countrygrl
King
1 minute in and they are factually wrong and pushing an agenda.
Link to video.
The first one is still better, less partisan, and more accurate.
Quantitative Easing 2. Some Economists Weigh In.
- Thread starter Cutlass
- Start date
Link to video.
The first one is still better, less partisan, and more accurate.
He did and it's probably why he could have deflated the tech bubble by raising margin requirements on equities only. It would have alleviated much of the need to use the "other monetary tools" which led to the real estate bubble.
Linky not worky..
I don't get why margin purchases of securities are allowed at all. How does that not just equal bubble-fuel?
countrygrl
King
Fixed!
The first one wasn't accurate at all. It was Ron Paultard conspiracy nutcake garbage.
Integral
Can't you hear it?
Here's something fun. I don't exactly agree with their conclusions, but:
)
Their comments on the Great Moderation are actually surprising, from a monetary economist's perspective. There are two main 'explanations' for the GM: improved monetary policymaking and improved inventory practices on the supply side. The research I've seen (mostly dated from 2000-2005) supports the first view.
Source: a new CATO working paper (somewhat above your average graduate term paper but well below a good university/NBER working paper in terms of a priori quality.
)Their comments on the Great Moderation are actually surprising, from a monetary economist's perspective. There are two main 'explanations' for the GM: improved monetary policymaking and improved inventory practices on the supply side. The research I've seen (mostly dated from 2000-2005) supports the first view.
countrygrl
King
If it was, then that doesn't say much for the rebuttal!
At least they're doing something.
What part of the first one do you particularly object to? I posted it generate some discussion.
For one, it's the only way to short a security since you're selling a stock you don't own. There's also the case for bridging another purchase. IE you can borrow without the higher cost or scrutiny of underwriting of, say, a commercial property/equipment.
Also, it simply increases purchasing power or leverage (finance 101).
It's really not much different than a business that needs capital. It's either pay out cash or borrow. On margin, you can borrow up to 90% on treasuries. All of this has risk as we know with any type of borrowing and potentially owing more than what you have.
Sure, but why is that worth the risk? Why allow something with that much risk, when the benefit to the economy isn't apparent at all?
Shorting stocks? I would suggest there's considerable benefit by exposing excesses, bubbles and poor management. Also, using your assets as collateral is most definitely very beneficial to a great number of business owners.
If you're suggesting why allow the risk then why fractional banking? It applies in both cases.
countrygrl
King
You mean like QEII?
And hasn't this last economic disaster exposed problems associated with fractional reserve banking?
I don't understand how we haven't been doing anything other than kicking the can down the road for the purpose of political expediency for a long time with Fed policy.
First, the above 2 replies to your post were made by people employed as economists. The other responses were by people with varying degrees of having studied economics.
OK. That said, remember that the Ben Bernanke has been in control of the Fed for about 4 years. The crisis started about 3 years ago. The lead up to it happened during the 17 years the Alan Greenspan controlled the Fed. Most of the mistakes were made then. No mention of the Greenspan in the vid.
For the inflation and money printing discussions, this recent thread has a whole lot of discussion on it, and it would be difficult to retype. I did the best I could in post #142, and other posters are perhaps clearer elsewhere.
As for the claim that the QE1 did nothing, well it was a major part of preventing Great Depression 2. So was a success. But wasn't big enough to prevent Great Recession.
Now what did the Fed do right or wrong? That answer will depend on who you ask. But, in my opinion, Greenspan made most of the mistakes because his background as a libertarian gave him a fundamentally flawed view of the economy and the role of the Fed. In short, he did not use the regulatory power of the Fed to prevent the private sector from doing many things that lead to the collapse.
Now a number of people have said that there should have been a monetary tightening in response to the housing bubble. But monetary policy is, in my opinion, a terrible response to a financial bubble. It does more damage to the real economy than it does to the bubble. And in the case of housing, that goes double.
Now, my belief is that by the time the Ben Benanke was beyond salvaging. He inherited a 'damned if you do, damned if you don't'. He chose don't, and people will be second guessing that for the next 200 years.
But once the fecal matter hit the rotary impeller, as the old saying goes, he got it right. No one could have done better once the crisis hit. Not with the legal restrictions he faced.
Once the immediate crisis was over it actually got harder. Because after that politics started to interfere.
And that vid of yours was politics interfering.
