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The Feds Effort Has Done Nothing
- Thread starter Aaron Copland
- Start date
Quote from makloda:
Uhm thanks for the explaining the TED spread to me. As you correctly say it's a market rate and the market rate signals a tight credit market for the average bank. END OF MESSAGE.
These will once again disseminate credit into the economy once their balance sheets allow for it and they feel more confident in getting their loans paid back by consumers and corporations. Nobody in their right mind would expect banks to pass through lower Fed rates right now without the typical 18-24 months lag.
The fact of the matter is that a series of Fed rate hikes in order to 'decelerate debt-fueled consumer and corporate spending' are unnecessary at this time. Credit is tight, there is no need to make it tighter.
True.
Why would anyone in their right mind wish to slash corporate spending and decelerate consumer consumption even further with tighter credit?
And what do you think would happen to the average depository bank if - just hypothetically - MER, LEH and MS were to file for chapter 11 next week?Quote from Aaron Copland:I have no problem with the Fed helping depositary banks, they should not open the discount window to Wall Street investment banks, thatâs my issue here.
Quote from makloda:
Uhm thanks for the explaining the TED spread to me. As you correctly say it's a market rate and the market rate signals a tight credit market for the average bank. END OF MESSAGE.
So the Fed should do what yield hungry investors refuse to do? There's not a liquidity crisis. There's a credit worthy liquidity crisis. Good lenders and solvent securities have no trouble attracting capital. Take a look at Wells Fargo and Mellon.
These will once again disseminate credit into the economy once their balance sheets allow for it and they feel more confident in getting their loans paid back by consumers and corporations. Nobody in their right mind would expect banks to pass through lower Fed rates right now without the typical 18-24 months lag.
Sure. And that's why the inflation lag will be 18-24 months from now.
The matter of the fact is that a series of Fed rate hikes in order to 'decelerate debt-fueled consumer and corporate spending' are unnecessary at this time. Credit is tight, there is no need to make it tighter.
Credit's tight because asset prices are in flux. That's not an intrinsic negative. I've lost as much value on my home as anyone here on ET. If consumer prices also fell I'd be fine with the swap. Living in a million dollar home is no good if you can't afford to eat. This notion of protecting asset prices, debasing cash and savings, widening the gap between wage slave and equity holder is sure to cause a revolution. Ala' the strength of Obama. I've got enough hassles without needing to shoot jealous minorities on my front lawn.
Regarding your $10 hot dog metaphor... Who cares if the hot dog costs $10? I don't. All I care about is how long I have to work for it. Are you better off knowing a hot dog is $2 in 10 years just like it is today? Or are you better off knowing that the time you have to spend working in order to purchase a certain good becomes less and less in the future?
Unless productivity increases at a like rate then wages will NEVER keep pace with prices. Until your gardener finds a method to mow 3 times more lawns per day he'll make less in hot dogs than he does today or far less than he did in 1985. Have the paychecks of hourly wage earners kept pace with fuel prices?
Quote from makloda:
Regarding your $10 hot dog metaphor... Who cares if the hot dog costs $10? I don't. All I care about is how long I have to work for it. Are you better off knowing a hot dog is $2 in 10 years just like it is today? Or are you better off knowing that the amount of time you have to spend working in order to purchase a certain good becomes less and less in the future?
That kind of attitude is really scary. What about retired people who have no job income and only have their savings to live on? That is the real travesty here. They are completely reamed in that scenario. I guess you are willing to throw them under the bus - I'm not.
I guess for people still working, times might not be as tough, but there is no guarantee wages keep up with inflation. Inflation is guaranteed to crush everyone - while the sensible alternative (keeping interest rates in line with inflation) would most likely only crush people who were overleveraged. Now tell me, who deserves the crushing more?
Quote from sprstpd:
That kind of attitude is really scary. What about retired people who have no job income and only have their savings to live on? That is the real travesty here. They are completely reamed in that scenario. I guess you are willing to throw them under the bus - I'm not.
