patrick.net

Well the FED all but confirmed interest rates will be staying low an going even lower possibly over the next year... Historically interest
Rates have never dropped or increased more than 1% in a year... So plenty of time to observe this mess from the sidelines.

Dollar is already HIGHER this morning than it was yesterday at this time (BEFORE the QE announcement was made).

Few realize that QE also has the potential to be deflationary (read my post above), as it is a sign of weakness / grasping at straws.

We shall see what the next few months bring.

No jobs. No recovery. Simple economics. Don't have to be too complicated analysis!

schmitz_kris says

“In fact, an open admission of deterioriation, which is what today’s actions signify/represent, may help to speed up the deflationary forces already present in the economy.”

Don't pull a muscle patting yourself on the back there kris. What you're missing is that you're wrong. The deflationary forces were already there. The FED announcement is simply stating the obvious. The important part is that they are trying to combat these forces.

From Reuters:

Stocks Drop, Treasuries Rally on Growth Concern

ON GROWTH CONCERN

From whom? Uh, gee, duh,....uh....

Any glance at flow of funds and the reaction in Asian markets last night show the Fed's announcement yesterday exhibited influence.

Who are you? You are making yourself look foolish on the forum, and then nobody is going to put any stock into what you have to say in the future.

schmitz_kris says

Who are you? You are making yourself look foolish on the forum, and then nobody is going to put any stock into what you have to say in the future.

Thanks for your concern. I'm not too worried.

Again--not sure you are thinking this through. Yes, the FED announcement probably did cause some reaction today. You know why--because people assume the FED has more info than they do and if the FED is worried, probably they should be too. So, in effect, information was made public sooner than it would have without the announcement. But, the information would have made it out there eventually. The announcement didn't cause the economy to slow down. It didn't cause unemployment.

Do you see the difference?

What are you talking about? Who said anything about the announcement per se causing jobs to be lost or the economy to slow down (as if that could be measured over the course of 12 hours?!?!)

I love you, man, but GEEZ!

LOL.

Just another buying opportunity ultimately

schmitz_kris says

What are you talking about? Who said anything about the announcement per se causing jobs to be lost or the economy to slow down (as if that could be measured over the course of 12 hours?!?!)
I love you, man, but GEEZ!

My lord--you have to be the same person as gameisrigged. It's impossible to have a discussion with you because you argue in circles. What exactly are you trying to say then??

I am not gameisrigged, and I am not arguing in any circles.

Go back and read my original post from yesterday.

It was clear as day - "may help to accelerate DEFLATIONARY FORCES..."

Now, look at EVERYTHING today - it's an ocean of red against the USD.

Why do you think I even posted my original thread today in the first place?

" Now, look at EVERYTHING today - it’s an ocean of red against the USD"

So you're a day trader with an opinion? Kind of an oxymoron isn't it?
Market crashed already ...next ones due in 80 years..
Potter's not selling he's buying

If anybody thinks it's a free market now I've got some beach property to sell ya in Louisiana

If it's going down IT"S because they want it to go down. Buy dips sell rallys.

schmitz_kris says

It was clear as day - “may help to accelerate DEFLATIONARY FORCES…”
Now, look at EVERYTHING today - it’s an ocean of red against the USD.
Why do you think I even posted my original thread today in the first place?

Clear as day. OK. How does a falling dollar lead to deflation?

Anyway--extreme short-term notwithstanding--QE will combat deflation.

Tatupu says:

QE will combat deflation.

Tatupu, you've never seen a chart of the Nikkei or Japanese RE have you?

Stock option compensation (or any form of compensation) are earned income, there is no reduced tax rate.

What has preferential treatment is interest, dividends and other working capital to produce these income. Unless they are from an IRA type account, they are working capital from after tax income. Effectively using after tax income to earn interest and be tax again is taxing the same income twice. Congress has a reason why working capital have special treament. Unless it is an IRA type account, you will not have pre-tax money earning income and taxed at reduced tax rates.

A proprietor setting up as a C corporation cannot be sheltered from being taxed twice on the same income. If the entity makes taxable income, they will be taxed, if they make a distribution, the shareholder will be taxed as well. 90% of the IRC bible is devoted to Corporations to try to curumbent abuse, whether it can be 100% or not. Sole properietors like Kendall (more likely his son Jesse) Jackson making millions from the winery is not going to enjoy reduced tax rates because the income are passed through to them. Sure his horse hobby and things like that may be treated as pre-tax business expense when they can be thought of as a hobby,but that is why there is the IRS to look into these matters.

tatupu70 says

But if the problem is recession then government spending is usually effective.

Effective at what?

The nice little bulge the last decade was debt stimulus, a $2T jolt from the tax cuts and a $4T jolt from the housing BS.

The 90s were good -- they gave Windows 3 and 95, making computers usable by everyone, and of course the internet, which greatly facilitates trade, at every level from local to international. Oil prices were low, keeping more of our money in the productive economy instead of being lost to overseas rentiers.

