesting to see if the trend continues because of electoral exigencies. Is the speculator/too-big-to-fail class, with its eyes on the 2012 prize, willing to sacrifice the Fed temporarily -- especially now that the Fed has publicly committed itself to bailout-level interest rates for the next two years?

Maybe there's an important distinction to be made between grassroots/Tea party Republicans and Fed/financial industry-friendly ones. Here is the latter's response to Rick Perry's remarks. It's long been obvious that when it comes to criticism or even oversight of the Fed, there is a supra -- or perhaps more appropriately, sub -- political element for which party identification is irrelevant.

The Fed's recent announcement of zero percent rates for the next two years was chilling, less for the danger aptly noted by Kristol's correspondent than for the desperation-driven geopolitical moves that boxed-in policy necessitates -- "days, not weeks" at a minimum.


Blogger Chase said...

You can't have a wage-price spiral without wages. The worries about keeping interest rates low are that it would bring inflation, right? I don't see how that's a problem with demand where it is.

8/19/2011 8:49 AM  
Anonymous rapier said...

Fundamental criticism of the Fed is by definition crackpot because virtually every criticism of it has been crackpot for 50 years. The John Birch Society was founded on hard money nostalgia.

The complex thing is that in some important ways the crackpots have been right about the Fed. They maintain the problem is the design of the system but me, admittedly a nobody, believes the problem is human error. No system is perfect and all systems can and will become corrupt and fail because human error.

Perry is the perfect Fed foil. He has not the slightest idea what money is or what the Fed is. Barely veiled threats of violence against it is icing on the cake. Now, again, as always, any criticism of the Fed becomes impossible.

Except of course criticism that it isn't 'easy' enough.

8/20/2011 5:18 PM  
Anonymous Ed said...

"You can't have a wage-price spiral without wages. The worries about keeping interest rates low are that it would bring inflation, right? I don't see how that's a problem with demand where it is."

Your thinking is stuck in 1975, but then so is that of most commentators on this.

Unions were beaten, and wages have been stuck at increases at or below inflation for at least thirty years. The US has had expansionary monetary policy (via low interest rates from the Fed) a number of times since then, and expansionary fiscal policy (eg deficits) almost continously, and no wage inflation.

The effect instead has been asset inflation, as the US has had bubbles in equities, real estate, both, along with other investments. Essentially we got wage inflation, but the "wages" that have been inflated have been that of the investmenting classes, the people with the wealth to take advantage of the various bubbles.

Somewhat similarly, the average person has faced big increases in the price of education, health care, real estate, and transportation, though not all of this is due to expansionary monetary policy, but not consumer goods like clothing and electronics which are quite cheap. But after the experience of the 1970s we have all learned to watch consumer goods prices and wage increases closely for signs of inflation.

Incidentally, I think a person can do worse than what every person giving financial advice is dead set against, which is don't bother with things like education and buying a house, where now you are buying high, but go in for frivolities like clothes and electronics, where at least you will be buying low and getting some enjoyment out of your money. There is just enough risk of a currency crisis in the US to make this worth considering.

People on all points of the fiscal spectrum that are blind to this. You have commentators on the the left calling for more government spending or even (in 2011!) an expansionary monetary policy, even though these things haven't increased wages in real terms for decades. You still have people on the right who seem to believe that inflation is under control, which I guess it is if you define it away, but if we don't get control of these damn unions and social spending then it will get out of hand.

8/21/2011 8:12 PM  
Anonymous Goldhorder said...

"Fundamental criticism of the Fed is by definition crackpot because virtually every criticism of it has been crackpot for 50 years. The John Birch Society was founded on hard money nostalgia."
The price of gold has been on an exponential increase since the late 90s. Look at's gold charts. That is not "crackpot". That is a fact. A 15 year fact. It rather closely matches the exponential increade in government debt. You can look that chart up on the st. Louis fed page online. These are facts. These are long term trends.

8/23/2011 11:03 PM  
Anonymous Anonymous said...

