US Stock Market invincible under Obama?


By American in Japan   Follow   Wed, 2 Jan 2013, 1:41pm   1,061 views   19 comments
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So far it seems so. What do you all think?

Good earnings come in...market up... everyone cheers on Wall Street.
Bad earning / other bad news..Fed prints money that indirectly goes into the stock market via the banks...market up... everyone cheers on Wall Street.

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  1. CaptainShuddup


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    1   1:54pm Wed 2 Jan 2013   Share   Quote   Permalink   Like   Dislike (1)  

    To what end?

  2. iwog


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    2   2:36pm Wed 2 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike (1)   Protected  

    Printing money is not an evil act nor does it have any inherent negative consequences. Although newscorp alternately tries to demonize it when Democrats rule and excuse it away when Republicans rule, the process of creating money is a net zero act as long as the real economy grows at the same rate as the real increase in cash that people spend into the economy.

    Using interest rates as a rough measure of monetary policy, the country has actually been underprinting instead of overprinting and is probably just starting to catch up.

  3. mell


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    3   2:48pm Wed 2 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    iwog says

    Printing money is not an evil act nor does it have any inherent negative consequences. Although newscorp alternately tries to demonize it when Democrats rule and excuse it away when Republicans rule, the process of creating money is a net zero act as long as the real economy grows at the same rate as the real increase in cash that people spend into the economy.

    Using interest rates as a rough measure of monetary policy, the country has actually been underprinting instead of overprinting and is probably just starting to catch up.

    So why are you surprised that the rich are getting richer? Money moves up, always. Sure you can then tax the richest soem of that money away again, but you still haven't gained anything monetarily. And the middle-class bears the brunt of the resulting inflation. Also, even the credit rating agencies who are pretty much a joke have caught up with the fact that they cannot maintain AAA on everything forever without becoming an obsolete laughing-stock (and possibly getting sued) will continue to downgrade the US until the game of musical chairs stops and everyone is left holding the bag. Furthermore it is criminal to inflict that kind of forward taxes on the future generations, they should have every right and means to refuse to pay them as they never gave their consent. IMO It's extraordinary selfishness to advocate money printing.

  4. uomo_senza_nome


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    4   3:56pm Wed 2 Jan 2013   Share   Quote   Permalink   Like (6)   Dislike  

    iwog says

    Printing money is not an evil act nor does it have any inherent negative consequences.

    LOL - Weimar Germany, Argentina, Yugoslavia, Zimbabwe.

    Sure US is not in exactly the same situation, but the Fed's balance sheet is infinite only as long as everyone believes it is. The value of a currency is always determined by the users of the currency, not the supplier.

    There is something as printing too much money. You can't print more money than real economy output. Sure, you can print a lot more money when the economy is under severe distress (like 2008) but that's only because the velocity is abnormally low. If velocity picks up again, it's harder to suck the liquidity out of the system without risking another severe crisis. This is because once human behavior is changed one way, it's harder to change the other way because of market reflexivity.

    iwog says

    the process of creating money is a net zero act as long as the real economy grows at the same rate as the real increase in cash that people spend into the economy.

    This is true, but the Fed is taking on a lot more risk than it should because of the dual mandate. It is extremely hard to see how giving more interest income to bankers (quantiative easing also known as banker rent extraction) is going to solve the unemployment crisis. Sure, the Fed wants the Congress to act through fiscal policy but fiscal policy is as dysfunctional as it has ever been.

    I'm very skeptical that these unconventional monetary policies have no negative consequences whatsoever.

    As for AIJ's original post, I read an article in WSJ regarding upcoming deadlines. Here's the link.

    I don't necessarily agree with all of what the author writes, however there's more uncertainty looming than what the markets realize. Feb debt ceiling, Mar 1 first sequester, Mar 27 second sequester and Mar 30 govt spending.

    More ups and downs but this circus is just started.

  5. New Renter


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    5   4:32pm Wed 2 Jan 2013   Share   Quote   Permalink   Like (8)   Dislike  

    iwog says

    Printing money is not an evil act nor does it have any inherent negative consequences.

    Clearly you don't have much of your assets in a savings account.

  6. tr6


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    6   5:16pm Wed 2 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike   Protected  

    iwog says

    Although newscorp alternately tries to demonize it when Democrats rule and excuse it away when Republicans rule

    Newscorp was created in 1979 when Vocker was a Fed chariman. I am pretty sure he did not print. Actually neither did Greenspan. QE only happened under Bernanke and Obama.

  7. tr6


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    7   5:19pm Wed 2 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike   Protected  

    iwog says

    Using interest rates as a rough measure of monetary policy, the country has actually been underprinting instead of overprinting and is probably just starting to catch up.

