Is the Federal Reserve Paralyzed?

1. 72

   Ralph Deedsposted 14 years ago

   Critics say Bernanke isn't following his own advice because the Fed Board is divided and because Obama has failed to fill Fed vacancies.
   
   http://www.nytimes.com/2010/08/13/opini … ef=opinion

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   1. 59

      Doug Hughesposted 14 years agoin reply to this

      The Fed is unable to deal with a 'liquidity trap'.- which wikipedia defines -
      
      "a situation where monetary policy is unable to stimulate an economy, either through lowering interest rates or increasing the money supply."
      
      There's a paradox - like the chicken and the egg.  The economy is bad because consumption is down. Consumption is down because business laid off so many people - and has squeezed the wages  of those they didn't fire. Personal income is down. But business won't start hiring until consumption rises - and increased consumption can't happen until hiring ocurrs in large amounts.
      
      There are answers to te paradox, but they aren't in the Fed monetary policy. Getting out of this any time soon (less than 5 years) will require laws from congress that subsidize growth (with jobs) and penalize stagnation (strong profits and no job creation) in a company. But there is NO ONE with the courage to propose such a plan.

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      1. 60

         Evan G Rogersposted 14 years agoin reply to this

         if you measure the health of an economy via consumption then you'll never have a stable economy.
         
         Let's see what would happen if we wanted high consumption: Let's have the government tax all the money everyone makes, then have them all build aircraft carriers and dynamite. then we drive the carriers out to the ocean and blow them up. -- CONSUMPTION WOULD BE AT IT'S HIGHEST EVER... but we'd all starve to death.
         
         Consumption is not the proper way to go about understanding economics.

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         1. 72

            Ralph Deedsposted 14 years agoin reply to this

            How would you measure the economy? What is the "proper way to understand economics?"

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         2. 59

            Doug Hughesposted 14 years agoin reply to this

            I never suggested that the government should 'tax all the money everyone makes, then have them all build aircraft carriers.. and blow them up."
            
            If you want to argue against that proposal, we are probably in agreement. It's certainly not anything I suggested.
            
            What I described was a  paradox -  low consumption feeding  high unemployment - and high unemployment continuing until consumption increases. Just as in the Great Depression, Wal Street is content to sit on piles of money and NOT hire or expand and use the crisis to depress wages and benefits to employees as a way of maximizing profits. While this is happening,  unemploment will rise as wages fall - UNLESS something breaks the cycle.

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2. 72

   ledefensetechposted 14 years ago

   The reason the Fed Board is divided is because none of their interventions seem to be working.  While that is a mystery to the members of the Board, it is not a mystery to the Austrian School of Economics.  They predicted the bubble bust and they also predicted that the schemes of the central bank wouldn't have any positive effect at all.  Looks like they were right.
   
   It doesn't matter what the Board thinks anyway.  The President has his own agenda, which seems to be spend, spend, spend.  Even the UK is cutting back:  http://www.dailymail.co.uk/news/worldne … nding.html
   
   Ole Helicopter Brenake is following his own policies because the federal funds rate is between 0%(!) and 0.25%; a rate at which it has been since December 2008(!).  No banks are taking what amounts to free money.
   
   http://www.moneycafe.com/library/fedfundsrate.htm
   
   What part of 'Americans are overburdened with debt' don't these idiots seem to recognize.  The amounts and severity of housing defaults should have been enough to point that out to a blind man, yet here we have the fed acting stupidly again.  Real economic growth is never funded through debt, but from savings and investment.  When the government gets a clue about that, then we'll see real "change we can believe in".

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   1. 72

      Ralph Deedsposted 14 years agoin reply to this

      "The reason the Fed Board is divided is because none of their interventions seem to be working. "
      
      In my opinion, it would be more accurate to say that the Fed's actions to date have been insufficient. There's no way of telling how much deeper the recession would be if the Fed hadn't taken the actions it has taken to date. There is a limit to how much the Fed can do to prevent deflation in the absence of strong fiscal policy action. Many or most orthodox economists, as opposed to adherents of the Austrians, believe the stimulus passed by the Democrats over almost unanimous GOP opposition wasn"t adequate to do the job.

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      1. 72

         ledefensetechposted 14 years agoin reply to this

         I could also make the argument that the feds have made a horrendous mistake and condemned us all to poverty.  The question is, who's right and who's wrong.
         
         Ralph, we're talking about social science, specifically economics and the only real way to judge the potential paths and their consequences are to look at the historical record.  I'm thinking in this case, Japan.  They had a bubble much like ours in the late 1980's and early 1990's.  They did exactly what Helicopter Breanke has suggested and they have had a so-called "zombie" economy for almost 20 years now. 
         
         Or you could study up on the history of paper money in the early United States.  People make a lot about Franklin and his support of paper money early in life, but have you ever asked yourself why such paper money didn't wind up a prerogative of the federal government?  My suggestion would be that it had something to do with the experiences of the colonies with the Continental.  Or look at the Confederate Dollar.  It soon became worthless as did the Union Greenback.
         