See again the thread I linked above. Read it through. The problem is not fractional reserve banking. The problem is the lack of regulation of the banks and Wall St.
Saying that the problem is FRB is conspiracy nuts crap that has been refuted here in CFC OT a dozen times recently. And we have trouble mustering the willingness to do it again. It's just that ridiculous.
I don't see allowing some risk and allowing gambling in the same light. Surely there is a better way to keep management in line.
countrygrl
King
That's fine, those posts (in this thread, I'll check out the other thread) don't explain a lot. They don't counter the argument that Fed policy has acted concurrently with various administrations for political expediency, and given current Fed policy it's difficult to argue that the tide has changed or that these are last resort measures that are backfiring. The argument seems to be, "we're not in a depression, so Bernanke is a genius!" I think this is folly as the goal wasn't to prevent us from falling into a depression, it was meant to return us to a sense of economic normalcy. JerichoHill even admits that this was already done by the Bernanke, and when you examine QEI and QEII (and QEIII which will involve the fed monetizing debt to pay the bills of municipalities and the states), I don't see how this isn't anything other than a political move of last resort, that, like other measures, has kept economic bubbles inflated and kicked the can down the road for future generations (mine) to deal with. Meanwhile the administration has also continued to make economically unsound decisions that have done to address the structural reasons we found ourselves in economic collapse in the first place. I agree with you that a lack of regulation is one reason, and that Greenspan is a major reason, but we still have not directly addressed the structural problems that will ensure we continue to languish. We have printed money. We're in a debt death spiral, and if we can't get ourselves out of it by producing tangible wealth, then we're going to see that inevitable collapse in our lifetime. While the first video is cheeky, at least it isn't like the second video which suggests that we can have our cake and eat it to with no negative side effects from QEII or QE in general and points some of the functional problems with the Fed Reserve. "Devalue our currency! Boost Imports! It's really that easy! The Bernanke is a genius, and the Fed is omnipotent!"
Monetizing debt denominated in a currency that's being intentionally devalued has an adverse affect on demand for that debt, our 10 year and 30 year bonds have plummeted since QEII. At some point there's a tipping point where investors will call into question the underlying value of the currency in which our assets are priced. We're probably seeing this now.
Also, this notion that QE2 will suffuse producers with the dollar-debasement's attendant income is nonsense.
QE2 creates new fiscal liabilities, liabilities only accounted for by raw monetization. Once these dollars are digitized (they're not actually printed ), they circulate throughout the economy and put upward pressure on the prices of pretty much everything not bought on margin. Simply put, producers will have to pay more for their inputs, and because profits are as yet unrealized at the point of input acquisition, higher input prices compress profit margins and reduce profits. Because employment and wage increases come from profits, producers must either decide to ramp prices or cut other costs. Very, very few producers have the requisite pricing power to ramp prices in the face of 10% unemployment and deflating wages, so they'll cut costs (read: lay off workers). QE2 will not only make the things you buy more expensive, it will make the things employers and producers buy, including labor, more expensive. The quantity demanded of labor will fall. It's terrible, terrible, horribly awful, misguided policy.
Also, interest rates are zero. They can't get any lower. The were this low before QEII kicked in. It's free money. There's nothing more you can do to get businesses investing from a Fed Policy perspective.
I don't buy the idea that we would have been in a depression without QEI. Not one bit. But I'll check that thread out to see what is said that supports the premise that our entire nation (globe) would have collapsed if we hadn't digitized 2 trillion dollars. This was an action that did nothing to prop up the real actual value of collateral assets that made fractional reserve banking so fragile in the first place (read the real estate bubble). Printing money is a zero sum game in the meantime, and something we have to pay for in the future. It boosted the balance sheets of banks, but will ultimately devalue the money in the pockets of the people on Main Street should the economy actually be stimulated by these misguided policies. It's a slot machine game that we are losing and the only people that seem to still be in denial about it is Ben Bernanke, the Obama administration, and a few people in this forum.
Monetizing debt denominated in a currency that's being intentionally devalued has an adverse affect on demand for that debt, our 10 year and 30 year bonds have plummeted since QEII. At some point there's a tipping point where investors will call into question the underlying value of the currency in which our assets are priced. We're probably seeing this now.
Also, this notion that QE2 will suffuse producers with the dollar-debasement's attendant income is nonsense.
