patrick.net

The bond markets mostly set long rates right now. Why can’t they set short rates too?

The bond market has been setting mortgage rates. What makes you think the bond market won't f*ck this up, too?

The main objective is to inflate asset prices at the maximum rate possible that does not at the same time create a level of inflation that creates pressure on wages.

I would modify that to say: The main objective is to foster economic growth at the maximum rate possible that does not at the same time create a level of inflation that creates pressure on wages.

Economic growth actually benefits the "have nots" by creating jobs (in theory). Equity prices also tend to rise with growth, since businesses are increasing revenues as a result.

The overall goal is not really to increase the rich-poor gap internal to the country. The goal is to increase our economic standing among the nations, which in turn improves overall standard of living in the U.S.

Inflation is the enemy because it erodes buying power without contributing to the standard of living.

I just found the information below on the internet so it must be true:

“To this day, Rothschild descendents make the decision of the price of gold in London as well as what the Federal Reserve fraud will do with all the money it steals from American citizens. These people worship Satan, even setting him a place at their table. They also worship MONEY, always seeking more: Yes, the satanic Rothschild dynasty is all-powerful. They control all our lives through their complete banking domination. They’ve already been successful at turning America into a police state in their New World Order efforts.”

It looks like Greenspan, Bernanke, and the Fed are just a front for a group of “all-powerful Satan worshipers”…

Step one: Hide the keys to the printing press.

Step two: Cut a hole in the printing press...

justme Says:

> I think I have finally figured out what the real objective
> of the Fed is: “The main objective is to inflate asset prices
> at the maximum rate possible that does not at the same
> time create a level of inflation that creates pressure on
> wages.

That is a fairly good summary of what the Fed does.

I like to say that the Fed: “Helps its member banks make as much money as possible while trying to keep as many voters as possible happy so they won’t vote incumbent politicians out of office”…

Just in case low interest rates don’t keep the voters happy enough politicians (from both sides of the aisle) keep giving away more and more.

I wrote a while back that budget Bush has proposed for the next fiscal year is about 1/3 higher than Clinton’s last budget 6 years ago.

In only 3 years Schwarzenegger is already spending 30% more than Davis and according to the Sacramento Bee the guy who “was elected governor on the promise to "cut up the credit cards,"” has doubled California's debt burden since he was elected…

Should there be Fed ? What should it do ? Why should it do that ? These are all theoretical questions. Look at the practical side. It is there. It will be there. So let's evaluate it from did it do its job ?

Here is what Wikipedia says ...

According to the Board of Governors, the main tasks of the Federal Reserve System are:

1. conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of maximum employment, stable prices, and moderate long-term interest rates
2. supervising and regulating banking institutions to ensure the safety and soundness of the nation’s banking and financial system and to protect the credit rights of consumers
3. maintaining the stability of the economy and containing systemic risk that may arise in financial markets
4. providing financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system

The first one is blah blah blah and the last one seems like pure procedural duty. The real test of skill is in 2nd and 3rd.

Does anyone have any illusions about how they "had only good intentions in mind" about those ? No one is perfect, but to my untrained eye, it seems that they completely ignored those responsibilities.

Their solution to the problem has been the "Greenspan put". I argue it is not a solution but a bigger problem.

justme Says:

> Going back to the original topics, what is “Economic
> Growth”, exactly, and if I am Joe Sixpack, should I care?

This sounds something my Dad would say…

He grew up in a home with a Dad that told him about all the bad things the Republicans were doing including paying off politicians…

My Grandfather and his Union buddies fought back by paying off Democrat politicians and voter fraud (voting for non voters, dead people etc.)…

My Dad does his research to vote for the person he “hates the least” in every election but other than that he does not care what happens in “Politics” or the “Economy”…

He gets mad at me when I complain about politicians and tells me to forget about them and just make as much as I can and give the politicians as little as possible…

How about new topic...

Google/Yahoo Advertising Dollar and Subprime bust (soon RE Bust too...)

