Lone voice warns of debt threat to Fed

[BigPapaVol]

All I'm getting out of this post is philosophical differences and your opinion.

Then read better. Your econ 101 crap about aggregate demand is weak. Sustainable demand grows economies and generates employment.
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[droski]

Fiscal policy is more powerful tool. And as I have said before Monetary policy eventually runs out of options.

Both fiscal and monetary policies affect aggregate demand I'm not denying that.

jesus even socialists like laura tyson don't think that fiscal policy is more powerful than monetary policy. and once again we've proven monetary policy hasn't run out of options with the buying of trillions of mortages and the support of the money market funds, collateralized credit cards and student loan markets all since we took the discount rate to zero.

 

[droski]

You are over exaggerating employment numbers. I'll say it again, higher inflation rates would create more room to cut interest rates during crisis.

how am i exaggerating the employment numbers? show me a time we've had low unemployment in the history of this country with short rates at 6%. prove it to me.

 

[bam15]

jesus even socialists like laura tyson don't think that fiscal policy is more powerful than monetary policy. and once again we've proven monetary policy hasn't run out of options with the buying of trillions of mortages and the support of the money market funds, collateralized credit cards and student loan markets all since we took the discount rate to zero.

Perhaps I should have rephrased my self, both coexist, but during a recession monetary policy has a limited reach which allows fiscal policy to have a more substantial impact.

 

[droski]

Perhaps I should have rephrased my self, both coexist, but during a recession monetary policy has a limited reach which allows fiscal policy to have a more substantial impact.

fiscal policy can have a large impact, but shouldnt' the future matter? the long term consequences of a huge increase in gov't spending are far more negative than interest rate manipulation.

 

[volinbham]

Perhaps I should have rephrased my self, both coexist, but during a recession monetary policy has a limited reach which allows fiscal policy to have a more substantial impact.

Which of the following have been most successful:

TARP
Monetary Policy
Stimulus Plan

at impacting the recession?

 

[bam15]

how am i exaggerating the employment numbers? show me a time we've had low unemployment in the history of this country with short rates at 6%. prove it to me.

Perhaps you didn't understand my initial post; my point is the ability to cut interest rates even more is a trade off worth considering especially during recessions/times of crisis. I never suggested low unemployment, I didn't suggest high unemployment either.

 

[droski]

Perhaps you didn't understand my initial post; my point is the ability to cut interest rates even more is a trade off worth considering especially during recessions/times of crisis. I never suggested low unemployment, I didn't suggest high unemployment either.

so you'd rather have higher unemployment for years, than you would otherwise, so that you have the ability to lower rates more in a crisis? so were supposed to intentionally put millions of additional americans out of work for years (and also have lower tax receipts as a consequence) so that we can help things a little more in once a generation recessions?

 

[bam15]

so you'd rather have higher unemployment for years, than you would otherwise, so that you have the ability to lower rates more in a crisis? so were supposed to intentionally put millions of additional americans out of work for years (and also have lower tax receipts as a consequence) so that we can help things a little more in once a generation recessions?

I never suggested the employment numbers that you are suggesting. Higher inflation rates would prevent wage cuts which presumably happen during low inflation years - I know you don't believe this.

4% inflation rates also don't lead to the massive job losses that you are suggesting.

Would you be willing to have higher maneuverability during a crisis that we are currently ongoing?

 

[droski]

I never suggested the employment numbers that you are suggesting. Higher inflation rates would prevent wage cuts which presumably happen during low inflation years - I know you don't believe this.

4% inflation rates also don't lead to the massive job losses that you are suggesting.

Would you be willing to have higher maneuverability during a crisis that we are currently ongoing?

what is a wage increase worth if you have high inflation? wage cuts RARELY happen. wage rates are sticky. there has been very little evidence of wage deflation even in this recession. what matters is your REAL salary increase. if my salary goes up by 2% and inflation is 4%, i've lost 2%. i'd rather have zero inflation and zero wage growth.

i don't believe the fed currently has a lack of manueverability. all else being equal sure, but all else isn't equal.

 

[bam15]

what is a wage increase worth if you have high inflation? wage cuts RARELY happen. wage rates are sticky. there has been very little evidence of wage deflation even in this recession. what matters is your REAL salary increase. if my salary goes up by 2% and inflation is 4%, i've lost 2%. i'd rather have zero inflation and zero wage growth.

i don't believe the fed currently has a lack of manueverability. all else being equal sure, but all else isn't equal.

Your definitions of high unemployment and high inflation don't fit what I'm suggesting. You act like raising the inflation target would bring about Hyperinflation and massive job losses.

Wage cuts have been happening.

ECI

 

[droski]

Your definitions of high unemployment and high inflation don't fit what I'm suggesting. You act like raising the inflation target would bring about Hyperinflation and massive job losses.

Wage cuts have been happening.

ECI

it very well might bring hyperinflation. once people start increasing their inflation expectations things can go crazy. do you think it's EASY to set an inflation target? why do you think the fed claims theirs is so low? it's because people need the BELIEF that the fed is serious about inflation. anyone who lived in the early 80s can tell you how increasing inflation and therefore higher inflation expectations can easily cause inflation to go rampant. but i'm not saying massive job losses, but job losses. and it's the fed's primary goal to encourage full employment.

and what evidence do you have that wage cuts have been happening? your chart doesn't show a negative number. the autos? they were massively overpaid already. i haven't seen any other wage cuts in any other industry.

 

[volinbham]

Would you be willing to have higher maneuverability during a crisis that we are currently ongoing?

There is theoretical maneurvability and realistic maneuverability.

In the Krugman fantasy world we can spend away then magically stop spending at the exact time we know it's time to stop.

