RE: Stimulus

RE: Stimulus (Full Version)

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DomKen -> RE: Stimulus (11/4/2010 10:29:28 AM)
quote: ORIGINAL: tazzygirl quote: ORIGINAL: popeye1250 The govt. doesn't have "hundreds of billions." This is just another excercise to keep wealthy people wealthy. What do they do in a year from now or two years from now, more "hundreds of billions?" On this i agree with you. Does the Reserve need congressional approval for this? The way they're doing this it is just managing the money supply something the Fed has the statutory power to do. I think Willbe is right in this case. I think the Fed is so worried about deflation they're willing to to do something sure to cause inflation. My problem with it is I don't see any indicators showing looming deflation. We seem to have weathered the deflationary part of this recession. The question is how much of a devaluation of the dollar, what this really is, is the Fed aiming for? As someone now on a fixed income and living off my savings and investments this could really hurt.

willbeurdaddy -> RE: Stimulus (11/4/2010 12:32:43 PM)
quote: ORIGINAL: DomKen I think Willbe is right in this case. I think the Fed is so worried about deflation they're willing to to do something sure to cause inflation. My problem with it is I don't see any indicators showing looming deflation. We seem to have weathered the deflationary part of this recession. We have not escaped the threat of deflation. Corporate money is still sitting on the sidelines, depressing the velocity of money. As long as V stays down there is a deflationary threat. Velocity of Money x the Money Supply = GDP x price levels. VM=YP With V decreasing and assuming a fixed money supply either GDP is depressed or prices are depressed (deflation). To counteract that instead of improving the business environment they are trying to increase M to keep the equation in balance. The problem is that we are already in a "liquidity trap" with essentially zero interest rates. Japan and Europe have validated that monetary policy just doesnt work in that situation. Bernanke is marching to Obama's orders and it will do no good on its own. Either the business environment improves and companies invest on their own or the CEOs finally get pressure from shareholders to either invest the cash, repurchase stock or distribute it. All of those have the potential to increase V. Unfortunately once that happens AFTER M has already been increased is that Y cannot grow rapidly enough to hold down prices. M will have to be contracted very rapidly when corporate money moves off the sidelines, which will increase interest rates.

Fellow -> RE: Stimulus (11/4/2010 12:59:07 PM)
quote: I see. So the companies that are prudent are not borrowing because of uncertainty over this Administration, but youre going to force banks to lend out the money. That means the lending it does is to less prudent companies. HOW THE FUCK DO YOU THINK WE GOT IN THIS MESS? I did not really say we have to force banks to lend out money. To be clear; 600 B will not be given to the banks, the banks borrow it from the government. Lender has the right to lend money for certain purpose. So, the banks may take it or leave it; there is no "forced". Lending with no strings attached has already proven ineffective. The major banks are global multinational corporations; there is no guarantee the money will do anything in the US.

willbeurdaddy -> RE: Stimulus (11/4/2010 1:05:33 PM)
quote: ORIGINAL: Fellow quote: I see. So the companies that are prudent are not borrowing because of uncertainty over this Administration, but youre going to force banks to lend out the money. That means the lending it does is to less prudent companies. HOW THE FUCK DO YOU THINK WE GOT IN THIS MESS? I did not really say we have to force banks to lend out money. To be clear; 600 B will not be given to the banks, the banks borrow it from the government. Lender has the right to lend money for certain purpose. So, the banks may take it or leave it; there is no "forced". Lending with no strings attached has already proven ineffective. The major banks are global multinational corporations; there is no guarantee the money will do anything in the US. Im obviously missing something. First you say youre not talking about "forced lending", and then you say there will be strings attached. What strings other than requiring that it be lent, and in the US given your last comment? If the distinction youre making is that its not "forced" because the bank doesnt have to borrow the money UNLESS its going to loan it, it is a distinction without a difference. If top rated corporations arent going to borrow then whatever "strings" are attached to the banks borrowing still wind up in the hands of lower rated corps.

DomYngBlk -> RE: Stimulus (11/4/2010 1:10:52 PM)
I am all good with forced lending. Hey, its our money shouldn't we be able to lend it to ourselves?