QE2 creates new fiscal liabilities, liabilities only accounted for by raw monetization. Once these dollars are digitized (they're not actually printed ), they circulate throughout the economy and put upward pressure on the prices of pretty much everything not bought on margin. Simply put, producers will have to pay more for their inputs, and because profits are as yet unrealized at the point of input acquisition, higher input prices compress profit margins and reduce profits. Because employment and wage increases come from profits, producers must either decide to ramp prices or cut other costs. Very, very few producers have the requisite pricing power to ramp prices in the face of 10% unemployment and deflating wages, so they'll cut costs (read: lay off workers). QE2 will not only make the things you buy more expensive, it will make the things employers and producers buy, including labor, more expensive. The quantity demanded of labor will fall. It's terrible, terrible, horribly awful, misguided policy.
Also, interest rates are zero. They can't get any lower. The were this low before QEII kicked in. It's free money. There's nothing more you can do to get businesses investing from a Fed Policy perspective.
I don't buy the idea that we would have been in a depression without QEI. Not one bit. But I'll check that thread out to see what is said that supports the premise that our entire nation (globe) would have collapsed if we hadn't digitized 2 trillion dollars. This was an action that did nothing to prop up the real actual value of collateral assets that made fractional reserve banking so fragile in the first place (read the real estate bubble). Printing money is a zero sum game in the meantime, and something we have to pay for in the future. It boosted the balance sheets of banks, but will ultimately devalue the money in the pockets of the people on Main Street should the economy actually be stimulated by these misguided policies. It's a slot machine game that we are losing and the only people that seem to still be in denial about it is Ben Bernanke, the Obama administration, and a few people in this forum.
OK, first, you didn't seem to have gotten the memo that money alone does not cause inflation. It is money times the velocity of money. And the V is way, way down from normal. The increase in M is only compensating for the lack of V. It is not pushing up prices. When V returns to normal, M can be reduced. It is not all one way. There just isn't a reason to expect inflation out of this.
Second, you really should believe we were on the brink of complete economic collapse. The frightened the notoriously ignorant GW Bush into a panic and nearly all of Congress. When has anything like that ever happened before?
3rd, Obama and Congress have been far too conservative in dealing with the problem. The stimulus should have been twice as large at least. And it was poorly designed on top of that. By standard economic theory, none of the Reagan and Bush debt is justified. But the Obama debt is. Except that it's too small. And it is hard to make it as big as it should be do to the irresponsible Reagan and Bush debts and political obstruction now.
You will look back on the Obama debts with desperate longing if we get a Lost Decade out of this. Look at the endless debts of Japan in not solving their economic doldrums for comparison. There is no solving the debt problem without an economy functioning at normal levels. Can't be done. And every effort to do so will make the situation worse.
Second, you really should believe we were on the brink of complete economic collapse. The frightened the notoriously ignorant GW Bush into a panic and nearly all of Congress. When has anything like that ever happened before?
3rd, Obama and Congress have been far too conservative in dealing with the problem. The stimulus should have been twice as large at least. And it was poorly designed on top of that. By standard economic theory, none of the Reagan and Bush debt is justified. But the Obama debt is. Except that it's too small. And it is hard to make it as big as it should be do to the irresponsible Reagan and Bush debts and political obstruction now.
You will look back on the Obama debts with desperate longing if we get a Lost Decade out of this. Look at the endless debts of Japan in not solving their economic doldrums for comparison. There is no solving the debt problem without an economy functioning at normal levels. Can't be done. And every effort to do so will make the situation worse.
Integral
Can't you hear it?
To be fair, I do think Bernanke made a mistake in mid-2008; from about July to about December 2008 money was tight relative to the needs of the economy. However, that's ex post and I don't think anyone saw it contemporaneously. We can infer it now from market indicators (TIPS and the like) as well as the fact that the drop-off in nominal spending/aggregate demand started in June 2008 (well before Lehman!). But we only see data with a few months' lag.
And we should have started QEII six months ago, when market indicators of inflation collapsed from their 2% long-term trend (having recovered to that trend in mid-2009 from a massive decline in late 2008). But it would be difficult to blame Bernanke for being a laggard; the 'stylized' internal story at the Fed is one of conservative regional Fed presidents weighing down the rest of the FOMC. And Bernanke has written on these subjects before, focusing on the Japanese example, and it would appear that he wishes to be more aggressive than the Fed does as a whole.
Bernanke's probably wanted to do this for some time, but could not build a consensus among the rest of the Fed governors and regional presidents until very recently.
