Write to be understood, speak to be heard, read to grow.
Lawrence Clark Powell
The Fed Goes Old School: Let's NOT Twist Again
Thumbs DOWN!
The twist is a reprise of a strategy first used by the Fed in the 1960's to stimulate growth by pushing down long-term debt: the idea is to try to reduce long-term debt interest rate by buying long-term debt and selling short-term debt. You see, if you buy long-term bonds, the price in theory should go up because you're competing with other purchasers. Bond prices go up, interest rates go down. Part of the problem here is that the Treasury was telegraphing its move, which meant speculators, knowing of artificial demand by Fed purchases, bought target Treasuries, hoping to pocket a quick capital gain in the prices of bonds they bought. I believe the results in the 1960's with the strategy was that the impact was modest (about 15 basis points: 0.15%, e.g., from 9.15% to 9.0%) drop in the long-term interest rate. And keep in mind that was a first-time tactic catching the market by surprise; it's unlikely this time would do as well. Any attempt to compress the yield differences between short term and long term is bad news for certain business models, e.g., insurance companies, which try to arbitrage the spread.
What's wrong with this? David Malpass gives us some hints:
More Fed purchases would hurt savers by lowering, for example, CD yields, add to market uncertainty, further distort short-term credit markets, and worsen the Fed’s conflict of interest in setting interest rates, because its bond portfolio will lose value if it raises rates.How would Malpass assess the Fed's actions since the economic tsunami?
Since the financial crisis, the Fed has been transforming itself from a monetary policy agency into a market-intervention shop. The Fed should be directing calls for action to the administration for tax reform, spending restraint and bank regulatory reform—each a proven job creator.The more [bonds the Fed has] bought, the slower the economy grew as the twist sucked capital from savers and small businesses to the government.
In another post, reflecting the Bernanke Jackson Hole speech, Malpass points out that the Fed, by announcing massive bond purchases, engaged in moral hazard, since the Democratic Congress and Obama knew their massive overspending would be covered by Fed purchases. He continues:
The high costs of using the nation’s central bank to subsidize the national debt — the dollar’s collapse, the price spikes in gold and oil, the 3.6% CPI inflation rate, and the uncertainty over what the Fed might buy next — must be part of the policy debate. By omitting any complaint about dollar weakness and skyrocketing gold prices, the Fed Chairman tacitly left in place the weak-dollar policy the U.S. launched in 2004. The consequence is lower living standards, lower real per capita incomes.When Obama goes on to scapegoat the economically successful in his intellectually shallow, demagogic appeals to class warfare, it wasn't conservatives whom exacerbated food inflation by using food (corn ethanol) for fuel. A weaker dollar buys less of foreign-produced (with foreign labor) oil and gas. It raises the costs of any foreign imports (across a number of consumer goods no longer profitably manufactured in the US, not to mention costs of any imported raw materials and parts going into our own goods and services). Manufacturers often find it hard to pass along those costs and look for other ways to become more productive (e.g., use fewer employees while maintaining production levels).
I know for food, prices are going up each time I visit my Sam's Club. I'm paying more for gasoline. And yet the Fed is pursuing near-zero interest rates. Banks aren't going to lend if they have questions whether the economy and business are strong enough to ensure loan repayment. Certainly the Fed shouldn't be competing with individuals and businesses looking to purchase Treasury bonds--all it does is make it more expensive to do so. Every time I see these interest rates pushing zero, I think it makes high-risk investments more feasible and exacerbates relevant bubbles. Right now the only thing propping up the dollar is the financial crisis in Europe. Bernanke should be jawboning the Congress and President over the lack of any meaningful budget cuts since the economic tsunami. By covering irresponsible overspending, Bernanke does little more than set a precedent for this and other fiscally and morally bankrupt Democratic-led Congresses and Presidents.
Perry New Web Ad Effective
This does not constitute an endorsement of Rick Perry for President. I think it's highly likely I will endorse the 2012 GOP nominee unless the party nominates someone too strident or unqualified (e.g., Palin or Bachmann). I think economics will be the top issue, and I believe that GOP voters will settle on the most viable candidate against Obama, just like the Democrats fell behind a mediocre candidate, John Kerry, whom they thought was most likely to appeal to moderates and independents to defeat George W. Bush.
