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About that Fed success...

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  • About that Fed success...

    The below is a commentary piece but it brings up very reasonable points for us to discuss. Some suggest that monetary policy alone can effect the economy, and here we have clear reasoning how expensive that policy has been to get such little result. No matter what source you like to use, the Fed has increased the debt it holds almost 400% since the recession. Below are the results, people still have little confidence in the economy to do something other than effectively stuff a mattress with cash.

    Which is amazing when you think about it. The bank return rates on CDs and general savings accounts are very very low, some might suggest artificially low on purpose as to effect business borrowing. Yet people are keeping a record amount held in this low return disposition actually losing money over time when thinking about the rate of inflation. (At even a low 2% inflation, that still beats the return on cash held at the bank.) I've argued before that conditions of our monetary and fiscal policy has made it where banks no longer value deposits. Wealth was designed to recover from the crash but the general populace failed to get in on the action. We have seen explosion in market values without much economic movement to support those values. Wealth recovered, everyone else may be losing value in the long term.

    So, here we have Fed policy designed to push risk taking and neither business or the people are taking the bait. While the markets did, aggregate demand problems suggest not enough economic growth to support the value. Goes to what I have been saying for a long time now. Monetary policy absent of proper fiscal policy ended up causing a problem, they forgot about dealing with aggregate demand. Because of the majority of Fed policy has been for not, and the fiscal policy ended up squandered. We get the debt.

    At the end of the day, Obama and crew failed our economy. It explains well why this is the worst recovery on record *and* we are at record low labor participation rates *and* people are leaving cash in less risky positions *and* business is not taking enough risk due to no confidence in the economy. It turns out liberal economics in concert with horrid fiscal policy was a serious mistake taking us to over $17 Trillion in debt with little to show for it.

    Thoughts?

    The 10.8 trillion failures of the Federal Reserve
    By Rex Nutting

    [ATTACH]15382[/ATTACH]

    WASHINGTON (MarketWatch) — The conventional wisdom says the Federal Reserve is keeping interest rates so low that it doesn’t pay to play it safe, and that it’s encouraging investors to do all sorts of crazy things to earn a higher yield.

    Supposedly, the central bank is forcing investors pump up stocks, junk bonds, farm land and all the other bubbles you’ve been reading about.

    It’s a nice story, but the data show that U.S. investors are still conservative about where they put their money.

    Just how conservative are they?

    Data from the little-noticed financial accounts report show the American people have $10.8 trillion parked in cash, bank accounts and money-market funds that pay little or no interest.

    ...

    In essence, there’s $10.8 trillion stuffed into mattresses.

    That $10.8 trillion hoard represents a failure of Fed policy.

    Since the Fed began quantitative easing in September 2012, U.S. households have socked away $1.17 trillion in their low-yield accounts. That means that 95% of the Fed’s $1.24 trillion QE3 ended up not in bubbly markets but in a safe and boring bank account.

    Since the recession began more than six years ago, the Fed has been trying to encourage people to put their money to work in the economy. That’s why the Fed has kept interest rates low and has been buying up trillions of dollars worth of relatively safe securities, hoping to push us to take on a little more risk.

    After all, an economy can’t really grow if no one’s willing to gamble on the future.

    But many of us don’t want to. We are still afraid, so we prefer to put a large part of our savings in assets that are guaranteed, like FDIC-insured bank accounts, or into money-market funds whose sponsor guarantees the return of the principle.

    ...

    Most people are saving next to nothing, while just a few are saving a significant amount. Those who do save are saving a ton — more than $1.2 trillion a year.

    According to the Fed’s financial accounts data and definitions, the personal savings rate has averaged about 10% of disposable income since the recession ended, up from around 7% before the recession. That means upper-middle class and wealthy Americans are saving nearly $400 billion more a year than they used to.

    That extra $400 billion would be a boon to the economy if it were being consumed or invested.

    ...

    When companies do borrow, they use the proceeds to buy back shares or to acquire whole companies, neither of which adds to the stock of our national wealth. Since the recession ended, corporations have spent about twice as much money on buying their own stock and the shares of acquired companies as they have borrowed from banks.

    Corporations have been buying so many shares that they haven’t raised any money on net in the stock market from households in years. In fact, households have been raising money from corporations, to the tune of about $450 billion a year.

    So, even though U.S. households are saving lots of money, very little of it is flowing through to the economy. There are 10.8 trillion reasons to think the Fed has failed to get the American people to take on more risk.
    The 10.8 trillion failures of the Federal Reserve - MarketWatch
    Attached Files
    Last edited by Sluggo; 08-18-2014, 05:04 AM.

  • #2
    Re: About that Fed success...