And we should have started QEII six months ago, when market indicators of inflation collapsed from their 2% long-term trend (having recovered to that trend in mid-2009 from a massive decline in late 2008). But it would be difficult to blame Bernanke for being a laggard; the 'stylized' internal story at the Fed is one of conservative regional Fed presidents weighing down the rest of the FOMC. And Bernanke has written on these subjects before, focusing on the Japanese example, and it would appear that he wishes to be more aggressive than the Fed does as a whole.
Bernanke's probably wanted to do this for some time, but could not build a consensus among the rest of the Fed governors and regional presidents until very recently.
countrygrl
King
OK, yes I do. MV=PQ. Easy stuff, and I acknowledged this in my talk about how the banks are quietly sitting on all the money that is being printed. The problem with QEII is that it's ignoring the other side of the equation and the ancillary structural problems associated with our current economic environment. Obama is taking the easy way out by not addressing the structural problems, and passing the buck to Bernanke. It's also ignoring all the lending data that's been gathered since QEI and the start of the recession which suggests that there is little demand for credit in the markets. Getting into currency wars isn't going to solve anything,
I have no argument with what you are saying about the debts accrued from past presidents. But there is still no justification for the debt accrued by this president. It's populist policy meant for today's political gain. Extracting theory from Paul Krugman about doubling the size of the stimulus doesn't make this kind of debt spending any less irresponsible. Nor does it deal with the fact that those policies are just kicking the can down the road and not allowing natural asset bubbles to deflate which would allow our economy to reset itself like it has to do before it can begin to move forward. The housing bubble still exists, and economic data continues to show this. This was the Achilles heal of the economy when everything began to deflate. Yet, we still, to this day, have a glut of houses on the market and their value still isn't at a natural level as it's been artificially boosted by Obama's economic policies. These policies not only hurt us by keeping people who could otherwise afford homes out of them, but it also continues to encourage the type of behavior that got us here in the first place.
George Bush and Congress got scared into a panic and reacted irrationally? Yeah, it's not like that's never happened before.
Also, this is not a justification or an explanation that explains how our economy would have collapsed into a depression if we hadn't dropped our interest rates to near zero, and monetized our own debt. If we have a Lost Decade like Japan, it will partially be because of the response from our government over the last few business cycles. We have continued to do nothing to address structural problems in our national economy, as well as the global economy, to return to a normally functioning economy. And quantitative easing doesn't address these issues. Government stimulus doesn't address these issues. Tax credits to artificially increase the price of real estate isn't addressing these issues. At best they are zero sum games. At worst many of these policies are exacerbating the conditions which allowed this to occur in the first place and promoting secondary collapses.
The other key aspect, which you've already mentioned, is lack of regulation. It's this lack of regulation that makes our economic system so fragile in the first place. Our current system promotes the formation of gross economic bubbles, all of those things you and the economists discuss in that other thread are all fine, but nothing stated there talks about how the same policy which allows us to expand economic production and improve our way of life, also promote bubbles which allow the entire system to crumble if one major asset bubble forms and then collapses. The system then goes so far as to promote politically expedient solutions to cover up the cracks and sustain those bubbles while never addressing the underline factors that caused the problem in the first place. And all we do is go through ten year cycles of covering up bubbles without ever letting them contract.
It's a house of cards, and there are countless factors that lead to this: Free trade, poor education polices, social policies, financial regulations (or lack there of), have all led us to this point. We're not addressing these problems in any meaningful way.
Politicians and the Fed do not act in manners that are prudent to the society they're supposed to protect. They push policies that help individual politicians today, at the inevitable expense of tomorrow. We saw the fruition of this in 2008, but we still don't want to face the man in the mirror. You're right in that we need to return to normalcy, but this won't happen with Quantitative Easing or extra large stimulus packages.
JerichoHill
Bedrock of Knowledge
Note: MV=PQ ... not really a definite equality. Velocity's pretty tricky.
countrygrl
King
Yes, it's dynamic. I know. Just using it for quick, expedited, discussion and hopefully to convince Cutlass that I know a bit about what I'm talking about.
Integral
Can't you hear it?
You deserve a longer reply -- perhaps from Cutlass -- but I'll make one comment.
It is true that there are structural problems in the economy. However, firms aren't hiring primarily due to lack of demand. If this were a structural recession, you wouldn't see as widespread of job losses in so many industries in so many parts of the country.