Rick Perry has come across as a bomb thrower, with sharp, over-the-top criticisms of Ben Bernanke ("treasonous"), radical changes to social security (e.g., delegate social security to the states), etc. I myself have talked about conservative/libertarian goals; would I, from the standpoint of principle, do away with social security? Short of certain catastrophic risks, yes. We can't micromanage people's dysfunctional behavior--borrowing to spend money they can't afford, squandering their resources on liquor, gambling, etc. That being said, I understand there was a certain commitment promised by the government. As a politician, I can only work with the hand I've been dealt, and I'm aware of resistance to change. I've mentioned some of the things I would do--reform the social security trust/reserve to be diversified, adjust increases, cap payments for the higher-income lifetime, adjust eligibility criteria or adjust payments to accommodate longer expected lifetimes, etc.
The problem which Perry isn't appreciating is that bluster and tough talk, whereas popular with the activist base, is absolutely toxic with independents and moderates. It creates uncertainty in the electorate, just as Obamanomics necessarily causes uncertainty in the minds of business managers. He does NOT want voters to identify him with the internationally perceived "cowboy diplomacy" of George W. Bush. This attack ad is effective, but it's too easy, like pushing on a string, because his latest approval ratings range from the upper 30's to the lower 40's. because Obama has done little for the economy beyond bitch about what a sorry state of affairs he inherited from Bush. What Perry wants to show is that he's not going to overreact to things like Obama, thinking the government can cure the economy. The best way to approach a crisis like this is to tell businesses, the government is not going to muddy the water with desperate policy measures.
Also, Rick Perry needs to fashion a more positive, can-do message in the Reagan fashion. And he needs to stress his 10 years of administrative experience running no deficits versus Obama's almost 3 years at over a $4T deficit over his tenure. And start slipping in "a second Obama term means more of the same--more of the same Bush-bashing, fingerpointing, class warfare, tax and spend, etc."
My Choice: Most Ridiculous Lawsuit of the Month
There is a man whom claims to have end-stage emphysema and has filed over 160 ADA lawsuits, most against small business for alleged noncompliance. In the embedded video below, he is caught on tape hiking up and down hills without an oxygen tank. There are other remarkable stories if you wish to cast your own vote. This one I found particularly egregious because I regard it as a type of extortion on small businesses, whose profits can be bled dry fighting frivolous lawsuits.
Others include: a guy whom decided to write changes to his $60/year Xbox Live service contract, including a forfeit victory clause, which he claims allows him to collect $500B (yes, those are Obama spending numbers) from Microsoft. The leading one this month so far involve the two 20-odd year children of a divorced women, whom filed a "bad mothering" lawsuit against her, claiming, among other grievances, played favorites among the kids, failed to include gifts with cards, "embarrassingly" changed her surname after the divorce, didn't buy her daughter a homecoming dress, and for several college semesters failed to mail her firstborn son a care package (snacks, toys, etc.)
Political Humor
President Obama caused Mongolian President Tsakhia Elbegdor to lose face in the latest photo of international leaders... Talk to the hand, President Elbegdor... [I just can't help myself...]
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| Image Credit: Allan Tannenbaum-Pool/Getty Images |
The military’s policy of “don’t ask, don’t tell” is officially over. Don’t confuse this with President Obama’s economic policy, which is “don’t ask, I don’t want to talk about it.” - Jay Leno
[The Obama Administration decided to reform this policy elsewhere: instead of punishing government employees when they blow their whistle, you ignore them: "don't tell, I don't want to hear about it". For instance, an Energy Department staffer tried to warn the Administration that Solyndra would be out of money by this month, and 15 days later, the Obama Administration approved a $535M loan. I guess we now know where all the watchdogs during the housing bubble found work...]
"Obama says his new plan to raise taxes on millionaires is not class warfare, it’s math. We Americans hate class warfare, but we also hate math." - Jay Leno
[Yes, we need advice on math from someone whom has never balanced the nation's checkbook... Obama agrees with 1994 Teen Talk Barbie: "Math is hard!" Keep this is mind when discussing the Warren Buffett tax: Warren Buffett is a BILLIONAIRE, not just a MILLIONAIRE. That's like 3 places to the left of the decimal point.]
"The military’s controversial "don’t ask, don’t tell" policy was officially retired. This marks a new age of tolerance, acceptance, and awkward showering for everyone in the military." - Jimmy Kimmel
[As part of gay tolerance training, there will be "Show and Tell" in the military group showers...]
Musical Interlude: My Favorite Groups
Fleetwood Mac, "You Make Loving Fun". My favorite Christine McVie song. It's one of those perfect nuggets in my Whitman's Sampler of pop music, like Neil Diamond's "Forever in Blue Jeans".