In real life, the governed have a say and right now they are saying (rightly) that they don't want or trust the government to exercise fiscal policy on a massive scale.

The reality is the Fed has more real manueverability.

 

[BigPapaVol]

There is theoretical maneurvability and realistic maneuverability.

In the Krugman fantasy world we can spend away then magically stop spending at the exact time we know it's time to stop.

In real life, the governed have a say and right now they are saying (rightly) that they don't want or trust the government to exercise fiscal policy on a massive scale.

The reality is the Fed has more real manueverability.

In the end, monetary and fiscal policy can shape the economy, but can't drive it. Government's biggest impact on the economy is to encourage capital investment on the part of business owners.
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[bam15]

it very well might bring hyperinflation. once people start increasing their inflation expectations things can go crazy. do you think it's EASY to set an inflation target? why do you think the fed claims theirs is so low? it's because people need the BELIEF that the fed is serious about inflation. anyone who lived in the early 80s can tell you how increasing inflation and therefore higher inflation expectations can easily cause inflation to go rampant. but i'm not saying massive job losses, but job losses. and it's the fed's primary goal to encourage full employment.

and what evidence do you have that wage cuts have been happening? your chart doesn't show a negative number. the autos? they were massively overpaid already. i haven't seen any other wage cuts in any other industry.

Again, you are exaggerating the effect of inflation targeting, but I'm going to move on, this is going no where.

According to the Bureau of Labor Statistics, the average cost of employing workers in the private sector rose only two-tenths of a percent in the first quarter of 2009, which happened to be the lowest increase on record.

Wages have been falling since then.

 

[bam15]

There is theoretical maneurvability and realistic maneuverability.

In the Krugman fantasy world we can spend away then magically stop spending at the exact time we know it's time to stop.

In real life, the governed have a say and right now they are saying (rightly) that they don't want or trust the government to exercise fiscal policy on a massive scale.

Which is why we need Paul Krugman on the COEA or as Fed Chief.

:thumbsup:

 

[volinbham]

Which is why we need Paul Krugman on the COEA or as Fed Chief.

:thumbsup:

What makes you think his fantasy world is any better suited to Monetary Policy?

 

[bam15]

What makes you think his fantasy world is any better suited to Monetary Policy?

He's Paul Krugman.

 

[gsvol]

Which is why we need Paul Krugman on the COEA or as Fed Chief.

:thumbsup:

Nuts. :crazy:

 

[OrangeEmpire]

I don't care who you are...... this guy is creepy...... I am talking priest creepy.....

 

[bam15]

I don't care who you are...... this guy is creepy...... I am talking priest creepy.....

eace2:

BTW, OE

Purchase this book when you get some time. :thumbsup:

 

[paul1454]

The idea I explained is being tossed around by Olivier Blanchard and some other economists Krugman/Mankiw. The consensus of the central banks is to set inflation targets near 2% however the fault with this is the implications of a liquidity trap. Corresponding with lower average inflation is a lower average nominal rate. Given the zero bound on the nominal rate, a smaller decrease in the interest rate—thus less room for expansionary monetary policy in case of a shock.

Sorry for joining the discussion a little late. I haven't seen where Mankiw has suggested this. I am an avid follower of his blog and the last post I remember regarding deflation was back in June of last year. He didn't seem to suggest that deflation anywhere near a consensus. See Greg Mankiw's Blog: Deflation?

 

[OrangeEmpire]

eace2:

BTW, OE

Purchase this book when you get some time. :thumbsup:

It makes my head hurt...........

:sick:

 

[bam15]

Sorry for joining the discussion a little late. I haven't seen where Mankiw has suggested this. I am an avid follower of his blog and the last post I remember regarding deflation was back in June of last year. He didn't seem to suggest that deflation anywhere near a consensus. See Greg Mankiw's Blog: Deflation?

I might have been wrong but I read a while back where he and Ken Rogoff were advocating it. I need to start reading his blog, I try to occasionally read Keith Hennessey's even though I disagree with about everything he says.

 

[gsvol]

That's a lie, liberals have no conscience.

Other debt problems;

The Japanese finance ministry’s debt management team is in Europe this week, on its first investor relations trip of 2010, seeking out new investors for the developed world’s most indebted government.

With nearly 95 per cent of its debt snugly held at home – helping to keep benchmark 10-year yields at a negligible 1.34 per cent – it would hardly seem worthwhile for the MoF to make such an effort; particularly at a time when the Greek crisis has shaken investor confidence in sovereign debt.

However, it wants to secure future investors for good reason.

The share of Japan’s $9,670bn national debt owned by Japan Post Bank and Japan Post Insurance is in decline despite the postal system devoting ever more of its balance sheet to government bonds.

European banks face showdown over €1 trillion of debt.

Roughly €560bn of EU bank debt matures in 2010 and €540bn in 2011. The banks will have to roll over loans at a time when unprecedented bond issuance by governments worldwide risks saturating the debt markets. European states alone must raise €1.6 trillion this year.

"The scale of such issuance could raise a significant 'crowding out' issue, whereby government bonds suck up the vast majority of capital," said Graham Secker, Morgan Stanley's equity strategist. "The debt burden that prompted the financial crisis has not fallen; rather, we are witnessing a dramatic transfer of private-sector debt on to the public sector. The most important macro-theme for the next few years will be how easily countries can service and pay down these deficits. Greece may well prove to be a taste of things to come."

Lenders will have to cope with a blizzard of problems as new Basel rules on bank capital ratios force some to retrench. State guarantees are coming to an end, which entails a jump of 40 basis points in average interest costs. They must wean themselves off short-term funding as emergency windows close, switching to longer maturities at higher cost.