Seeking Alpha

Shots fired. Some digging around turns up recent comments from Larry Summers in which he was...

Shots fired. Some digging around turns up recent comments from Larry Summers in which he was dismissive of QE's effectiveness and suggested he might tighten policy ahead of when a Bernanke or Yellen-led Fed might. "If we have slow growth, we are not going to keep thinking that 5.5% UE is normal ... that is going to operate in favor of suggesting that we should normalize interest rates (sooner) ... I think the market is underestimating the pace at which the Fed will alter its current course and the consequences of that for interest rates." It's reportedly down to Summers and Janet Yellen to replace Bernanke atop the Fed.
Comments (37)
  • Machiavelli999
    , contributor
    Comments (829) | Send Message
     
    This is awful. If Summers is nominated, look out below! for stocks and the economy.

     

    I have been pretty much a Bernanke bull for the last 3 years, but I think the market needs to start discounting the high probability of the idiotic Summers nomination for Fed chair.

     

    This would also quickly go into the Top 10 list for me of Obama's dumbest moves.
    25 Jul 2013, 01:36 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    Summers should lose his job and then see if he likes unemployment. How can Obama choose someone like this!? It would be horrible for the middle class!
    25 Jul 2013, 01:39 PM Reply Like
  • mobyss
    , contributor
    Comments (2042) | Send Message
     
    Are you saying that QE has been good for the middle class?

     

    The middle class in this country (the 30th to 80th percentile of income) owns about 5% of all stocks. Their savings and CDs have been earning 0.05% at best for the last five years. They've been paying $3.50 for gas due to $100+ oil.

     

    Please explain how Bernanke's policies have been good for this segment of the population.
    25 Jul 2013, 01:53 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    It has lowered unemployment.
    25 Jul 2013, 01:54 PM Reply Like
  • physdude
    , contributor
    Comments (114) | Send Message
     
    The middle class is in debt and gains a lot from negative real rates.

     

    FWIW, I don't think the oil price has anything much to do with QE. Inflation is still very low and deflation should be avoided at all costs.
    25 Jul 2013, 02:02 PM Reply Like
  • montanamark
    , contributor
    Comments (1435) | Send Message
     
    maybe for bankers

     

    labor participation is horrible - as far as numbers, the increase is in part time jobs; employers seeking to avoid obamacare fire full time and replace with 2 or 3 part time and liberals declare "growth" and "improvement"
    25 Jul 2013, 02:14 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    What does that have to do with monetary policy? If there was no QE unemployment rate would be like the EU countries. in double digits.
    25 Jul 2013, 02:44 PM Reply Like
  • TAS
    , contributor
    Comments (2260) | Send Message
     
    Unemployed workers in the US are at an all time high..

     

    Check you talking point MSNBC sources and correct your misconception.
    25 Jul 2013, 03:19 PM Reply Like
  • Philip Marlowe
    , contributor
    Comments (1065) | Send Message
     
    You seem to forget that the middle class tend to work for a living. Their jobs are much more important to them than their CDs. Yes QE is good for the middle class. It saved them from Greece and Spain like horror of joblessness and suffering.
    25 Jul 2013, 04:02 PM Reply Like
  • mobyss
    , contributor
    Comments (2042) | Send Message
     
    Lower unemployment? Based on government statistics?

     

    What if they calculated it the way they did in the 80's?

     

    What if you add back in all the "discouraged dropouts" and adjusted for part-time jobs? The workforce participation rate is at a 40 year low.

     

    Some analyses show a real UE rate of 10% + right now.

     

    Besides, any employment benefit of QE has been more than offset by Obamacare.

     

    The new paradigm for small employers: 49 employees or 29 hours per week - or go out of business.
    25 Jul 2013, 04:39 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    What was unemployment before QE? What would it have been without QE?
    25 Jul 2013, 07:32 PM Reply Like
  • mobyss
    , contributor
    Comments (2042) | Send Message
     
    "What would it have been without QE?"

     

    Who knows. I'm sure Krugman, Romer, and Obama will say "It would have been 30% at LEAST!", but they also said UE would never go above 8% with the "Stimulus" and it went to 10.5%, so I wouldn't take their projections too seriously.

     

    What if QE has so depressed earned interest that it has actually reduced consumer spending by hundreds of billions a year, which has therefore massively reduced the number of jobs in manufacturing and retail/services?