DomKen -> RE: Stimulus (11/4/2010 1:39:39 PM)
quote: ORIGINAL: willbeurdaddy quote: ORIGINAL: DomKen I think Willbe is right in this case. I think the Fed is so worried about deflation they're willing to to do something sure to cause inflation. My problem with it is I don't see any indicators showing looming deflation. We seem to have weathered the deflationary part of this recession. We have not escaped the threat of deflation. Corporate money is still sitting on the sidelines, depressing the velocity of money. As long as V stays down there is a deflationary threat. Velocity of Money x the Money Supply = GDP x price levels. VM=YP With V decreasing and assuming a fixed money supply either GDP is depressed or prices are depressed (deflation). To counteract that instead of improving the business environment they are trying to increase M to keep the equation in balance. The problem is that we are already in a "liquidity trap" with essentially zero interest rates. Japan and Europe have validated that monetary policy just doesnt work in that situation. Bernanke is marching to Obama's orders and it will do no good on its own. Either the business environment improves and companies invest on their own or the CEOs finally get pressure from shareholders to either invest the cash, repurchase stock or distribute it. All of those have the potential to increase V. Unfortunately once that happens AFTER M has already been increased is that Y cannot grow rapidly enough to hold down prices. M will have to be contracted very rapidly when corporate money moves off the sidelines, which will increase interest rates. The thing is I haven't seen anything indicating that the velocity of the money supply was decreasing. Not moving very fast, which is bad in and of itself, but to be strongly deflationary enough to justify a huge devaluation of the dollar V needs to be declining sharply and I don't see it. I would assume that with several quarters of fairly anemic growth behind us the various pressures that go along with a rebounding economy would naturally result in an increase in business spending and bank lending which would bring the velocity of the money supply back to something near normal fairly soon. I don't buy this being Obama forcing Bernanke into this. We have an independent Fed for precisely this reason (although in this case I wish he had to get some elected officials approval before devaluing the dollar by this much).

willbeurdaddy -> RE: Stimulus (11/4/2010 3:08:14 PM)
quote: ORIGINAL: DomKen The thing is I haven't seen anything indicating that the velocity of the money supply was decreasing. Not moving very fast, which is bad in and of itself, but to be strongly deflationary enough to justify a huge devaluation of the dollar V needs to be declining sharply and I don't see it. did you see anything about corporate cash sitting on the sidelines, and banks shoring up their reserves? That IS a decrease in V. But you can also look at this chart from the Fed: V since 1992 Just from the beginning of 08 to the beginning of 10 it was over a 10% drop. With GDP basically flat and monetary policy ineffective because of the liquidity trap thats a lot of pent up pressure on prices.

Musicmystery -> RE: Stimulus (11/4/2010 3:21:54 PM)
quote: The thing is I haven't seen anything indicating that the velocity of the money supply was decreasing. Not moving very fast, which is bad in and of itself, but to be strongly deflationary enough to justify a huge devaluation of the dollar V needs to be declining sharply and I don't see it. In addition to what wilbeur has already said, inflation is less than 1% and falling. We are indeed flirting with deflation. The Fed would rather see inflation around 2%. Second, your characterization as "a huge devaluation" is hyperbole. It's a large economy. Really large. Incidentally, this recent Fed move will bring down long term interest rates, raise equities, and increase exports (lower prices abroad for U.S. goods), all of which increase aggregate demand. Productivity is increasing (just under 2%), but until product demand picks up, hiring will remain flat.

willbeurdaddy -> RE: Stimulus (11/4/2010 4:00:50 PM)
quote: ORIGINAL: Musicmystery Incidentally, this recent Fed move will bring down long term interest rates, raise equities, and increase exports (lower prices abroad for U.S. goods), all of which increase aggregate demand. Yes and no. The Fed is becoming a competitor for Treasuries which will indeed raise their price and lower short term interest rates. However, the impact on long term interest rates is counteracted by the inflationary impact of increasing the money supply and their is very little net effect. Yes the value of the dollar will go down and increase our ability to export, but also decreases our ability to import. Since we are net importer that will, at least for the near term, be an overall negative. More importantly monetary shocks make owning US dollars more risky, raising interest rates. WRT stock prices there have been a number of studies that show that monetary policy has no long term and very limited short term impact on stock prices. There is a fairly recent and detailed Bank of Italy study that looks at contractionary policy across the G7 which substantiates the prior studies and there is no reason to believe that their inverse doesnt apply to expansionary policy.

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