    The Fed gave banks money to lend to stimulate the economy and the banks bought stocks, artificially driving up the stock market. The market is now poised for a major "correction" of astronomical proportions. The government under this administration (and I don't necessarily mean Obama but the bureaucrats beneath him who are basically unsupervised and free to do as they choose,) have made it impossible for businesses to operate in this country. Regulation and taxation have pretty much halted business growth and in fact have caused it great harm. I read this article today by a young woman who has good insight into the issue:

    American companies will not “sit and take it.” They will move abroad or shut their doors. In April, the Kauffman Index of Entrepreneurial Activity reported that the nation’s business creation rate has been steadily dropping for the past two years. In July, the Brookings Institution reported that the number of American companies that are over fifteen years old has been steadily increasing. In other words, American companies are getting older and new entrepreneurs are not able to replace them fast enough because it’s too difficult to run a for-profit company in the United States.
    Welcome to Juristic Park - Katie Kieffer - Page full

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    • #3
      Re: About that Fed success...

      Not a bad addition to the discussion, I tend to agree. It all points to a failure of policy when I also tend to suggest we ignore the economics of the situation to make a political point seem more reasonable. Here, with this recovery, we ignored fundamental aggregate demand concerns and accrued serious debt with little to show for it in doing so.

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      • #4
        Re: About that Fed success...

        Originally posted by OldmanDan View Post
        The Fed gave banks money to lend to stimulate the economy and the banks bought stocks, artificially driving up the stock market. The market is now poised for a major "correction" of astronomical proportions. The government under this administration (and I don't necessarily mean Obama but the bureaucrats beneath him who are basically unsupervised and free to do as they choose,) have made it impossible for businesses to operate in this country. Regulation and taxation have pretty much halted business growth and in fact have caused it great harm. I read this article today by a young woman who has good insight into the issue:



        Welcome to Juristic Park - Katie Kieffer - Page full
        Personally I don't think it has as much to do with regulation and taxation as I do with an economic model that was put into place by choice, which is simply untenable if we want to see the results of past models. I think the model itself is the problem, and has created the problems. It's like one of the car companies making a lemon, that was poorly designed, and cannot keep up with their old model that they replaced. No matter what you do to tweak that lemon car, the design is wrong, and cannot work. But I have thought this ever since we changed the model.

        Blaming it on regulations and taxes is just trying to tweak an unsound model, and it won't fix what is broke. The current model intentionally represses wages, yet wages determine if a people is to thrive or not. I think this repression of wages is what drove the creation and institution of this current model, and so what we are seeing was already known to be an effect of the change in models. Yet people act all surprised, and then try to blame it on other things. That is exactly, IMO, what is going on. We are not talking about the core cause of these problems, and instead get distracted with taxes and regulations. Of course given that we have been told by those in power and by business that this is just the way it will be, and you cannot change it, sends people to scramble to tweak what tweaking will not help. We have to accept the fact that this model is doing exactly as it was designed to do, for unless we see that, all of the tweaking in the world won't change much at all. But first people have to be able to perceive the fact through allof the smoke and mirrors. If your model represses wages, guess what? If your model is only sending more income upwards, guess what? But political ideology is a hindrance to being able to discern the most simple things, and so we can't see what is kinda simple. But sometimes there are very simple things at the cause, at the root, and there is no need to complicate it unless you must do so to remain coherent with ideological beliefs.

        To me personally, the problems we see today go right back to the economic model we chose over the older one. Yet no one else thinks its valid, this observation, while I think it is the only valid observation that means anything. The things that we argue about are the superficial, and not the fundamental causes of the problems.

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        • #5
          Re: About that Fed success...

          Originally posted by Blue Doggy View Post
          Personally I don't think it has as much to do with regulation and taxation as I do with an economic model that was put into place by choice, which is simply untenable if we want to see the results of past models. I think the model itself is the problem, and has created the problems. It's like one of the car companies making a lemon, that was poorly designed, and cannot keep up with their old model that they replaced. No matter what you do to tweak that lemon car, the design is wrong, and cannot work. But I have thought this ever since we changed the model.

          Blaming it on regulations and taxes is just trying to tweak an unsound model, and it won't fix what is broke. The current model intentionally represses wages, yet wages determine if a people is to thrive or not. I think this repression of wages is what drove the creation and institution of this current model, and so what we are seeing was already known to be an effect of the change in models. Yet people act all surprised, and then try to blame it on other things. That is exactly, IMO, what is going on. We are not talking about the core cause of these problems, and instead get distracted with taxes and regulations. Of course given that we have been told by those in power and by business that this is just the way it will be, and you cannot change it, sends people to scramble to tweak what tweaking will not help. We have to accept the fact that this model is doing exactly as it was designed to do, for unless we see that, all of the tweaking in the world won't change much at all. But first people have to be able to perceive the fact through allof the smoke and mirrors. If your model represses wages, guess what? If your model is only sending more income upwards, guess what? But political ideology is a hindrance to being able to discern the most simple things, and so we can't see what is kinda simple. But sometimes there are very simple things at the cause, at the root, and there is no need to complicate it unless you must do so to remain coherent with ideological beliefs.