     

    If US cash savings are $5T, and at 5% they would be earning $250B a year, then at 0.5% they are earning $25B a year. Where did the other $225B go? Almost a Trillion dollars in lost interest over 5 years so far. What would it have been spent on if it was paid to savers? Cars, houses, furniture, food? Would consumer spending on those things have caused job growth in those industries? We'll never know, as ZIRP and QE continue on and on, with a 2% growth economy.
    25 Jul 2013, 07:53 PM Reply Like
  • Rock228
    , contributor
    Comments (757) | Send Message
     
    mobyss, I agree and have 5 comments
    1) Unintended consequences/the forgotten man
    2) mal-investment
    3) market clearing mechanism (1920)
    4) QE must go to infinity until the vigilantes take over
    5) Ride the liquidity wave until it recedes!
    25 Jul 2013, 10:41 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    What about the people who are in debt and would have had to pay more in interest and thus have less money? Lower interest rates just cause welth transfer from savers to borrowers. It leads to more spending because borrowers are more apt to spend their money than savers.
    25 Jul 2013, 11:33 PM Reply Like
  • mickmars
    , contributor
    Comments (1323) | Send Message
     
    QE is always a good thing until it causes crippling runaway inflation. We'll see what happens with the Japanese first.....
    26 Jul 2013, 07:10 AM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    Of course, they has ZIRP for decades and all it caused was deflation. But hey, never say never. Some day ...

     

    In the mean time let's keep ignoring reality and claim that QE must cause inflation when UE is high and there is fiscal drag to boot.
    26 Jul 2013, 03:18 PM Reply Like
  • mickmars
    , contributor
    Comments (1323) | Send Message
     
    Keep chasing that 1% JGB yield then and hope those old folks don't start redeeming.
    26 Jul 2013, 04:25 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    They should redeem and buy stocks.
    26 Jul 2013, 07:02 PM Reply Like
  • minecanary
    , contributor
    Comments (480) | Send Message
     
    There go his chances...as he will be considered an idiot by all those wanting to live in Bennie's fantasy world forever
    25 Jul 2013, 01:42 PM Reply Like
  • mickmars
    , contributor
    Comments (1323) | Send Message
     
    I think he knows he's not getting it. These comments are just his way of being able to say "I told you so" a few years from now.....
    25 Jul 2013, 01:54 PM Reply Like
  • Nate Sterling
    , contributor
    Comments (506) | Send Message
     
    We want Yellen! We want Yellen! We want Yellen!
    25 Jul 2013, 01:44 PM Reply Like
  • Ted Bear
    , contributor
    Comments (607) | Send Message
     
    Summers might be toxic for the Prez, but be careful what you wish for with Yellen...more of the SOS. Eventually, even the 'minimuim payment' is due.
    25 Jul 2013, 01:46 PM Reply Like
  • montanamark
    , contributor
    Comments (1435) | Send Message
     
    lol - listen to the drug addicts whine - more, more
    25 Jul 2013, 01:44 PM Reply Like
  • jumpnjoey77
    , contributor
    Comments (594) | Send Message
     
    He is the one that allowed this mess to be created.
    25 Jul 2013, 02:14 PM Reply Like
  • yv204
    , contributor
    Comments (167) | Send Message
     
    The Fed members tend to underestimate in their forecasts how quickly the economy snaps from lackluster crawl to robust growth. I would rather have a hawk like Summers than an out-and-out dove like Yellen, who will probably wait until the last possible second to rein in QE and would, in my opinion, be a more likely candidate for causing another bubble. Having said that, Summers will probably be much cautious if actually elected. Ben Bernanke was known for some pretty unusual statements as a Governor, but his Chairmanship saw very moderate publicly expressed views.
    25 Jul 2013, 02:39 PM Reply Like
  • TAS
    , contributor
    Comments (2260) | Send Message
     
    Bernanke has done nothing short of waging war on retirees and the saving class., which is OK with the current President because they are not genuflecting at his altar.

     

    The Fed President generally does nothing to hurt the sitting President - providing good stats around election and not taking the steps to solve long term problems. One exception--Reagan's Paul Volcker in the early 1980s.

     

    Reagan had the smarts to let Volcker due what was necessary to correct the excess of the Great Society boondoggle, Democratic-entered Viet Nam War and the always incompetent Jimmy Carter (Mr. Malaise). Obama is an far left ideologue who refuses to do what is necessary to stop the backsliding of this country - it would hurt his constituencies.
    25 Jul 2013, 03:24 PM Reply Like
  • physdude
    , contributor
    Comments (114) | Send Message
     
    How does increasing asset prices mean waging war on retirees and the saving class? Anyone saving is having a ball of a time whether they saved it in bonds or stocks! In fact, I have been crimping and saving like crazy only because of Bernanke (and Abe, of course :) - easy 30% annualized returns only happen once or twice in your life.

     

    The prices will finally come back down to earth but safeguarding your profits with options has never been cheaper.
    25 Jul 2013, 10:45 PM Reply Like
  • TAS
    , contributor
    Comments (2260) | Send Message
     
    What are the current cd and government bond rates -- where savers and retirees invest for the future?
    25 Jul 2013, 11:55 PM Reply Like
  • physdude
    , contributor
    Comments (114) | Send Message
     
    CDs are not investments by any means and should never be treated as such. Their only purpose is to provide a temporary store for relatively short term consumption so as to cushion the volatility in any real investment.

     

    Real investments are bonds and stocks but I pity anyone who missed out on the QE induced run as most of the gains have already been made. (I missed out on a lot of it as I was a student most of that time - hence the crimping and investing like crazy for the last couple of years.)