An all but useless metal, is mined and refined at enormous economic and environmental expense, then sent to sit in some vaults somewhere... yet since people faithfully believe this metal somehow has "real" value, it therefore does.

Makes sense.

8/25/2011 11:24 AM  
Anonymous Goldhorder said...

4,000 years of history. A rare metal used to store economic value compared to a system where our "betters" get to print up however much money they want and give it to their friends at near zero percent interest rate. Ummm... I think I'm sticking to the yellow metal.

8/29/2011 12:10 AM  
Anonymous Goldhorder said...

Oh.... And btw. The USD has been free from gold since only 1971. 40 years. 4,000 years or 40 years. We'll see what the future holds. Are you really sure our "betters" will quit stealing from us long enough to not collapse the entire charade? It sure don't look like it! Lol

8/29/2011 12:16 AM  
Anonymous KAIMU said...


Just as a comparison to the good ole high inflation days of the 1980s, when the Fed Funds Rate was as high as 19%, unemployment for 1980 was at 5.8%. You might ask then why is unemployment so low when the Fed Funds Rate is near zero now? In 1980 US manufacturing jobs were at their peak(google MANEMP)and have since been on a 30 year decline to Great Depression levels of the 1940s.

I know this may surprise many Americans weened on Consumer Credit but you cannot have jobs without manufacturing. Take a guess why US corporations and many other western based corporations have moved their factory workers to Asia(aka:Chindia)? Hummm??? I wonder ... The US union factory worker who was making textiles in Rhode Island in 1980 now speaks Vietnamese in Ho Chi Min City! Those are the same Communists we were playing dominoes with in 1971 where about 60,000 US kids lost their lives.

Considering the value of gold without a direct link to a USD is in my mind as disturbing as comparing Obama to Tony Soprano! Oops, sorry "Bing"-no disrespect!

It is obvious to most people with minimal monetary training that the price of gold is not going up-the value of the USD is going down! More to the point the "Confidence" in a USD is what is at stake here. You do not even need to look at gold prices as a yardstick to figure that out. Like I was saying about 1980 a brand new car was $7200 then, so you could say the same about the gold price as you can for car prices. In fact the USD does not buy very much any more compared with the prices in 1980. And that's even nine years after 1971 when the gold window was shut! Yes, believe it or not gold used to be the basis of money here in America and in actuality you can see evidence of silver as money also if you go to EBay and type in "90% silver coins".

We are about two weeks away from the end of FY2011 at the US Treasury and so far between net debt of some $1.2TRIL and net outlays of near $3TRIL and the trade deficit of some $400BIL American government has debted and spent some $4.5TRILUSD. That's all in a one year time span. If we were not the World's reserve currency we would have been Greece in 1971 and Argentina in 1980!

9/15/2011 5:20 AM  
Blogger Thomas Daulton said...

Yesterday Ben Bernanke said the economy is in trouble because consumers are irrationally depressed about it? Didn't Bernanke's predecessor blame our economic troubles on "irrational exuberance" ??

Sounds like they want to put us all on Zoloft. And yet I presume neither of those gentlemen are in favor of legalizing maryjane?

I think the only conclusion one can draw is that the economy is irrational at all times.

9/15/2011 12:47 PM  
Blogger Thomas Daulton said...

Bernanke does admit there are reasons consumers are cautious, but he used the phrase "exceptionally cautious". Hey Ben, does this sound like caution to you: "Record Numbers of US in Poverty"

...lends credence to TCR's assertion that those in power need a new war to pull them out of this. Temporarily. Then pass the torch to the other political party.

9/15/2011 1:40 PM  
Anonymous Anonymous said...

I only come to this site for FP. Gold Buggery is a crazy..almost any metric economic performance post 1913 FED RES creation is light years better but...
" desperation-driven geopolitical moves that boxed-in policy necessitates -- "days, not weeks" at a minimum"
Iran war here we come..we have found our "curveball" for this war..Iranian american car saleman from Texas.

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