We still see lots of mortgage advertising on Yahoo and Google...
Given the fast death of subprime lenders perhaps spreading to prime ... advertising dollar must be
tanking as we speak... As I recall Yahoo warned how problems in Detroit
was spilling into deline of advertising revenue in Dec and Jan. The court order to halt no doc loans would also impact advertising dollars.

Comments???

Just me.
I go to the same area for lunch as I did back in the 80s and can say I see fewer people today than back then. Nearly half as much... It used to be a very busy area with long lines... man I even get a seat to eat now days.
Traffic has not been a problem either ... your milage may vary... but I cover nearly 10 miles in near 15 minutes. Its also clear that we have far more vacant commercial buildings today than ever before. I worked near San Thomas and Central and Mt View old Sun HQ ...

Just me too

Anyone worth his salt had to have at least TWO lunch appointments. One to schmooze the investors, and one more to try and line up som p*ssy for the weekend.

I don't remember that. All I remember how absurd the male/female ratio was everywhere you went. That's definitely gotten a bit better.

In only 3 years Schwarzenegger is already spending 30% more than Davis and according to the Sacramento Bee the guy who “was elected governor on the promise to “cut up the credit cards,”” has doubled California’s debt burden since he was elected…

But more importantly, Arnold cut the car tax!

In the end, that's the only thing (well, maybe rolling black outs too) that got Davis kicked out of office.

What, specifically, is your alternative? Short of a return to the inflation-inducing gold-standard imperial-mercantile era of musket-diplomacy trade and overt slavery

hmm, sounds good... South Seas bubble, anyone?

If I had to pick a single argument regarding the FED, it would be in its lack of accountability. Same with the Treasury.

The FED earlier this year invited comments regarding lending practices with the intent of making recommendations sometime after September. How nice they choose to proceed at such leisure.

I think both are taking their responsibilities rather casually, and why not? What is there to prevent them? Their personal, individual legacy?

Here is a pathetic attempt from a buyers agent to drum up business. Read the last comment (by Dave Barnes), it's the only intelligent one there is.

Gold and silver are elemental and can not be created out of nothing or mixing certain ingredients. Gold and silver are the Feds enemy. All booms and busts are caused by the Fed creating money out of nothing. i.e.

This statement is categorically false. There are numerous examples of booms under asset-backed currency regimes. One of which is quoted above by DS. In fact, as a percentage of GDP, asset-backed bubbles were much larger than any in the current modern era.

No, prior to fractional reserve banking (implying a money multiplier function) there were enormous bubbles.

http://en.wikipedia.org/wiki/South_sea_bubble

c.1720, during a period of "pure" gold/asset backed currency trade.

This bubble saw stocks in London grow to exceed not just the total value of precious metals in reserve, but actually exceeded the total economic output of the entire empire for a short time.

My favorite quote, emphasis added:

The price of the stock went up over the course of a single year from one hundred pounds a share to over one thousand pounds per share. Its success caused a country-wide frenzy as citizens of all stripes – from peasants to lords – developed a feverish interest in investing; in South Seas primarily, but in stocks generally. Among the many companies, more or less legitimate, to go public in 1720 is – famously – one that advertised itself as "a company for carrying out an undertaking of great advantage, but nobody to know what it is".

Current failures have much less to do with an evil cabal of bankers, the theoretical flaws of fiat, or the virtuosity of gold than they do with the simple nature of humans to be greedy, fallible creatures.

But more importantly, Arnold cut the car tax!

In the end, that’s the only thing (well, maybe rolling black outs too) that got Davis kicked out of office.

Actually, I can think of one other big reason why former Gov. Davis got his ass handed to him in 2003. Then of course, there were the rolling blackouts, mainly due to the botched utility deregulation scheme.

“If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered.”

Actually, Thomas Jefferson didn't make this statement.

And there were bubbles in the New World at the same time (c1720)

http://en.wikipedia.org/wiki/Mississippi_Company

Compagnie des Indes share price

A 7.5 billion market cap on 80 million in revenue is pretty astonishing if it is anywhere near the truth. Such a market cap implies a price/sales ratio of 94 .