     

    IMHO, bonds, in particular, have run their course of appreciation and will almost definitely lose you money in the future. Stocks are better as there are definite values out there though their number has become small (personal favorites are Berkshire, L, MKL and QCOR even after their run ups) and their expected return has shrunk. However, the point is that QE has made savers very wealthy so far as long as they did not save foolishly.
    26 Jul 2013, 12:16 AM Reply Like
  • Rock228
    , contributor
    Comments (757) | Send Message
     
    Fixed income retirees will get crushed long term. Think people living on Social Security (indexed to inflation rate that does not take into account Energy costs, most food costs and housing costs - think property taxes which are the majority of their expenses) and possibly on fixed pensions as well. Low increases in fixed income because CPI is pegged way to low compounded over time and eventually that 4 Trillion+ the Fed created in liquidity will get out into the market causing high inflation rates.....

     

    You aren't thinking like a retireee/fixed income person. They buy assets to produce cash! Dividend rates on stocks are supressed because the stock market is inflated, bond rates are paltry and will lose value over time as interest rates rise eventually.....where do fixed income people go to get a return? The answer is they don't, they are screwed. Bernanke sacrifices savers/retirees for spenders/workers. That's how this game works. And it always will work that way until society understands Austrian School economics creates real lasting prosperity.
    26 Jul 2013, 11:35 AM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    Austrian school created real lasting prosperity ... Where?
    26 Jul 2013, 03:20 PM Reply Like
  • Common Guy
    , contributor
    Comments (79) | Send Message
     
    "Deficits don't matter"....the illustrious Dick Cheney......
    25 Jul 2013, 03:41 PM Reply Like
  • EK1949
    , contributor
    Comments (1580) | Send Message
     
    Deficits do matter. In a depressed economy you need them to be larger. That's what the failure of austerity means. When everyone is saving the government must spend or the economy can't recover. The question is how much. In 2012 Christina Romer wrote about the effects of the 2009 stimulus:

     

    "THOUGH the Recovery Act appears to have had many benefits, it could have been more effective.

     

    Most obviously, it was too small. When we were designing it, most forecasters estimated that the United States would lose around six million jobs during the recession without fiscal stimulus. Compared with this baseline, creating three million jobs would have filled roughly half of the employment hole.

     

    As it turned out, even with the stimulus, we lost almost nine million jobs. Indeed, because of horrific job losses in late 2008 and early 2009, we’d nearly passed the six-million mark before the Recovery Act was even signed. Adding in the estimated effect of the act, the correct no-stimulus baseline was a total employment fall of nearly 12 million. With a loss that big, creating three million jobs was helpful, but not nearly enough."

     

    The lesson should be that estimates of the effectiveness of stimulus should be scaled to the size of the problem it's designed to address. The stimulus created jobs when we were losing even more jobs.

     

    If Summers had presented the Romer stimulus plan to the President I have no doubt it would have been scaled down, possibly even cut in half by the time it was passed. It still would have been larger than the plan we got. By now unemployment would be under 7% and we'd be closer to the point the economy will eventually reach where the Fed could pull back, and perhaps we'd be there by now. The basic error was thinking we had fill a 6 million jobs hole when we really needed to fill a 12 million jobs hole.
    25 Jul 2013, 04:47 PM Reply Like
  • Rock228
    , contributor
    Comments (757) | Send Message
     
    Just so I understand you (all Keynesians). Prosperity comes from spending money you don't have to stimulate the economy. Shouldn't Japan, Greece and Portugal be the richest nations in the world with the fastest growing economies if that were true?

     

    Who pays for the inflated deficits?

     

    If a $700B stimulus is good and has no major consequences then why not a $2T or $5T stimulus?

     

    If $10 min wage is good, why not $20 or $50 so we can all be rich?

     

    If $85B purchases by the Fed is good for the economy, why don't they just create $85B/month and give it to the tax payers for us to spend, wouldn't that create more jobs? Why not $100B or $500B/month to really start the economy and make us all rich?

     

    (;o)~
    26 Jul 2013, 02:01 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    Have you studied the history of the Great Depression? Your arguments are straight out of the books of the hawks in that age. They were wrong then. They are wrong now. What percentage of the population are retirees? I would always put workers before people who don't work.
    26 Jul 2013, 03:23 PM Reply Like
  • Common Guy
    , contributor
    Comments (79) | Send Message
     
    If Austrian Economics was the panacea why the hell did Chile economy collapsed, poverty surged, corruption increased, criminal rates melted up to record highs and the pensions trusts of people were raided after the gang of the Chicago Boys led by Milton implemented it?

     

    27 Jul 2013, 03:07 PM Reply Like
  • Macro Investor
    , contributor
    Comments (9050) | Send Message
     
    They didn't impose enough austerity and didn't cut taxes enough. That's why.
    27 Jul 2013, 03:20 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector