Where have you gone Paul Volcker?

[HereWeGo]

The Fed should definitely hold at the next meeting.

[XBoxBoy]

gdcox states> The US Congress requires by statute that the Fed keep inflation low AND growth going.

Well, not technically correct. The fed must keep inflation low and try to maintain full employment. If you believe the government stats, employment is not doing badly. (And if you believe the government stats, inflation isn’t too bad either. But one of my major points is that this fantasy is getting readily dismissed in a surprising number of places these days.)

Also gdcox states> You can’t blame Bernanke for trying to take the edge of a probable recession. He is required to by his employers.

Well maybe. But I sure can blame him and his predecessor for being asleep at the wheel, and telling everyone that everything was just fine and dandy, when they should have been putting on the brakes. But… this is somewhat besides the point. I’m not that concerned with placing blame. (Although I’m gonna do it, it’s not my real question)

Finally gdcox wrote> In short, the best outcome is a period of slugflation as the Fed raised rate when the economy stabilises

Uhh… yeah…. and when the heck are things going to stabilize, and how is the fed going to raise rates when this reported stabilization occurs without further clobbering any recovery that might be starting? Isn’t it far more likely that the fed will continue to lower rates, ultimately the credit mess will bottom out, but then we will spend years with high inflation while the economy sputters trying to get back to it’s feet. I’m no economic expert, but isn’t it the case that when inflation takes hold, inflation causes the economy to stagnate because of the inflation? That this becomes a vicious cycle, the fed can’t raise rates because the economy is stagnated, and inflation continues unabated because the fed keeps rates low. Isn’t that what happened in the 70’s?

And if the above scenario occurs, then who is going to have the cajones to change policy and act like Paul Volker?

XboxBoy

[XBoxBoy]

gdcox states> The US Congress requires by statute that the Fed keep inflation low AND growth going.

Well, not technically correct. The fed must keep inflation low and try to maintain full employment. If you believe the government stats, employment is not doing badly. (And if you believe the government stats, inflation isn’t too bad either. But one of my major points is that this fantasy is getting readily dismissed in a surprising number of places these days.)

Also gdcox states> You can’t blame Bernanke for trying to take the edge of a probable recession. He is required to by his employers.

Well maybe. But I sure can blame him and his predecessor for being asleep at the wheel, and telling everyone that everything was just fine and dandy, when they should have been putting on the brakes. But… this is somewhat besides the point. I’m not that concerned with placing blame. (Although I’m gonna do it, it’s not my real question)

Finally gdcox wrote> In short, the best outcome is a period of slugflation as the Fed raised rate when the economy stabilises

Uhh… yeah…. and when the heck are things going to stabilize, and how is the fed going to raise rates when this reported stabilization occurs without further clobbering any recovery that might be starting? Isn’t it far more likely that the fed will continue to lower rates, ultimately the credit mess will bottom out, but then we will spend years with high inflation while the economy sputters trying to get back to it’s feet. I’m no economic expert, but isn’t it the case that when inflation takes hold, inflation causes the economy to stagnate because of the inflation? That this becomes a vicious cycle, the fed can’t raise rates because the economy is stagnated, and inflation continues unabated because the fed keeps rates low. Isn’t that what happened in the 70’s?

And if the above scenario occurs, then who is going to have the cajones to change policy and act like Paul Volker?

XboxBoy

[XBoxBoy]

gdcox states> The US Congress requires by statute that the Fed keep inflation low AND growth going.

Well, not technically correct. The fed must keep inflation low and try to maintain full employment. If you believe the government stats, employment is not doing badly. (And if you believe the government stats, inflation isn’t too bad either. But one of my major points is that this fantasy is getting readily dismissed in a surprising number of places these days.)

Also gdcox states> You can’t blame Bernanke for trying to take the edge of a probable recession. He is required to by his employers.

