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In no rush to change policy, Fed vice-chair Janet Yellen says 6.5% unemployment and 2% inflation...

In no rush to change policy, Fed vice-chair Janet Yellen says 6.5% unemployment and 2% inflation are thresholds for possible (her emphasis) action, not triggers requiring a quick tightening of policy. Particularly interesting is her insistence fiscal policy has been more headwind than tailwind in this recovery. Not structural, high unemployment today is about a lack of aggregate demand.
Comments (7)
  • wyostocks
    , contributor
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    Someone please remind me of the definition of insanity.
    11 Feb 2013, 01:23 PM Reply Like
  • wmateri
    , contributor
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    In her speech, Ms. Yellen says "But instead of contributing to growth thereafter, discretionary fiscal policy this time has actually acted to restrain the recovery. State and local governments were cutting spending and, in some cases, raising taxes for much of this period to deal with revenue shortfalls. At the federal level, policymakers have reduced purchases of goods and services, allowed stimulus-related spending to decline, and have put in place further policy actions to reduce deficits."

     

    The way I see it, the recoveries of the past few recessions have all been imaginary in that the governments couldn't afford their own fiscal policy solutions and had to increase their debt. Now they are starting to run up against a debt that can't grow much without hurting the US dollar eventually, so their fiscal policy is not promoting growth. When a Central Banker starts to believe and publicy state that the way out of the current malaise is to greatly increase debt, then that currency is in trouble (eventually). The US has been very lucky in that Europe was in even worse shape and the country was able to divert attention from its own sorry state. The chickens will come home to roost eventually, but I suspect that the plate-spinners can keep things spinning for a while longer. Keep an eye out for "Black swan" events that few are reporting. Even the EU is going to run out of tricks soon.
    11 Feb 2013, 01:39 PM Reply Like
  • Matt Jonza
    , contributor
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    We will see. Government spending is a huge driver of GDP growth, even if it seems fiscally irresponsible. I have a feeling that the speding can go on indefinitely and probably could increase without any major issues in the near term.

     

    The budget in the US is on an unsustainable path but the rest of the world is just as bad. It's the which sock is dirtiest mentality. Our economy is still the largest in the world by far so I don't expect the bond markets to turn on US debt any time soon.

     

    It will be very interesting to listen to the State of the Union tomorrow night... I'm guessing that Obama will propose around $500 million in spending initiatives?
    11 Feb 2013, 02:02 PM Reply Like
  • youngman442002
    , contributor
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    I think you mean Billion
    12 Feb 2013, 08:17 AM Reply Like
  • Matt Jonza
    , contributor
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    haha yup my bad
    12 Feb 2013, 10:46 AM Reply Like
  • WMARKW
    , contributor
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    "Not structural, high unemployment today is about a lack of aggregate demand."

     

    Hmmmm. And to what does she attribute the lack of aggregate demand if not slower population growth, higher levels of savings for boomers retiring, etc.
    11 Feb 2013, 01:48 PM Reply Like
  • youngman442002
    , contributor
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    When Politicians say we do not have a spending problem.....then they just don´t get it yet...but they will...someone will slap em upside the head...probably Russia and China with their new world currency..when Dollars turn to trash...Euro´s and Yen too....then the politicians will GET IT...I used to think it was one or the other....but I think we all fall together
    11 Feb 2013, 01:59 PM Reply Like
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