    Wow, I don't think even Bernanke really knows what's going to happen next and I don't think he is just using interest rates alone as a measure of monetary policy. Real interest rates are negative right now so it would mean we have to stop printing.

  8. uomo_senza_nome


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    8   5:35pm Wed 2 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    I know past performance is not an indicator for future, however history does sometimes rhyme.

    Here's what happened to consumer confidence and SP500 during Aug 2011 debt ceiling fiasco.

  9. iwog


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    9   12:23pm Tue 8 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike   Protected  

    New Renter says

    Clearly you don't have much of your assets in a savings account.

    You are correct however it wouldn't matter much. We still live in a low inflation country and inflation is not being driven by the printing press. How do I know this? Short term interest rates.

    uomo_senza_nome says

    LOL - Weimar Germany, Argentina, Yugoslavia, Zimbabwe.

    I'll counter with Japan. You're pulling examples out of history with very specific collapses of wealth creation and/or external currency manipulation. The United States will not become Zimbabwe no matter how much money is printed. The excess currency will be spent on expanding the economy because it's easy to do here.

    Printing a trillion and sending all Americans a check in the mail will not increase inflation if the economy responds by producing a trillion dollars more in stuff to buy.

  10. iwog


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    10   12:26pm Tue 8 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike   Protected  

    treatmentreport says

    Real interest rates are negative right now so it would mean we have to stop printing.

    You're right. Negative real interest rates means we're not borrowing enough. Printing comes later.

  11. uomo_senza_nome


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    11   1:29pm Tue 8 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    iwog says

    I'll counter with Japan.

    I think Japan is a poor analogy because Japan does not owe most of its debt to foreigners. It's interest payments go right back into the economy. on the other hand, majority of US debt is external, which means there's precedence issue when it comes to payments. Bank of Japan has monetized up to 15% of its GDP. The Fed is already at 5% of GDP and counting. How high can they go? Surely not 15% right?

    Secondly, I do think the open-ended QE has something to do with this:

    What would have happened if the Fed did not intervene? Could the long rates have gone higher?

    iwog says

    The United States will not become Zimbabwe no matter how much money is printed.

    LOL. I agree with your statement, if you remove the phrase "no matter how much money is printed". What I would say is that the US will never become Zimbabwe because it's got 8000 tonnes of gold. Any currency crisis can be easily halted.

    iwog says

    The excess currency will be spent on expanding the economy because it's easy to do here.

    I think you are making the mistake of assuming excess printing goes into the economy. I don't think it does, the excess printing goes right back to the Fed to earn 0.25% interest, or it goes back into bonds/stocks/commodities/mortgage backed securities etc. I don't think you can make a case for the Fed monetization actually causing meaningful expansion in the real economy - it will expand FIRE sector, for sure.

    Fiscal stimulus can help the real economy because it is directed towards a specific purpose .

    iwog says

    Printing a trillion and sending all Americans a check in the mail will not increase inflation if the economy responds by producing a trillion dollars more in stuff to buy.

    What exactly are we producing here?

    I think US economy is extremely rent seeking capital friendly, very less labor friendly.

    http://krugman.blogs.nytimes.com/2012/12/28/policy-implications-of-capital-biased-technology-opening-remarks/

  12. iwog


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    12   2:31pm Tue 8 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike   Protected  

    uomo_senza_nome says

    What exactly are we producing here?

    Nothing because the money isn't getting into the hands of consumers. That's why printing is not causing any inflation.

    There really is such thing as a supply side crisis but this is not 1980. This is 2012 and we are in a demand side crisis. Putting money into the hands of consumers will be used to pay down debt and to demand more products and services.

    uomo_senza_nome says

    I think you are making the mistake of assuming excess printing goes into the economy. I don't think it does, the excess printing goes right back to the Fed to earn 0.25% interest, or it goes back into bonds/stocks/commodities/mortgage backed securities etc. I don't think you can make a case for the Fed monetization actually causing meaningful expansion in the real economy - it will expand FIRE sector, for sure.

    Again you're correct but you're just explaining why printing will not cause inflation.

    You will only get inflation if money gets spent in a way that will not expand the economy. I can't imagine that happening in America where production is already being held down by a bad economy. GM could probably double car production if people had the money to buy cars, and we'd all be richer for it.

  13. uomo_senza_nome


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    13   2:48pm Tue 8 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    iwog says

    This is 2012 and we are in a demand side crisis.

    I think it is a private debt crisis. Too much private debt. Labeling it as a demand crisis causes us to prescribe wrong solutions like quantitative easing, which is simply rent sucking by the financial sector.

    The reason why we saw a housing bust and now seeing higher house prices (credit acceleration leads house prices).