Current failures have much less to do with an evil cabal of bankers, the theoretical flaws of fiat, or the virtuosity of gold than they do with the simple nature of humans to be greedy, fallible creatures.

Broadly true, but the enormous magnitude of recent bubbles also had a lot to do with the tendency of so-called "regulators" to encourage and pump asset bubbles vs. their traditional role of taking away the punchbowl ("ensure the safety and soundness of the nation’s banking and financial system" & "containing systemic risk that may arise in financial markets" per SIBA's description above).

We can never regulate away human greed and stupidity, but is it really too much to ask regulators to, well... regulate once in a while?

There are plenty of legitimate reasons to harshly criticize the Fed. I would have them operate more transparently with regard to their goals. Specifically, I would like to see an inflation-target regime which would remove a lot of the "Fedspeak" phenomenon. If metrics were more transparent, and inflation goals were credibly expected to be executed against, then less people would be mystified by the "secrecy" (which is necessary) of the FOMC.

I do get frustrated by Fed-Dollar fiat-Central bank-Monetary discussions because the very legitimate debates folks like HARM initiate are often drowned out by the tinfoil hat, gold Carleton crowd.

Actually, I can think of one other big reason why former Gov. Davis got his ass handed to him in 2003. Then of course, there were the rolling blackouts, mainly due to the botched utility deregulation scheme.

I strongly disagree - at the end of the day, the "giving drivers licenses to illegal immigrants" thing was opposed by only those who were noisy. The average joe six pack doesn't give a crap about that.

But take $200 extra from their pockets per car - that's $1000 extra a year (since the law requires every person to own 1.25 cars, such that a family of 4 will have 5 cars).

I bet if you could remain governor if you managed to pass a bill giving special amnesty to all illegal immigrants in California, at the same time passing a bill that does a reverse car tax where you pay everyone for owning a car.

Like they say.... money talks.

HARM

I can't disagree with any of that. I have long thought the Fed should make more use of their dusty "reserve requirement" lever. For example, during the 90s stock bubble many people were scratching their heads at why the Fed didn't use their power to reign in margin requirements. The Fed has enormous powers over member Banks far and beyond the overnight lending rate.

Increasing reserve requirements just a tiny amount effectively deflates the money supply very efficiently and credibly (because it decreases the multiplier). Since velocity is only increasing day-by-day, it hardly seems a reach that we unmultiply the money supply a bit. In a theoretically perfect world we could have infinite velocity with zero transactional friction and 100% reserve requirements with no money multiplier at all. We'll never get their for obvious reasons, but that should be the direction we head.

@eburbed,

Actually, for most of the people I saw daily and worked with (not a statistically representative sample, I know), the car tax was a minor issue. The license for illegals issue was by far the biggest anger-inducing/hot button issue for them, followed by the car tax, and then the deregulation debacle.

Allah…the quote still has validity.

Yes. It does have validity, but the quote still wasn't made by Jefferson.

From an article on bullnotbull.com:

Thought Exercise: Now Pretend You're the Bank
Take a look at this quote, which can be found all over the internet:

This quote is attributed to Thomas Jefferson, though it is most certainly apocryphal. However I use it because it is instructive in many ways. First, don't believe anything just because you read it, even if you've read it many times. You can find this quote on a hundred web pages attributed to Jefferson. Second, even though Jefferson didn't say it, there is still wisdom in whoever did: "First by inflation, and then by deflation..."

@Randy H,

I think we are mostly in agreement. IMO, the biggest failing of the Fed in recent years (aside from dropping rates to 1% and holding it there) was Greedspan's refusal to use any of his other regulatory powers to contain/defalte asset bubbles, esp. the reserve requirements lever you mentioned. Instead of taking away the punchbowl when needed, he turned the Fed into a serial bubble-blowing machine.

"The license for illegals issue was by far the biggest anger-inducing/hot button issue for them, followed by the car tax, and then the deregulation debacle."