The initial fallout from December 2007 to June 2008 was primarily real and structural. The deflation-recession from July 2008 to the present is largely nominal and due to deleveraging and general demand-deficiency, with some real/structural elements.
QEII is designed to mitigate the demand-deficiency problem and make the structural problem less painful to deal with. The Fed does not have the tools to turn construction workers into manufacturing workers, but it can influence (not necessarily 'control') aggregate demand.
Though, as they say, we are all entitled to our own stylized facts, in lieu of there being any definitive storyline behind this recession.
--
Edit:
MV=PQ is true. It's as true as 1=1. It's an identity that holds in all models. It even holds in the real world. That's important.
It's just that none of the variables are necessarily stable, so that we cannot blithely assume that keeping delta(M) constant will produce constant delta(PQ). Instead we vary delta(M) to offset changes in delta(V).
(N.B. -- that means that when velocity falls -- and it has fallen precipitously -- we need to increase the growth rate of M to compensate.)
It is true that there are structural problems in the economy. However, firms aren't hiring primarily due to lack of demand. If this were a structural recession, you wouldn't see as widespread of job losses in so many industries in so many parts of the country.
The initial fallout from December 2007 to June 2008 was primarily real and structural. The deflation-recession from July 2008 to the present is largely nominal and due to deleveraging and general demand-deficiency, with some real/structural elements.
QEII is designed to mitigate the demand-deficiency problem and make the structural problem less painful to deal with. The Fed does not have the tools to turn construction workers into manufacturing workers, but it can influence (not necessarily 'control') aggregate demand.
Though, as they say, we are all entitled to our own stylized facts, in lieu of there being any definitive storyline behind this recession.
--
Edit:
MV=PQ is true. It's as true as 1=1. It's an identity that holds in all models. It even holds in the real world. That's important.
It's just that none of the variables are necessarily stable, so that we cannot blithely assume that keeping delta(M) constant will produce constant delta(PQ). Instead we vary delta(M) to offset changes in delta(V).
(N.B. -- that means that when velocity falls -- and it has fallen precipitously -- we need to increase the growth rate of M to compensate.)
Just how much power do you think Obama has? The main long tern fiscal problem in this country is health care costs. And Obama did everything he could to address that, and mainly lost to an overly conservative Congress. He can't dictate Universal Health Care. The other things, most of the debt he has run is the structural debt that he inherited, magnified by the increase in entitlement spending caused by the Great Recession, and magnified further by the collapse of tax receipts, again, caused by the Great Recession. None of that is anything Obama could have done jack to change, no matter what he tried to do. The stimulus was his, but again, the cause was the Great Recession, and it was not too large, it was too small.
So there is no place for Obama to have been a budget balancer. That simply was not an option that he could have chosen no matter what he may have wanted. To cut spending further would have reduced the size of the economy further, making entitlements higher and tax receipts lower.
As for the other structural problems, Congress also failed on the financial regulatory reform. I'm unclear on how much Obama was involved in that, but either way, it was a failure.
Yes, there is little demand for the lending. And what demand there is, is not being met because the banks won't lend. And that is why I'm a Keynesian. If the markets refuse to do it, it's time for the government to step up. But that would mean more (and better designed) spending, not less.
There has also been a failure to really fix the housing mess. But to be fair about that, no one has really proposed a fix. If values drop another 20%, which they probably should, then there will be another huge round of defaults, foreclosures, and bank failures. If housing costs are propped up, then the market for housing remains weak.
It's a lose-lose situation, and I don't see anyone having a solution to it.
So there is no place for Obama to have been a budget balancer. That simply was not an option that he could have chosen no matter what he may have wanted. To cut spending further would have reduced the size of the economy further, making entitlements higher and tax receipts lower.
As for the other structural problems, Congress also failed on the financial regulatory reform. I'm unclear on how much Obama was involved in that, but either way, it was a failure.
Yes, there is little demand for the lending. And what demand there is, is not being met because the banks won't lend. And that is why I'm a Keynesian. If the markets refuse to do it, it's time for the government to step up. But that would mean more (and better designed) spending, not less.
There has also been a failure to really fix the housing mess. But to be fair about that, no one has really proposed a fix. If values drop another 20%, which they probably should, then there will be another huge round of defaults, foreclosures, and bank failures. If housing costs are propped up, then the market for housing remains weak.
It's a lose-lose situation, and I don't see anyone having a solution to it.