  14. iwog


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    14   3:02pm Tue 8 Jan 2013   Share   Quote   Permalink   Like (3)   Dislike (1)   Protected  

    uomo_senza_nome says

    I think it is a private debt crisis. Too much private debt. Labeling it as a demand crisis causes us to prescribe wrong solutions like quantitative easing, which is simply rent sucking by the financial sector.

    Private debt is the natural consequence of a demand side crisis. If you need a new car but can't afford it, you borrow. Getting money in the hands of consumers will fix this problem. Debt will be paid down and as a result less money will go to rent seekers and more into job creation.

    I think the effect of automation and artificial intelligence technology on our economy is a gigantic unknown that no economist has a good handle on yet. A Cosco gas station can handle hundreds of cars per hour with a single attendant. Customer service computers are getting so good that you can pretty much have a conversation with a computer and take care of most problems. New agriculture machines are making food production damn near turn-key. Traffic enforcement is being converted to cameras and tolls are being converted to Fast-Pass. Factories are already run by robotics or slave labor abroad. We're rapidly entering an era where there aren't any jobs left.

    So what happens then? Either the capitalists are periodically forced to give up their profits or government is forced to keep priming the bottom with new cash or lending must continue to fill the gap with lower and lower interest rates.

    There really aren't any other solutions.

  15. uomo_senza_nome


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    15   3:03pm Tue 8 Jan 2013   Share   Quote   Permalink   Like (1)   Dislike  

    once we see it as a debt crisis, Steve Keen's solution becomes more clear.

    Here's Keen himself:

    A Modern Jubilee would create fiat money in the same way as with Quantitative Easing, but would direct that money to the bank accounts of the public with the requirement that the first use of this money would be to reduce debt. Debtors whose debt exceeded their injection would have their debt reduced but not eliminated, while at the other extreme, recipients with no debt would receive a cash injection into their deposit accounts.

    The broad effects of a Modern Jubilee would be:
    1.Debtors would have their debt level reduced;
    2.Non-debtors would receive a cash injection;
    3.The value of bank assets would remain constant, but the distribution would alter with debt-instruments declining in value and cash assets rising;
    4.Bank income would fall, since debt is an income-earning asset for a bank while cash reserves are not;
    5.The income flows to asset-backed securities would fall, since a substantial proportion of the debt backing such securities would be paid off; and
    6.Members of the public (both individuals and corporations) who owned asset-backed-securities would have increased cash holdings out of which they could spend in lieu of the income stream from ABS’s on which they were previously dependent.

    Clearly there are numerous complex issues to be considered in such a policy: the scale of money creation needed to have a significant positive impact (without excessive negative effects—there will obviously be such effects, but their importance should be judged against the alternative of continued deleveraging); the mechanics of the money creation process itself (which could replicate those of Quantitative Easing, but may also require changes to the legal prohibition of Reserve Banks from buying government bonds directly from the Treasury); the basis on which the funds would be distributed to the public; managing bank liquidity problems (since though banks would not be made insolvent by such a policy, they would suffer significant drops in their income streams); and ensuring that the program did not simply start another asset bubble.

  16. uomo_senza_nome


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    16   3:07pm Tue 8 Jan 2013   Share   Quote   Permalink   Like (2)   Dislike  

    iwog says

    Private debt is the natural consequence of a demand side crisis. If you need a new car but can't afford it, you borrow.

    IMHO, your reasoning is backwards. Debt-fueled demand is not real demand.

    change in aggregate demand = change in level of income + change in level of debt.

    debt levels can be healthy only if they can be meaningfully serviced with increase in income.

    iwog says

    Getting money in the hands of consumers will fix this problem. Debt will be paid down and as a result less money will go to rent seekers and more into job creation.

    yes I agree there but the reasoning is flawed, therefore QE for banks actually does not solve the problem.

    I think we run into major complications on how to deal with direct transfers to public, which is why I posted what Keen wrote on that topic.

  17. American in Japan


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    17   3:58pm Tue 8 Jan 2013   Share   Quote   Permalink   Like   Dislike  

    Good insights so far everyone! Thanks.

  18. American in Japan


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    18   11:18pm Tue 26 Mar 2013   Share   Quote   Permalink   Like   Dislike  

    This Steve Keen's solution is interesting. We could do worse and are.

    Anyway with the Dow Jones...

    Up up up it goes. It seems like a "low brainer" now.

    The S&P 500 is getting close to a high.

  19. zzyzzx


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    19   7:32am Wed 27 Mar 2013   Share   Quote   Permalink   Like   Dislike  

    iwog says

    Customer service computers are getting so good that you can pretty much have a conversation with a computer and take care of most problems.

    Laughable.

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