Well maybe. But I sure can blame him and his predecessor for being asleep at the wheel, and telling everyone that everything was just fine and dandy, when they should have been putting on the brakes. But… this is somewhat besides the point. I’m not that concerned with placing blame. (Although I’m gonna do it, it’s not my real question)

Finally gdcox wrote> In short, the best outcome is a period of slugflation as the Fed raised rate when the economy stabilises

Uhh… yeah…. and when the heck are things going to stabilize, and how is the fed going to raise rates when this reported stabilization occurs without further clobbering any recovery that might be starting? Isn’t it far more likely that the fed will continue to lower rates, ultimately the credit mess will bottom out, but then we will spend years with high inflation while the economy sputters trying to get back to it’s feet. I’m no economic expert, but isn’t it the case that when inflation takes hold, inflation causes the economy to stagnate because of the inflation? That this becomes a vicious cycle, the fed can’t raise rates because the economy is stagnated, and inflation continues unabated because the fed keeps rates low. Isn’t that what happened in the 70’s?

And if the above scenario occurs, then who is going to have the cajones to change policy and act like Paul Volker?

XboxBoy

[XBoxBoy]

gdcox states> The US Congress requires by statute that the Fed keep inflation low AND growth going.

Well, not technically correct. The fed must keep inflation low and try to maintain full employment. If you believe the government stats, employment is not doing badly. (And if you believe the government stats, inflation isn’t too bad either. But one of my major points is that this fantasy is getting readily dismissed in a surprising number of places these days.)

Also gdcox states> You can’t blame Bernanke for trying to take the edge of a probable recession. He is required to by his employers.

Well maybe. But I sure can blame him and his predecessor for being asleep at the wheel, and telling everyone that everything was just fine and dandy, when they should have been putting on the brakes. But… this is somewhat besides the point. I’m not that concerned with placing blame. (Although I’m gonna do it, it’s not my real question)

Finally gdcox wrote> In short, the best outcome is a period of slugflation as the Fed raised rate when the economy stabilises

Uhh… yeah…. and when the heck are things going to stabilize, and how is the fed going to raise rates when this reported stabilization occurs without further clobbering any recovery that might be starting? Isn’t it far more likely that the fed will continue to lower rates, ultimately the credit mess will bottom out, but then we will spend years with high inflation while the economy sputters trying to get back to it’s feet. I’m no economic expert, but isn’t it the case that when inflation takes hold, inflation causes the economy to stagnate because of the inflation? That this becomes a vicious cycle, the fed can’t raise rates because the economy is stagnated, and inflation continues unabated because the fed keeps rates low. Isn’t that what happened in the 70’s?

And if the above scenario occurs, then who is going to have the cajones to change policy and act like Paul Volker?

XboxBoy

[XBoxBoy]

gdcox states> The US Congress requires by statute that the Fed keep inflation low AND growth going.

Well, not technically correct. The fed must keep inflation low and try to maintain full employment. If you believe the government stats, employment is not doing badly. (And if you believe the government stats, inflation isn’t too bad either. But one of my major points is that this fantasy is getting readily dismissed in a surprising number of places these days.)

Also gdcox states> You can’t blame Bernanke for trying to take the edge of a probable recession. He is required to by his employers.

Well maybe. But I sure can blame him and his predecessor for being asleep at the wheel, and telling everyone that everything was just fine and dandy, when they should have been putting on the brakes. But… this is somewhat besides the point. I’m not that concerned with placing blame. (Although I’m gonna do it, it’s not my real question)

Finally gdcox wrote> In short, the best outcome is a period of slugflation as the Fed raised rate when the economy stabilises

Uhh… yeah…. and when the heck are things going to stabilize, and how is the fed going to raise rates when this reported stabilization occurs without further clobbering any recovery that might be starting? Isn’t it far more likely that the fed will continue to lower rates, ultimately the credit mess will bottom out, but then we will spend years with high inflation while the economy sputters trying to get back to it’s feet. I’m no economic expert, but isn’t it the case that when inflation takes hold, inflation causes the economy to stagnate because of the inflation? That this becomes a vicious cycle, the fed can’t raise rates because the economy is stagnated, and inflation continues unabated because the fed keeps rates low. Isn’t that what happened in the 70’s?

