The Fed Succession

[Valmy]

Did you just reference a book published in 1866?

Take a look at who wrote that book.

Ah ok

Your link had everything in Korean which confused me.

[DGuller]

I'm not saying that we should put people in camps, but if we were going to start putting people into camps, a professed belief in "hard money" would be a good category to start with.

I disagree.  The unmitigated success of that policy would justify the system of putting people into camps, and encourage its expansion.

[Razgovory]

I'm not saying that we should put people in camps, but if we were going to start putting people into camps, a professed belief in "hard money" would be a good category to start with.

I disagree.  The unmitigated success of that policy would justify the system of putting people into camps, and encourage its expansion.

I don't know, those people genuinely scare me.

[KRonn]

One of my concerns is the devaluing of the dollar that's been going on since prior to the Obama admin. I recall concern over it during the Bush admin even when the economy was going ok. No one seems to put too much concern in that, yet we've seen in the news how there's talk of shifting away from the dollar as a result, such as from OPEC, plus inflation worries.  I guess it's a wait and see, how much we get hit by inflation and what the impact will be from of the dollar's devaluation. Via his QE programs Bernanke has been pumping large sums of newly minted cash to bolster the economy for a long time now, further eroding the dollar's value. I don't know but I fear that this idea has been good short term but may cause many negatives long term. I guess what he's been doing has bolstered the snail's pace of recovery but worry about the price to pay later on.

[DGuller]

I'm not saying that we should put people in camps, but if we were going to start putting people into camps, a professed belief in "hard money" would be a good category to start with.

I disagree.  The unmitigated success of that policy would justify the system of putting people into camps, and encourage its expansion.

I don't know, those people genuinely scare me.

Lots of people scare me.  It doesn't mean that I can just have them shot, as much as I want to (not in New Jersey anyway).

[The Minsky Moment]

One of my concerns is the devaluing of the dollar that's been going on since prior to the Obama admin. I recall concern over it during the Bush admin even when the economy was going ok. No one seems to put too much concern in that, yet we've seen in the news how there's talk of shifting away from the dollar as a result, such as from OPEC, plus inflation worries.  I guess it's a wait and see, how much we get hit by inflation and what the impact will be from of the dollar's devaluation. Via his QE programs Bernanke has been pumping large sums of newly minted cash to bolster the economy for a long time now, further eroding the dollar's value. I don't know but I fear that this idea has been good short term but may cause many negatives long term. I guess what he's been doing has bolstered the snail's pace of recovery but worry about the price to pay later on.

What is meant by "the devaluing the dollar"?  The dollar/euro rate today stands at almost exactly the same level as it did on January 1, 2007.  The dollar gained significantly against the pound furing the same period.  It has fallen againt the Yen and the Swiss Franc but not by enormous amounts (about 20% over six years).  In short, there is no reason to think the dollar has devalued.  To the contary, the dollar has maintained its value as against baskets of typical consumer goods (like in the CPI) quite well.  The claim of devaluation can only be sustained by comparison to highly volatile commodities like gold.  And why is that comparison relevant?

As for QE, the program is not as ambitious as some of the more hysterical sectors of the press might indicate.  Qe2 involved $600 billion in Treasury purchases.  QE3 involved $40 billion in purchased a month.  It sounds like a lot of money.  But put it all together and it is just over $1 trillion over a 3 year period, as compared to GDP of over $45 trillion, and M4 (monetary aggregate) of over $17-18 trillion at any given time.  In addition, it isn't really accurate to refer to QE as printing money, in the way that say Zimbabwe would just roll more bills off the printing press.  What the Fed was really doing in QE2 was exchanging one kind of money (Fed reserves) for another kind of slightly less liquid money (T bills).  QE3 is a little more aggressive because the Fed is buying agency bonds but in both cases the assets being acquired have some money-like characteristics in that they are commonly used as collateral to support extensions of credit and financial leverage.

In any case, the real issue of interest is the overall quantity of money, of which the Fed can only indirectly influence.  The total quantity of money is not determined by the Fed, but is the product of credit decisions made in the financial sector.  QE is not really designed to increase the money supply directly - even at the billions per month the Fed is spending, that would just be the a drop in the bucket.  What QE is designed to do is send a signal to the private economy of the Fed's commitment to support and accomodate economic recovery.  But so far, lending activity has not revivied strongly.   The broad monetary aggregates remain well below trend.  And therefore inflation has not materialized, and will not materialize unless US businesses begin borrowing and investing again on a pre-crisis scale.

Of course, if the economy turns a corner and there is a sudden investment boom, the Fed may have to act quickly to dampen inflation.  But that isn't the horizon now.  We can deal with that possibility if and when it arises.

[Razgovory]

I'm not saying that we should put people in camps, but if we were going to start putting people into camps, a professed belief in "hard money" would be a good category to start with.

I disagree.  The unmitigated success of that policy would justify the system of putting people into camps, and encourage its expansion.

I don't know, those people genuinely scare me.

Lots of people scare me.  It doesn't mean that I can just have them shot, as much as I want to (not in New Jersey anyway).

I'm not saying we should shoot them.  Just put them in the same place as other people with dementia.

[The Brain]

Is this "da Fed"?

[DGuller]

I'm not saying we should shoot them.  Just put them in the same place as other people with dementia.

I guess we could do that.

[The Brain]

I'm not saying that we should put people in camps, but if we were going to start putting people into camps, a professed belief in "hard money" would be a good category to start with.

I disagree.  The unmitigated success of that policy would justify the system of putting people into camps, and encourage its expansion.

I don't know, those people genuinely scare me.

Lots of people scare me.  It doesn't mean that I can just have them shot, as much as I want to (not in New Jersey anyway).

I'm not saying we should shoot them.  Just put them in the same place as other people with dementia.

Languish is full.

[DGuller]

 

[KRonn]

Minsky, thanks for the cogent summary of things. I had been under the impression that the dollar's value was falling, and had been for some time. Been hearing such talk since Bush days. Such as  the talk of OPEC using another currency, or several currencies and not just the dollar, to price oil. Maybe some of that is over-hyped.

As for the QEs, that makes better sense. I also had the thought that the amount that was being printed was relatively small compared to GDP for instance, but given the drum beats of doom and inflation it's hard to know what is what.

We'll see how the inflation goes. I've heard both ways on that, that it shouldn't really be an issue, and others saying it would be. I just remember the bad old Carter days, heavy inflation and borrowing interest rates into the mid teens. Bad old financial days and brings back some bad memories that I don't want to see repeated.

[The Minsky Moment]

The 70s were a very different story.
In the early 70s, nominal GDP growth was running conistently at above 8.5 percent and yet the Fed remained accomodative.
In contrast, we are now entering our sixth consecutive year of nominal GDP growth at 4 percent or below.

[DGuller]

As for the QEs, that makes better sense. I also had the thought that the amount that was being printed was relatively small compared to GDP for instance, but given the drum beats of doom and inflation it's hard to know what is what.

You have to consider the source of the drum beats of doom and inflation.  It comes from people who have been wrong about pretty much every single thing since the crisis started.  There is a time for considering both sides of the issue, and there is a time to realize that one of the sides can't predict when the sun will rise tomorrow.

[Razgovory]

Would the dollar falling in value be a bad thing?  I'm not talking about falling into worthlessness, but losing some value compared to the Euro, Yen, and whatever the hell the Chinese have.