I guess for people still working, times might not be as tough, but there is no guarantee wages keep up with inflation. Inflation is guaranteed to crush everyone - while the sensible alternative (keeping interest rates in line with inflation) would most likely only crush people who were overleveraged. Now tell me, who deserves the crushing more?
It does suck that the retirees get hosed with high inflation, but a huge number of them don't have much in savings either. They are living off only social security checks. Recent estimates put this number at 1/3 of retirees and an even larger number with only minor income outside of social security. This suggests that only about 6% of our country is living off of savings.
We have to be careful not to give the retirees too much weight in this scenario. Technically they would be best served by deflation as they would build wealth daily, but this would come at the expense of the other 88% of the population.
What do you think happens to the social security of the retirees during a deflationary period like the Great Depression? Remember that a good portion of social security already comes from other tax revenues. What happens when those revenues dive?
So what is best for 94% of all Americans? Continued inflation, or at the very least, avoidance of deflation.
Quote from Cache Landing:
"... So what is best for 94% of all Americans? Continued inflation, or at the very least, avoidance of deflation.
Inflation isn't GOOD for anybody. (Yes, I know "borrowers get to repay with cheaper money".) It only gives the APPEARANCE of something positive while it promotes an offsetting, cancerous negative.... one which is covert enough that most people don't recognize its ills.
Quote from Cache Landing:
It does suck that the retirees get hosed with high inflation, but a huge number of them don't have much in savings either. They are living off only social security checks. Recent estimates put this number at 1/3 of retirees and an even larger number with only minor income outside of social security. This suggests that only about 6% of our country is living off of savings.
We have to be careful not to give the retirees too much weight in this scenario. Technically they would be best served by deflation as they would build wealth daily, but this would come at the expense of the other 88% of the population.
As a sound national policy, I think you must reward people for responsible financial behavior such as saving money.
Everyone loses with high inflation, especially retirees who are living off social security which is based on faulty government inflation calculations to begin with. The discrepancy between reality and the government's perception of reality will get even worse with high inflation. I have no doubts that the government will make up more ingenious methods to massage the numbers so they don't have to pay what they owe on social security. The retired are going to be slaughtered.
Thanks to productivity growth the real income of the average working person increases over time in all developing countries - admittedly much more so in the better educated deciles than in the bottom deciles of the spectrum.Quote from Pa(b)st Prime:
Unless productivity increases at a like rate then wages will NEVER keep pace with prices. Until your gardener finds a method to mow 3 times more lawns per day he'll make less in hot dogs than he does today or far less than he did in 1985. Have the paychecks of hourly wage earners kept pace with fuel prices?
A gardener/burgerflipper/janitor in the US doesn't have much of a competitive advantage compared to a worker in Asia or South America. The US and many countries in Europe (notable exceptions are the Scandinavian countries and Switzerland) have done a terrible job of investing in human capital in the last 25 years, now the middle and lower class are paying the price as highschool graduates are inept in basic math, spelling and grammar and the sciences. Of course, all I see on ET is Bernanke and only Bernanke himself being blamed for every single economic problem worldwide instead of politicians responsible for education, federally funded basic research, schools and universities.
From the Dallas Fed, 1998: In calculating the cost of living in terms of time on the job, a good place to start is with the basics--food and shelter. For example, the cost of a half-gallon of milk fell from 39 minutes in 1919 to 16 minutes in 1950 to 10 minutes in 1975 to seven minutes in 1997. Using current numbers for private-sector, nonsupervisory jobs, the average hourly wage was $17.71 at the end of 2007. What's the price of a half gallon of milk in the US currently? How bad is it?
I used $2.50 (not sure if this is accurate) and I get 8.5 minutes. Worse than 1998 but still much better than the 70s.
Quote from gnome:
Inflation isn't GOOD for anybody. (Yes, I know "borrowers get to repay with cheaper money".) It only gives the APPEARANCE of something positive while it promotes an offsetting, cancerous negative.... one which is covert enough that most people don't recognize its ills.
I'm not talking about good and bad. I'm talking about a greater good or a lesser bad.