And if the above scenario occurs, then who is going to have the cajones to change policy and act like Paul Volker?

XboxBoy

[cr]

The FED has made their moves counting on the consumer *feeling good* enough to keep spending money they don’t have.

The problem is the consumers realized they ran out of money before the FED did. Due to massive inflation, thanks to BB, prices across the board are what, 10% higher than 1 year ago? And that’s not just core inflation anymore.

Think about how much more turnover there is today in consumer “durables” than there was 20 years ago. Our economy is now dependent on people leasing new cars every 2-1/2 years, buying new TVs every 3, and new cell phones and iPods (non-existant 20 years ago) every other year.

Ignorantly, Bernanke thinks it’s a problem of bank liquidity. The real problem is the consumer liquidity.

[cr]

The FED has made their moves counting on the consumer *feeling good* enough to keep spending money they don’t have.

The problem is the consumers realized they ran out of money before the FED did. Due to massive inflation, thanks to BB, prices across the board are what, 10% higher than 1 year ago? And that’s not just core inflation anymore.

Think about how much more turnover there is today in consumer “durables” than there was 20 years ago. Our economy is now dependent on people leasing new cars every 2-1/2 years, buying new TVs every 3, and new cell phones and iPods (non-existant 20 years ago) every other year.

Ignorantly, Bernanke thinks it’s a problem of bank liquidity. The real problem is the consumer liquidity.

[cr]

The FED has made their moves counting on the consumer *feeling good* enough to keep spending money they don’t have.

The problem is the consumers realized they ran out of money before the FED did. Due to massive inflation, thanks to BB, prices across the board are what, 10% higher than 1 year ago? And that’s not just core inflation anymore.

Think about how much more turnover there is today in consumer “durables” than there was 20 years ago. Our economy is now dependent on people leasing new cars every 2-1/2 years, buying new TVs every 3, and new cell phones and iPods (non-existant 20 years ago) every other year.

Ignorantly, Bernanke thinks it’s a problem of bank liquidity. The real problem is the consumer liquidity.

[cr]

The FED has made their moves counting on the consumer *feeling good* enough to keep spending money they don’t have.

The problem is the consumers realized they ran out of money before the FED did. Due to massive inflation, thanks to BB, prices across the board are what, 10% higher than 1 year ago? And that’s not just core inflation anymore.

Think about how much more turnover there is today in consumer “durables” than there was 20 years ago. Our economy is now dependent on people leasing new cars every 2-1/2 years, buying new TVs every 3, and new cell phones and iPods (non-existant 20 years ago) every other year.

Ignorantly, Bernanke thinks it’s a problem of bank liquidity. The real problem is the consumer liquidity.

[cr]

The FED has made their moves counting on the consumer *feeling good* enough to keep spending money they don’t have.

The problem is the consumers realized they ran out of money before the FED did. Due to massive inflation, thanks to BB, prices across the board are what, 10% higher than 1 year ago? And that’s not just core inflation anymore.

Think about how much more turnover there is today in consumer “durables” than there was 20 years ago. Our economy is now dependent on people leasing new cars every 2-1/2 years, buying new TVs every 3, and new cell phones and iPods (non-existant 20 years ago) every other year.

Ignorantly, Bernanke thinks it’s a problem of bank liquidity. The real problem is the consumer liquidity.

[gdcox]

Well the Fed can’t keep on cutting because there will be nothing left to cut (like Japan/pushing on a piece of string) , but especially because bond yields would shoot up as the markets feared much higher and endemic inflation. So since long term rate mortgages are so important in the US, he would not want to totally spook the bond market when we move into 2009.