The 2000s were a consolidation of these trends, but increased globalization has a downside as much productive enterprise was offshored, reducing the US economy to a fake service economy and less of an actual old-school capitalist one. The twin deficits with oil producers and China are leaching us dry -- $50B was the trade deficit this month, thats $400 per household. I'm not educated enough to assert with any authority what this trade deficit actually means, but (going on my gut) I'd rather have a massive trade surplus than a massive trade deficit.

For government intervention to actually be effective it needs to increase the productive capacity of this country, the capacity and ability to pay our way in the world via trade.

Funding consumption (unemployment extensions, military, medicare for old people, etc) is NOT doing any of that.

The infrastructure stuff is great but the problem is the meaty improvements take more than a year to plan and implement. Even if California's HSR is a good idea (I'm on the fence on this) it's not going to be a reality this decade.

It is true that any stimulus spent on stuff with eventual payback is good money spent now, but part of the problem is we don't really have $500B/yr of worthwhile projects to replace the $500B/yr good times of the housing bubble.

That economy is gone, and what we're experiencing is pullback from that high-water mark.

Whether another tide will return to carry us back there is an open question. I don't expect it, but something like cutting our national energy bill 20% would push us in the right direction.

schmitz_kris says

Tatupu says:
QE will combat deflation.
Tatupu, you’ve never seen a chart of the Nikkei or Japanese RE have you?

OK--good. Let's use the exception as the rule.

And you make the same mistake as many people do. In order to gauge the effect of something (QE in this case), you can't just look at the end result. You need to compare the end result that would have happened without QE to what happened with QE. So, in Japan, their economy may have been down 10% without QE, but with QE it was only down 1%. So, in that case, it's very effective.

Troy says

For government intervention to actually be effective it needs to increase the productive capacity of this country, the capacity and ability to pay our way in the world via trade.

I'm not sure that is a true statement. The point of QE isn't to make the US more productive--it's to cushion the fall and reverse the negative momentum

schmitz_kris says

A sea of red AGAINST the US dollar.” This means things WENT DOWN in price/value against the USD - the euro went down against it, the pound sterling, stocks, oil, silver, etc. The value/price of the dollar WENT UP. The dollar gained in power - that’s deflation. You can define it several ways, but there’s no reason to quibble over semantics when the immediate reaction was this in-your-face obvious.

You are correct. I just looked at the US/Yen today and didn't look at other currencies. Dollar going up is deflationary. But I think there were other causes for that too--the growth in the rest of the world is slowing as well...

Of course, CNBC brings up my POV AFTER THE FACT!

BACKFIRE!

Gotta love them - are they good for ANYTHING other than the ticker gliding across the top of the TV set?

I don't think so.

http://finance.yahoo.com/news/Could-Feds-Move-Against-cnbc-1695418183.html?x=0&sec=topStories&pos=3&asset=bf22a09a752a52644a31adc2f0a90c1b&ccode=

kris,
Just so you know, your POV was discussed several days prior to it being your POV. Here's one example of someone preemptively discussing the possibility of QE2 backfiring. Note the date.

http://articles.latimes.com/2010/aug/07/business/la-fi-0807-petruno-20100807

Well, duh. I would hope in a nation of some 320 million or so that there'd be at least a few with two brain cells to rub together.

schmitz_kris says

Well, duh. I would hope in a nation of some 320 million or so that there’d be at least a few with two brain cells to rub together.

So your novel idea isn't so novel then since you probably just read and repeated it from someone else. Not sure why you're giving yourself so much credit for doing what 3rd graders can do.

I'm a currency trader. I've been studying economics intently for years - not exclusively textbook theory garbage either (Keynesianism, etc.). My beliefs and opinions are very strong, and they are my own. That said, since there is only a very limited number of opinions available on select economic topics, there are bound to be others, naturally, who share my beliefs.

I never said there was anything novel about my ideas. There didn't appear to be anyone else on the forum with a like idea, and sharing new ideas is what forums are for. Why would it matter if it were novel or not? What matters is how applicable it is to the markets and making money (or avoiding losses).

Great that you bring up 3rd graders. One of my ex-girlfriends is a teacher, and, when discussing how much houses cost one day, one of the elementary-age kids (11? 12?) said, "They cost way too much for what you get - they're gonna be on sale soon I think."

ROTFLOL...for the wisdom of babes is far greater than that of man.

can sombody explain this press-release to me?

what will do for mortgage interest rates ...etc

kris,

A colleague told me that there's not enough cold hard dollars in the world to make good on dollar debt. He told me that he read it in an article linked on Patrick. He told me that a symptom of it will be collapse in desecending order of M3, M2 till nothing is left but M1. It was too abstract and hypothetical to understand, but I remember the M3 part about what he said. And it is going down.

Is that what you are talking about?

how many people on the board are Keynesians ?

I am more or less Austrian school (classical economics)
work hard and save ...makes people rich....spend and spend makes people poor...

Solving a problem created out of the easy money policy by more easy money policy ..Does it make sense ? I just finished an MBA macro econ class from the worst professor in my life, the whole subject as it is taught is pure mental masturbation...some bunch of unsubstantiated theories and trying to pose as science..when you know its all opinions....

