The Fed's 'Extended Period' - How Long Is Long? 16 comments
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Another tidbit from Rosenberg, who offers guidance on what the Fed means when it says it will keep rates low for an “extended period”…
FED CAN’T RAISE RATES UNTIL AFTER 2011
The reason — there is a wave of mortgage refinancings coming in the housing market for one, and not only that, but in the commercial space, there are $2.7 trillion of debt coming due through 2011 and another $1.5 trillion of leveraged loans….In other words, the default rate is going to rise even further and the Fed tightening policy would only aggravate that situation. In other words, the Fed is simply immobile for at least the next two years.
I’ve argued in this space many times that the Fed is trapped. Our monetary system, which is fueled by credit expansion, simply doesn’t work in reverse. To avoid deflation, credit must always be expanding in the aggregate. If the private sector won’t borrow, the public sector must... .and vice versa. If they de-lever in tandem, we get deflation.
We’re told to be panicked by the prospect of deflation and yet the solution we’ve been given — unprecedented public credit expansion + inflation of new asset bubble — leaves us worse off than when we started.
Alan Greenspan’s 1% interest rates inflated a disastrous credit bubble. We think 0% rates and quantitative easing will lead to a different result?
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Moreover, as far as I understand, the policies in US is still targeting consumption and not saving...Higher rates wouls still give some incentive to masses to save money...But zero interest rates would force then to spend or speculate....
My favorite is to point out that the U.S. economy is now burdened with roughly $60 TRILLION in total public/private debt (excluding the $70 TRILLION or so of "unfunded liabilities" - just for the federal government).
A 1% increase in interest rates would now cost/drain $600 BILLION from the U.S. economy in ADDITIONAL interest (per year).
This is equal to a 5% drop in GDP - by itself - before factoring in the spin-off/multiplier effects of this plunge in wealth/spending power.
The U.S. government can/will NEVER voluntarily raise interest rates again (at least not until AFTER the U.S. defaults on its debts).
-Matt
Looks like Armegeddon to me.
"My favorite is to point out that the U.S. economy is now burdened with roughly $60 TRILLION in total public/private debt"
Typical Nielson twisting again. According to your bull crap mwhodges ATT HOME DSL website you spout out about all the time the outrageous $57 Trillion public/private debt is now magically $60 Trillion. I just checked your garbage mwhodeges site and they are still spouting the exaggerated $57 Trillion figure, so what you figure you cold get away with adding another $3 Trillion and no one will care.
Let the casual reader beware,Jeff Nielson's writings are bogus through and through.
GreatWhite
> The author could have/should have included much more in the way of
> numbers to back up his assertion - since there are many to choose
> from.
>
> My favorite is to point out that the U.S. economy is now burdened
> with roughly $60 TRILLION in total public/private debt (excluding
> the $70 TRILLION or so of "unfunded liabilities" - just for the federal
> government).
>
> A 1% increase in interest rates would now cost/drain $600 BILLION
> from the U.S. economy in ADDITIONAL interest (per year).
>
> This is equal to a 5% drop in GDP - by itself - before factoring
> in the spin-off/multiplier effects of this plunge in wealth/spending
> power.
>
> The U.S. government can/will NEVER voluntarily raise interest rates
> again (at least not until AFTER the U.S. defaults on its debts).
@Matt,
I agree that Treasury sales are a weak link in the ZIRP game plan but don't you think the Fed has a plan for soaking up more bonds to increase overall demand rather than bumping prime rate, for the reasons stated?
Look at Japan, they played the ZIRP game before us and seem to really be stuck. Raise interest rates and the can balloons so much even the gov't can't kick it...
"My favorite is to point out that the U.S. economy is now burdened with roughly $60 TRILLION in total public/private debt "
I urge all readers to check the source of the $60 Trillion dollar debt this Commenter/farce author always spouts out. Google mwhodges $57 Trillion and you will find this amateur home website on an AT&T DSL line (no dedicated URL). He just makes up numbers and splats out figures on a graph. Then all the fool Doom & Gloomers websites spout out these bogus numbers and reference this joke of a website. In one instance we (govt) owe $13.6 Trillion to foreigners and then next line it is $3.3 Trillion. Then they go on to say we owe $12.9 Trillion total government debt. None of it adds up at all. IT IS A JOKE> Please go to the site and just add up a few of the wild claims and see if any of his graphs give a source for this $57 Trillion dollar "Total Debt" figure.
NO WHERE ON ANY "REAL" WEBSITE WILL YOU FIND THIS FICTITIOUS NUMBER. Only on D & G websites where they all just reference the joke site, just like Jeff Nielson (OH except he just arbitrarily adds $3 Trillion)
GreatWhite
On Nov 13 12:25 PM Jeff Nielson wrote:
> The author could have/should have included much more in the way of
> numbers to back up his assertion - since there are many to choose
> from.
>
> My favorite is to point out that the U.S. economy is now burdened
> with roughly $60 TRILLION in total public/private debt (excluding
> the $70 TRILLION or so of "unfunded liabilities" - just for the federal
> government).
>
> A 1% increase in interest rates would now cost/drain $600 BILLION
> from the U.S. economy in ADDITIONAL interest (per year).
>
> This is equal to a 5% drop in GDP - by itself - before factoring
> in the spin-off/multiplier effects of this plunge in wealth/spending
> power.
>
> The U.S. government can/will NEVER voluntarily raise interest rates
> again (at least not until AFTER the U.S. defaults on its debts).