Xboxboy……… The Fed will raise rates once any recession is technically over. For example. say -1.0% pa annualised growth in Q1, Q2 and Q3, nothing in Q4 and 1% pa annualized in Q1 09. Rates may move down a bit more now and then raised in Q4 or Q1 08 and raised much further, faster as long as positive growth is forecast. This is the only way to bear down on inflation in the medium term and/or stop a new bubble growing after 2010. Bernanke has to raise rates quickly to a level significantly above core inflation once the recession threat/ reality has passed to avoid repeating the mistakes of Greenspan.

The Fed as you say must keep employment up, but in practice this means keeping growth going. If the groth numbes aboev occured, the main part of the economy would not be in recssion. it would primarily be the boom bits then went down(and need to ); eg house construction and mortgage brokers!

[gdcox]

Well the Fed can’t keep on cutting because there will be nothing left to cut (like Japan/pushing on a piece of string) , but especially because bond yields would shoot up as the markets feared much higher and endemic inflation. So since long term rate mortgages are so important in the US, he would not want to totally spook the bond market when we move into 2009.

Xboxboy……… The Fed will raise rates once any recession is technically over. For example. say -1.0% pa annualised growth in Q1, Q2 and Q3, nothing in Q4 and 1% pa annualized in Q1 09. Rates may move down a bit more now and then raised in Q4 or Q1 08 and raised much further, faster as long as positive growth is forecast. This is the only way to bear down on inflation in the medium term and/or stop a new bubble growing after 2010. Bernanke has to raise rates quickly to a level significantly above core inflation once the recession threat/ reality has passed to avoid repeating the mistakes of Greenspan.

The Fed as you say must keep employment up, but in practice this means keeping growth going. If the groth numbes aboev occured, the main part of the economy would not be in recssion. it would primarily be the boom bits then went down(and need to ); eg house construction and mortgage brokers!

[gdcox]

Well the Fed can’t keep on cutting because there will be nothing left to cut (like Japan/pushing on a piece of string) , but especially because bond yields would shoot up as the markets feared much higher and endemic inflation. So since long term rate mortgages are so important in the US, he would not want to totally spook the bond market when we move into 2009.

Xboxboy……… The Fed will raise rates once any recession is technically over. For example. say -1.0% pa annualised growth in Q1, Q2 and Q3, nothing in Q4 and 1% pa annualized in Q1 09. Rates may move down a bit more now and then raised in Q4 or Q1 08 and raised much further, faster as long as positive growth is forecast. This is the only way to bear down on inflation in the medium term and/or stop a new bubble growing after 2010. Bernanke has to raise rates quickly to a level significantly above core inflation once the recession threat/ reality has passed to avoid repeating the mistakes of Greenspan.

The Fed as you say must keep employment up, but in practice this means keeping growth going. If the groth numbes aboev occured, the main part of the economy would not be in recssion. it would primarily be the boom bits then went down(and need to ); eg house construction and mortgage brokers!

[gdcox]

Well the Fed can’t keep on cutting because there will be nothing left to cut (like Japan/pushing on a piece of string) , but especially because bond yields would shoot up as the markets feared much higher and endemic inflation. So since long term rate mortgages are so important in the US, he would not want to totally spook the bond market when we move into 2009.

Xboxboy……… The Fed will raise rates once any recession is technically over. For example. say -1.0% pa annualised growth in Q1, Q2 and Q3, nothing in Q4 and 1% pa annualized in Q1 09. Rates may move down a bit more now and then raised in Q4 or Q1 08 and raised much further, faster as long as positive growth is forecast. This is the only way to bear down on inflation in the medium term and/or stop a new bubble growing after 2010. Bernanke has to raise rates quickly to a level significantly above core inflation once the recession threat/ reality has passed to avoid repeating the mistakes of Greenspan.

The Fed as you say must keep employment up, but in practice this means keeping growth going. If the groth numbes aboev occured, the main part of the economy would not be in recssion. it would primarily be the boom bits then went down(and need to ); eg house construction and mortgage brokers!

[Author]

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