I think this crisis will send Keynesian theories to their grave, which is where they belong.

commonman2003 says

how many people on the board are Keynesians ?
I am more or less Austrian school (classical economics)
work hard and save …makes people rich….spend and spend makes people poor…
Solving a problem created out of the easy money policy by more easy money policy ..Does it make sense ? I just finished an MBA macro econ class from the worst professor in my life, the whole subject as it is taught is pure mental masturbation…some bunch of unsubstantiated theories and trying to pose as science..when you know its all opinions….
I think this crisis will send Keynesian theories to their grave, which is where they belong.

Based on this post, I'm not sure you understand Keynesian Economics. Maybe retake the class with a better professor?

commonman2003 says

Saving money will definitely make anyone wealthier over the long run but why work for it and save it if you aren't gonna spend it? I plan on going to my grave with pennies in the bank and a smile on my face cause life is too interesting to try and build wealth.

You folks are silly with the childish idea QE has anything to with helping America or some "Economy". This is nothign more than payouts to buds. what can HE do to payout more to his buds. I mean, they took the losing side of something like $2T in mortgages and the bank club assumed the losses. Now he's got to gas the accelerator. This things headed for a wreck but there's still billions or even trillions to be siphoned off for their buds before it happens.

For the little guys like you and me we can keep on trucking too. Bank away before the credit pop. Looks to me like a crazy year or two ahead of this while the feedback accelerates. Free money for all! Get in on the free-for-all. Last one into the debt pool wins though! It's all knowing when to get out.

commonman2003 says

Basically Keynesianism is wealth redistribution in disguise. And that is why “haves” hate it and “have nots” love it.

Again--I don't think you understand Keynesian economics....

Based on this post, I’m not sure you understand Keynesian Economics. Maybe retake the class with a better professor?

Keynesian economics in a nutshell.
Y = C + I + G
Y = output
C = consumption
I = Investment
G = Government Spending
You consume a fraction (c) of output (Y) so that C=c*Y
Now you have Y = c*Y + I + G
Rearrange the equation so that: Y = (I + G) / (1 – c)
So you see, in Keynes' mind, the best possible outcome is when you spend 99.9999999% of your money.
He assumes investment is fixed and that the economy produces and consumes 1 single product. If you believe that, I have some lipstick I want to sell you. You can eat it for lunch.

theoakman says

Keynesian theory requires that the government spend the money because they don’t trust the general public enough to spend it for them to increase aggregate demand.

And I agree with this.

Good Keynesian spending ends up creating actual wealth that accretes to future earnings.

Just mailing money out to people results in empty consumption of consumer goods at best and higher living expenses (land/rents) at worse.

I recall plenty of Keynesian economists throwing a fit when George Bush implemented his own Keynesian experiment mailing everyone a $300 check.

Fat lot of good that did in the long run.

Troy says

theoakman says

Keynesian theory requires that the government spend the money because they don’t trust the general public enough to spend it for them to increase aggregate demand.

And I agree with this.
Good Keynesian spending ends up creating actual wealth that accretes to future earnings.
Just mailing money out to people results in empty consumption of consumer goods at best and higher living expenses (land/rents) at worse.
I recall plenty of Keynesian economists throwing a fit when George Bush implemented his own Keynesian experiment mailing everyone a $300 check.
Fat lot of good that did in the long run.

This country hasn't seen good spending in 50 years. It's a pipe dream with this Congress. The stimulus package was nothing but a bunch of subsidies to politically connected corporations and universities.

(never mind)

This is hardly QEII.

They're just staying they'll keep the balance sheet where it is, instead of letting it slowly wind down.

If you were looking for QEII, this certainly is not it. Rolling over payments into new debt purchases has been the policy of the Fed since... uh.... 1913.

Hey, maybe that inflation will kick in next year?

Nomograph says

theoakman says

The stimulus package was nothing but a bunch of subsidies to politically connected universities.

I think you’re just bitter because you didn’t finish. Weren’t you blaming Jon Corzine for all your problems last year?

Uhh, no. I successfully defended 2 weeks ago. You really are incapable of having a mature argument though. You always try to make everything personal. Thanks for trying though.

Btw...I'm not bitter. You know how much of that stimulus money went straight into my pocket for working part time?

tts says

No true Keynesian could back the gov.’s actions at this point nor have any faith in Bernanke’s or the Fed’s competence given their actions both recently and over the last decade or so

I don't know if I'm a "true Keynesian" or not. Is there a test? And I'm not a huge fan of Bernake either.

But you were right in your other post. The problem isn't the government's actions now--the problem was what the government did from 2000-2008.

Part of being a Keynesian is following the "run a surplus in the good times" part that everyone hates, if you don't do that part but spend spend spend all the time, then no you're not a Keynesian.

Also while the current gov. didn't start the mess they sure aren't helping, and that is just as bad. All they want to do is put the figurative band aide on the bullet wound, none of them will do what is really necessary.

tts says

Part of being a Keynesian is following the “run a surplus in the good times” part that everyone hates, if you don’t do that part but spend spend spend all the time, then no you’re not a Keynesian.

Exactly. Do you think this is a "good time"? Of course not.

tts says

All they want to do is put the figurative band aide on the bullet wound, none of them will do what is really necessary.

OK--what is really necessary?