          To me personally, the problems we see today go right back to the economic model we chose over the older one. Yet no one else thinks its valid, this observation, while I think it is the only valid observation that means anything. The things that we argue about are the superficial, and not the fundamental causes of the problems.
          You should change your screen name to 'one trick pony'

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          • #6
            Re: About that Fed success...

            Originally posted by Sluggo View Post
            At the end of the day, Obama and crew failed our economy.
            There used to be a young man that would argue that point with me. He was from the south... Atlanta maybe... nice enough fellow, I just can't seem to recall his name... Help me out here Sluggo...

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            • #7
              Re: About that Fed success...

              Originally posted by tsquare View Post
              There used to be a young man that would argue that point with me. He was from the south... Atlanta maybe... nice enough fellow, I just can't seem to recall his name... Help me out here Sluggo...
              At the time I knew what should have been done according to economic principle. I assumed, perhaps incorrectly, that the Fed would be more cautious with monetary policy given the nature of fiscal policy coming off the hill. I knew then the importance of sound fiscal and monetary policy as it relates to underline economic problems such as aggregate demand effecting so much with so much evidence supporting.

              But, I also like to read and it tends to alter my opinions every now and then when looking over actual results. I pointed out way back then there would be potential problem with encouraging banks to keep deposits with interest at the Fed funded by QE output from reserves notations. I also pointed out concerns with economic models dependent upon government spending regardless of economic conditions. Lastly, I recall pointing out regulations would create economic drag at a time when we needed to unleash capability to take on risk. I was not all that far off the mark, but I do recall saying plenty on needing Fed and complicit government action. I got part of the former, and hardly any of the latter. My opposition pointed to Reaganomics, which I do have plenty of issue with and still do today.

              I have no issue with admitting being wrong, and I have no problem saying my opinions shift based on what I see. That is being rational given the numbers others tend to gloss over. However, if the Fed did nothing we would be experiencing even more problems. That is still accurate.

              The point of this thread was to fly in the face of those like JPN that assume Fed action can handle economic concerns. We clearly know that is not the case, and the article goes a long way to illustrate how dangerous the Fed can be operating for their own potential benefit at the expense of sound economic policy (and of course we should not forget a retarded fiscal policy from Congress.) As far as I am concerned the article is right, we have over $10 Trillion reasons (and a 400% uptick in Fed held debt) why Fed action failed with plenty of blame as to why.

              The bottom line is we need sound economic policy from sound Fed monetary policy and sound government fiscal policy. We did not get it.

              Obama and crew rank very high on that list of blame as to why. Which is why I did not vote for him in either race, nor did I vote for anyone in his "crew" as my Representation at any point along the way. But my reasons were a mixture of economics and personal reasons. As to economics, I assumed in 2009 the stimulus act had too much squandered money and not enough infrastructure spending. As to personal reasons, I also was put off by the class warfare nonsense and ACA. I am in a tax bracket and income type where Obama suggests I am responsible for paying more, I disagree. And my healthcare insurance costs are consistently going up higher year on year now vs. before ACA. I am who Obama does not care about, and it is obvious.

              So, was I really all that wrong?

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              • #8
                Re: About that Fed success...

                Originally posted by Sluggo View Post
                So, was I really all that wrong?
                yeah... when you fought me over just who was to blame for the BAD economy that we have today. Had you just said then:

                Originally posted by Sluggo View Post
                Obama and crew rank very high on that list of blame as to why. Which is why I did not vote for him in either race, nor did I vote for anyone in his "crew" as my Representation at any point along the way. But my reasons were a mixture of economics and personal reasons. As to economics, I assumed in 2009 the stimulus act had too much squandered money and not enough infrastructure spending. As to personal reasons, I also was put off by the class warfare nonsense and ACA. I am in a tax bracket and income type where Obama suggests I am responsible for paying more, I disagree. And my healthcare insurance costs are consistently going up higher year on year now vs. before ACA. I am who Obama does not care about, and it is obvious.
                And being the person 'Obama does not care about' you and countless others are 'voting with your feet' and not spending. The rich more so, but everyone I know, if they are not living 'hand-to-mouth' are saving what they can. Corporations too... it is a complete and total distrust of Obama and his policies.

                That distrust, AND the policies themselves, are dragging us all down

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                • #9
                  Re: About that Fed success...