I totally agree with HARM on this - exactly the same experience here.

Chesapeake,

You're probably a nice person, and I hate to come off so harshly. But in my opinion you lose all credibility when you make these outrageous statements and claims. And you do a disservice to the folks who really do have legitimate complaints, criticisms and suggestions for reforming the Fed.

We "need to abolish" the Fed? As I asked earlier of someone else, what exactly to you propose as an alternative to central banking. Not in the Bizzaro world, but here, today, in the world where every other significant economic power on the planet has a central banker.

I wouldn’t say “gold carleton crowd.”
There are many good arguments to go back to a gold backed currency again.
This country needs to abolish the Fed. We cannot trust them with what they say at all. It’s all propaganda designed to keep us doing what we are doing here. While they laugh at us spinning in circles.

By the way, true inflation, is, monetary inflation, which is running so far at about 10.5%.

Even Peter Schiff (Dr. Doom) doesn't think inflation is that high right now and he is the most bearish (besides Roubini) commentator that I know!

We “need to abolish” the Fed?

The Feb definitely serves some purpose. We need to abolish the UN though.

We really do not need a tearoom for talking diplomats.

Inflation is not one number. If you feel that your standard of living is dropping fast with the same amount of spending money, inflation is high to you.

Peter P,

I see no problems with the UN, some of it even does some good.

Perhaps we can relocate it to Kansas City or Detroit or Buffalo, and free up some valuable NYC real estate. Plus, no more parking ticket issue.

I see no problems with the UN, some of it even does some good.

I just don't see much value in it. Can you give some examples?

Perhaps we can relocate it to Kansas City or Detroit or Buffalo, and free up some valuable NYC real estate. Plus, no more parking ticket issue.

Yep. The HQ should be converted to condos. :)

If any kind of inflation is steadily at 10.5%, I want to know, so I can buy the securities that track it.

Nothing is steady all the time. ;)

That which we talk about on this site has experienced high inflation until recently.

Peter P,

Condos? I'd turn it into "housing for the homeless"! Oh and THEN collect on parking tickets! How about moving it any place but here? :)

Actually *trader said it best:

"Ideally, the end of the cycle - wages and spending will feed back into the top - industry and hiring. And eventually the ignition from housing won't be required. That was what the Fed hoped for.

Well clearly this didn't happen. Each rate reduction was met by indifference from industry (while it was lovingly embraced by the consumer). Cap-ex languished and after several meetings it should have been pretty obvious these were "REIC Designated" dollars but hey! (Any port in a storm!)

While I tend to side w/Randy on much of this debate it's so apparent the Fed is irreversibly politicized that we may have to see some sort of re-alignment?

How about moving it any place but here?

Exactly. Anywhere but here. :)

How about some mand-made islands off the continental shelf?

Peter P,

UN runs vaccination, food and peacekeeping programs. Maybe not as well as they could be, but its better than nothing. It offers a forum for smaller countries to speak and grab some attention from the global behemoths. It forces most nations, this one currently excepted, to act with a veil of legitimacy.

Maybe these things are not important to you, but they are somewhat useful functions as far as I'm concerned. I rather spend money on UN children's programs than astrologers.

astrid,

O.K, then perhaps it's time we quit "hogging all the glory" and let someone else take the credit! (Oh... and the bills). :)

UN runs vaccination, food and peacekeeping programs.

True. They could be more effective.

It offers a forum for smaller countries to speak and grab some attention from the global behemoths.

They will get attention but not action.

It forces most nations, this one currently excepted, to act with a veil of legitimacy.

This function failed miserably. One cannot enforce law without power. This is why international laws are unenforceable against powerful large countries.

Maybe these things are not important to you, but they are somewhat useful functions as far as I’m concerned.

These things are very important to everyone. But UN acts against the very nature of humanity -- self interest -- without a balance of power. It cannot possibly succeed.

I have more faith on the Bill and Melinda Gates Foundation.