If you want to have any credability at all, then show the debt that will be refinanced in 2010, 2011, 2012, and any new debt coming out to which any 1% additional interest payments would apply to. It certainly isn't anywhere remotely close to $60 trillion.
On Nov 13 12:25 PM Jeff Nielson wrote:
> The author could have/should have included much more in the way of
> numbers to back up his assertion - since there are many to choose
> from.
>
> My favorite is to point out that the U.S. economy is now burdened
> with roughly $60 TRILLION in total public/private debt (excluding
> the $70 TRILLION or so of "unfunded liabilities" - just for the federal
> government).
>
> A 1% increase in interest rates would now cost/drain $600 BILLION
> from the U.S. economy in ADDITIONAL interest (per year).
>
> This is equal to a 5% drop in GDP - by itself - before factoring
> in the spin-off/multiplier effects of this plunge in wealth/spending
> power.
>
> The U.S. government can/will NEVER voluntarily raise interest rates
> again (at least not until AFTER the U.S. defaults on its debts).
You are quite right to observe that the US and global economies remain beset by many problems and that the route to a sound solution is by no means clear or easy. You imply, however, that this current state of affairs is about as bad as that that which would have occurred if the governments and central banks of the world had not injected various unimaginably expensive dollops of fiscal and monetary stimulus and I suggest that, in implying this, you miss a vital point.
Let’s review briefly the sequence of events during the second half of 2008. Essentially the US, UK and global investment banking systems generally began to collapse dragging down the banking system generally. If all that was at stake was the isolated collapse of a few of the banks, then most people across the political spectrum would agree that this was simply a proper case of creative destruction of poorly managed banks and no special state intervention should take place. Unfortunately, the crisis in 2008 in the banking system generally described above led to the freezing of credit necessary to fill the full range of necessary and routine day to day industrial, commercial and individual needs. Happily, the massive intervention (to which you object) as soon as the collapse threatened lifted that freeze before it became solid. Even so, credit partially dried up for weeks and a deep recession ensued.
Arguable, fwi, you confuse the serious but, in comparison, mild and controlled credit withdrawal and recession that did occur with the deep, sustained and uncontrolled credit and general economic collapse which would certainly have occurred if the panic of October of 2008 had simply been allowed to run its course without government or central bank interference.
I appreciate that the foregoing probably does not convince you that we "avoided Armegeddon". I can only say that the sequence of events that I've tried to summarize above convinces me that a great catastrophe was narrowly avoided albeit at great cost.
bob adamson
On Nov 13 03:44 PM fwi wrote:
> I am very tired of hearing that we "avoided Armegeddon". How does
> anyone know? What would it look like? More than 10 % (17-18% real)
> un employment? Inability for small businesses to access credit? Higher
> credit card interest rates and lower limits for individuals? Credit
> card shutdowns? Higher tax rates across the board? Enforced health
> insurance purchases? Foreign investors threatening the dollar? Reluctance
> of banks to lend to all but the top customers? THe GSE's. FDIC. and
> FHA teetering on insolvency? Billions of dollars in "toxic assets
> still on the books crippling their "ability to lend"? Commercial
> real estate still declining in value? Gold prices skyrocketing? Gun
> sales zooming? Increased terrorist activity? Crime rates going up?
> Politicians on the take? Lack of transparency in COngress?
>
> Looks like Armegeddon to me.
From the perspective of an investor, why risk on a small business or a new venture in a climate where it is almost certain to fail when instead you can just borrow at 0% and gamble with it in the stock market.
The Fed wants to create fictional asset bubbles to give the US some wealth on paper. It means nothing and there is no such wealth, and in fact the real producers of value via their true contribution to the economy are being penalized.
Meanwhile, the Federal government hoards money and uses it to keep useless individuals staffed at desks all day at 80k a year while you sweat and toil just to keep your job and business alive.
$80,000 a year average salary, can you imagine that? Many of you are probably doing the work of 10 salaried federal employees, you should be getting, on average, $800,000.
They refuse to stop the handouts, including federal salaries. They borrow money for handouts, they do everything in their power to take from those who get up and push and find a job and create economic activity, and give to those who never lift a finger.
I never authorized the federal government to borrow a dime nor spend any of this money and I don't think most of the taxpayers did either. Maybe we should all stop paying, the economy would fix itself in a year, and it would lead the world out of recession.
On Nov 13 12:25 PM Jeff Nielson wrote:
> The author could have/should have included much more in the way of
> numbers to back up his assertion - since there are many to choose
> from.
>
> My favorite is to point out that the U.S. economy is now burdened
> with roughly $60 TRILLION in total public/private debt (excluding
> the $70 TRILLION or so of "unfunded liabilities" - just for the federal
> government).
...and where are you getting your numbers from??
As of today (Google "debt to the penny" and you will go to the Treasury site) the national debt is $11.99 trillion of which $4.4 trillion are intragovernmental holdings (one agency borrows from another so it really isn't debt in the traditional sense -- it's like taking money from a surplus in your household grocery budget to go to the movies) which leaves $7.6 trillion as debt held by the public. Since our government is "of the people, by the people, and for the people" not all of that is of concern.
One of the better estimates of unfunded liabilities is from the Pete Peterson Foundation (pgpf.org) who estimate the figure at $56.4 trillion. But that number is based on a lot of assumptions that will not likely occur so its utility is questionable.