July 21, 2010
Unexpectedly Unusually Uncertain?
"U.S. stocks dropped and Treasuries rallied after Federal Reserve Chairman Ben S. Bernanke said the economic outlook remains “unusually uncertain” even as the central bank prepares to eventually raise interest rates."
First Published: July 21, 2010 12:30 PM
Comments from "Plugged In" Readers
Load up the helicopter with 1's, 5's and 10's....lets get ready to do the drop.
Posted by: Helicopter Ben at July 21, 2010 2:07 PM
If only. It might at least do some good in the real economy before it got sucked into the black hole of debt deflation.
Posted by: diemos at July 21, 2010 2:27 PM
re: deflation. Here's what Paul Krugman wrote in his column on the 11th, titled The Feckless Fed:
We aren’t literally suffering deflation (yet). But inflation is far below the Fed’s preferred rate of 1.7 to 2 percent, and trending steadily lower; it’s a good bet that by some measures we’ll be seeing deflation by sometime next year.
If you read Chairman Bernanke's testimony itself you'll get to this:
Inflation has remained low. The price index for personal consumption expenditures appears to have risen at an annual rate of less than 1 percent in the first half of the year…Most [Federal Open Market Committee (FOMC)] participants projected that inflation will average only about 1 percent in 2010 and that it will remain low during 2011 and 2012, with the risks to the inflation outlook roughly balanced.
If the central bank is "preparing to eventually raise interest rates" as the bloomberg reporter suggests, it sounds to me like that eventuality is a long way off. Perhaps after a Japanese-style lost decade.
Posted by: Brahma (incensed renter) at July 21, 2010 5:07 PM
What the Fed happened to my green shoots?
Posted by: andy at July 21, 2010 9:02 PM
Perhaps after a Japanese-style lost decade.
several of us predicted that we'd see at best a Japanese style lost decade. I still maintain that's likely the best outcome we can hope for.
what else did we expect? we allowed the banks to hide their debt and their problems- creating a zombified banking system. We wasted a lot of money on those banks so that they could give themselves record bonuses and give the politicians near record donations. for the little guy? very little.
After seeing how the money was wasted, the American public is tired of bailout mania. Not to worry of course, the government has just hidden the bailouts from the public so that we have no idea they continue (Fannie, Freddie, FHA anyone? Zero Interest Rate policy? etc). we have an unholy amalgamation of crony capitalism and corporatism, all combined with captured regulators and corrupt politicians. as time goes on the system is worsening and not righting itself.
this bailout fatigue has led to an equally poorly thought out call for austerity. however, instead of focusing on austerity where it could be beneficial (reducing defense spending, reducing medical entitlements) we focus on the wrong areas (unemployment benefits and jobs programs). the latter type of programs help the employment picture and aggregate demand. reducing them in a balance sheet recession WORSENS the recession.
the idea from the other side? cut taxes (that's their only idea... we're in a surplus? cut taxes. we're in a deficit? cut taxes. we have low unemployment? cut taxes. we have high unemployment? cut taxes).
the problem with cutting taxes is that it will simply add to the deficit without improving aggregate demand much. sure, the more affluent will have more capital, but they have that capital now and are afraid/unwilling to deploy it. giving them more capital with which to sit on will not help much (although it would be nice for me to get yet another tax break).
likewise, cutting corporate taxes, while not necessarily a bad idea, does nothing for the balance sheet recession. corporations are already sitting on hoards of cash.
no, in an economy that has a GDP based primarily (75%) on consumption you need to increase consumption OR you need to change the structure of the economy. we are doing neither. austerity will reduce consumption, and our leaders are doing everything in their power to return to the status quo of 2005 (bubble mania). unfortunately, this will not and cannot end well.
Posted by: ex SF-er at July 22, 2010 4:58 AM
As always very valid arguments.
I think a part of what we are living today is a consequence of the Bush tax cuts. If we go past the loosening of lending policy and the advent of cheap money, a third element that created his bubble is the tax cuts.
Bush's tax cuts gave the middle and upper crust an extra hedge. Many decided to divert that money to real estate, creating REAL demand. Of course we now have eaten up through that extra supply of cash with nothing much to show for it...
Posted by: lol at July 22, 2010 8:09 AM
"Of course we now have eaten up through that extra supply of cash with nothing much to show for it.."
speak for yourself. many of my peers have lots to show for it. life will go on and, as ever, some will do better than others...
the real question is how does one take advantage of the new normal?
Posted by: anonee at July 22, 2010 9:02 AM
I was talking in collective "we". Roads, schools, retirement, healthcare, etc...
Individually many are much better off. Heck, I am one of those. Compared to the 90s I am much wealthier. I am also better off than most of my peers. But I know where this is all comig from: plundering the past and mortgaging the future.
Posted by: lol at July 22, 2010 9:11 AM
"...many of my peers have lots to show for it..."
anonee - those would be peers in the real estate and mortgage biz wouldn't it ? Of course when there's strife driven market churn (bubble then forced sales and forclosures) anyone in a position to skim off of the cash stream will do well. The rest of us not so much.
Even during a disaster the casket makers and mortuaries do good business.
Posted by: The Milkshake of Despair at July 22, 2010 9:22 AM
I would never leave a quarter sitting on the seat of my car. Not because I would care about losing the quarter but I would hate to have to go through the time and expense of replacing a broken window.
Anonee is like that. All he can see is the bright shiny quarter that's in his hand. He can't see the collateral damage that's the price that someone else will have to pay for his new quarter.
And of course it's very, very, very easy not to see the connection between the current difficult times and the previous good times if you don't want to. But they are connected, as night follows day. First credit creation deposits windfalls on those who are smart enough or lucky enough to be in the right place at the right time and then credit destruction devastates the economy.
Society as a whole would be far better off is the credit creation had not happened in the first place.
Posted by: diemos at July 22, 2010 9:44 AM
"let them eat cake"
Posted by: hangemhi at July 22, 2010 9:58 AM
"But they are connected, as night follows day. First credit creation deposits windfalls on those who are smart enough or lucky enough to be in the right place at the right time and then credit destruction devastates the economy."
good point. but rather than wail and moan there is always something to do with life's lemons.
we can cry about the iniquities or we can adjust our way of dealing with them.
whether its credit creation or credit destruction there is a profitable trade to be made. i don't deny that the system is rigged to the benefit of the rich and powerful. but realistically, throughout history its always been such, and probably always will be. et tu, whiners?
Posted by: anonee at July 22, 2010 10:52 AM