         There are some very good scholarly works on the Depression which not only illustrate the failures of the intervention, but also the fact that such intervention made things worse.
         
         You're also not facing reality.  The numbers provided by the administration made certain claims about what would happen in the future had the stimulus not been passed.  Those assumption were incorrect.  Therefore the entire chain of reasoning the administration used has been shown to be faulty.  Now you might be partisan enough to believe the hype, but it would seem that most American's are not. 
         
         You can blame "Fed paralysis" all you want, but examples abound in history which show stimulus and central banking fail, while free markets and voluntary association prevail.

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         1. 73

            someonewhoknowsposted 14 years agoin reply to this

            You seem to have dismissed the impact the greenback had on the economy during and well after the civil war.The greenback that Abraham Lincoln had issued were not only backed by gold ,but they were paid into circulation by the government without interest payments to any bank as was and is still being done.This is one of the reasons,but not the sole reason why our economy is in such trouble.
            If,I'm not mistaken the law that former president John F. Kennedy had signed into law still exists ,if the government wants to use it.Kennedy printed up and had started to issue them in response to usry or interest payments on debt which he saw as a threat to the economy.Just as former president Abraham Lincoln did.A cabal controls the federal reserve banks which,lets be honest is a privately held group of banks that exist worldwide as well as in the united states.

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         2. 72

            Ralph Deedsposted 14 years agoin reply to this

            You're entitled to your opinion, but you should recognize that it's quite unorthodox. The time of the Austrians elapsed long ago in an era when conditions were quite different.

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3. 76

   Ben Evansposted 14 years ago

   I don't believe that the FOMC has many tools to utilize in this economy.  Right now at 0-.25% fed funds rate there is little they can do but talk.........Talk is cheap especially for the FOMC in this time of the economy.    There are other ways the FOMC can direct the economy but unfortunately at this time they are trivial.
   
   I believe this whole mess transcends politics and is just a result of a very consumptive decade.  The growth of blotted real estate prices was insane and unsustainable.  The ability for people to consume on the same levels have been eliminated.  Their income was a result of theappreciation of their home.  Once this value left, there was no more money to spend.
   ........Neither the FOMC nor the government can get the real estate wheels turning like they were a couple of years ago.  It is an anomaly that will cost us years of a bad economy.
   
   The investment sphere is no better.  The collapse of the equities market destroyed trillions of dollars that would be available to invest elsewhere. The incredibly high amounts of money in the derivatives market which is basically just a right not an ownership of anything is crazy.  People often look at this and think that the money must go somewhere in a linear fashion but that is not the case.  Look at derivatives.............. They are something with no physical value and can the worth can vaporize when no one holds it as valuable.
   
   I think this has been years coming and it will take years to correct.  I think Bernanke is just a "kinder gentler" version of Greenspan.  I believe that the only way to rectify the situation is to let time play its course and hope that good decisions are made.  The current malaise is not as partisan as people make it.  However, at the rate the current administration is spending, it certainly doesn't help.
   
   With that said I am not laying blame on anybody but the FOMC who promoted a great Ponzi scheme that didn't work.  There is no money left to consume or invest.  Therefore the good ole FOMC can't do anything at this point.  All we can do is figuratively look at how the tape is painted ten years from now and say it worked or it didn't.

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4. 72

   Ralph Deedsposted 14 years ago

   Bernanke has bee trying but has pretty much shot the Fed's wad. The stimulus package was inadequate for the job and too slow kicking in.

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5. 59

   Doug Hughesposted 14 years ago

   I marvel that people don't learn from history.
   
   In the 1930's we had the Great Depression - which happened after 9 years of conservative 'hands-off' government (and extremely low taxes). Before the crash, banks and business were allowed to do what they pleased - and disaster was the result.
   
   FDR (initially) and Obama made the same mistake. They didn't do enough with government spending to break the depression. It wasn't until FDR and the entire country got behind the most massive jobs program - with HUGE federal spending that drove the deficit to record levels (as a % of GDP). That jobs program (called WWII) ended the depression and full employment resulted. The boom that followed (in a time of record debt) is the golden years of the 20th century for middle-class Americans - the mid 40's to mid 60's.
   
   Stay with me - this is all factual - not opinions. The debt was paid down with record HIGH taxes for the highest earning class. In the period I am talking about tax rates for the richest ran from a high of 90% to a low of 70%. And we paid down the debt from over 90% of GDP down to 35% of GDP. (Then Repubicans ran the debt up.) But the FACT remains - high taxes for the rich and prospertiy for the middle class went hand-in-hand for DECADES. Now the middle-class is getting squeezed more and more while the rich are paying the lowest tax rates since the onset of the Great Depression.
   
   And yet you have 'rational' people arguing for an extension of tax cuts for the wealthy when the deficit IS a looming problem. I will continue to repeat this phrase - FAIR TAXES NOW!

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