                  Originally posted by Sluggo View Post
                  However, if the Fed did nothing we would be experiencing even more problems. That is still accurate.
                  Yes and no. Yes, it may have been worse in the immediate time frame but it would have been better in the long run. The only thing the Fed accomplished (and any other Keynesian doctrine) is kicking the can further down the road for an even bigger disaster when it finally comes to a head.

                  Honestly, we're probably past the point of no return as far as digging ourselves out of this hole.

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                  • #10
                    Re: About that Fed success...

                    Originally posted by tsquare View Post
                    And being the person 'Obama does not care about' you and countless others are 'voting with your feet' and not spending. The rich more so, but everyone I know, if they are not living 'hand-to-mouth' are saving what they can. Corporations too... it is a complete and total distrust of Obama and his policies.

                    That distrust, AND the policies themselves, are dragging us all down
                    It's not really Obama, imo. Obama is just the figure head of a spreading mentality of envy in our country. The hate and envy of anyone who dares to have more than what you have. They are constantly looking into their neighbors bowl to see what they have w/o focusing on what they can do to fill their own bowl.

                    It really puts in in a mind of what was present in the Dark Knight Rises video where they had lawlessness in the city and the envy that was fostered among the poor was brought to a boil and they pretty much just looted, killed, and stole everything from the rich. I really don't see us being that far off from that type of thing happening in real life.

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                    • #11
                      Re: About that Fed success...

                      Originally posted by fishjoel View Post
                      Yes and no. Yes, it may have been worse in the immediate time frame but it would have been better in the long run. The only thing the Fed accomplished (and any other Keynesian doctrine) is kicking the can further down the road for an even bigger disaster when it finally comes to a head.

                      Honestly, we're probably past the point of no return as far as digging ourselves out of this hole.
                      The reason I said that, that way is because the Fed technically already did something leading up to the crash. Actually, they did several things even if by omission.

                      One, the brand of Keynesian economics being followed since the 1990s ('ish, and which I still contend ignores too much of what Keynes actually said) got us firmly into a boom and bust economic model. Instead of controlling the amplitude of the economic cycle, Fed and government actions seemed to make matters far worse. That micromanagement absent of sound behavior prediction within an economy got us in a whole lot of trouble.

                      Two, between 2001 and 2004 (2005 perhaps) the Fed kept interest rates very low begging for an unsustainable bubble to form. All that injected credit into the economy allowed for a serious boom in housing and even employment. Something like a 50+ month record streak of uninterrupted job growth should have been enough of a sign that the amplitude of the economic cycle was being ignored, perhaps even influenced into a bubble absent a more digestible and shorter pull back.

                      Three, the Fed did not even see any of this. Bernanke stated in 2008 that there was no recession in the forecast, in 2007 Paulson suggested the economy is as strong as it has ever been, both the Fed and the Treasury ignored calls by Republicans to question F&F activity, and even further back Greenspan said long periods of low interest rates would not be a problem.

                      They were all clearly wrong. But, Fed actions right up to 2008 almost put us in a no win position but for the Fed to flood the currency system with reserves post the crash. There was really no other option but to find an even lower economic trough making the Great Depression look like a bad weekend in Vegas.

                      Our issue now is do we learn from the mistakes of politicalization of economic theory, or do we start to look at things a new way. Which by the way is what was forced to occur during the Great Depression when classical economist could not explain observed behavior. The article pointed out in the OP presents a good argument as to the choice we made, and by consequence ensured a ton of new debt with little action to show for it. The economy is crawling back in the most unhealthy way, but imagine what would have happened if Obama actually followed what economist suggested over his "economic advisors."

                      We might be in a more reasonable position today, perhaps where Fed action is reasonable by now instead of causing yet another bubble. A stock market and currency based bubble that is bound to pop at some point. No wonder low rate return cash piles is where people have their money, just as the article suggests in this multi-Trillion dollar mistake orchestrated between the Fed and the government.

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                      • #12
                        Re: About that Fed success...

                        The net-depositor is squirreling away $3,500.00 a year and this is bad? Let's raise taxes, that will help everyone...

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                        • #13
                          Re: About that Fed success...

                          Originally posted by JDJarvis View Post
                          The net-depositor is squirreling away $3,500.00 a year and this is bad? Let's raise taxes, that will help everyone...
                          Who is saying that?

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                          • #14
                            Re: About that Fed success...

                            Originally posted by Sluggo View Post
                            Who is saying that?
                            Rex Nutting is in that copied article. It bemoans saving over investment.

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                            • #15
                              Re: About that Fed success...

                              Originally posted by JDJarvis View Post
                              Rex Nutting is in that copied article. It bemoans saving over investment.
                              In this case he is not talking about taxing our way out of this problem, but rather he is complaining about policy failures of the Fed. If anything that suggests lean to a market economy to encourage investment in.

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