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Old 03-06-2015, 11:10 PM
 
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Quote:
Originally Posted by ContrarianEcon View Post
Back the last time we were talking the discussion was that the banks couldn't loan out their excess reserves. Of the $2.8 trillion approximately the FED took on its books as QE about 15% was loaned out. That left $2.5 trillion in the FED as excess reserves. In order to loan out the excess reserves they have to turn into regular reserves. That means they are loaned against, or are limiting the generation of new debt.

That means that about $4 trillion of new debt resulted from QE approximately.

That is a wad of change.
And that was the point, right? The FED fretted about the banks holding back initially, which led to further QE, until the desired effect was achieved. Still, is it not important to note that this new debt is different from other existing debt, in that it is secured by fixed income securities?
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Old 03-06-2015, 11:25 PM
 
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Quote:
Originally Posted by LordSquidworth View Post
It's the same thing that's been happening since Greenspan entered the FED. Cheap money pumping up asset prices. Really nothing different from what led to 2008.

Kept it from collapsing, but none of the structural problems were addressed. QE keeps things going by supplying cheap money. Same thing the FED did pre-tech bubble. Same thing it did pre-2008.

Where consumers aren't taking on debt, the government is.

All depends how people measure inflation.

That's true. Problem in America for decades has been wages keeping up.

It isn't just sitting in vaults, it's gone into asset prices. Derivatives didn't take long to go back above where they were leading to 2008.

Nothings changed. All smoke and mirrors. Bernanke was a student of Greenspan, who failed this country.

America has to make drastic changes which will cause pain in the short term to return to a long term less painful path. The FED is one of the most powerful financial tools the US has in it's arsenal, but overall for the past couple decades it's been a failure in it's long term approach to things.
It is different from 2008 in that the money is not being lent to anyone with a pulse and secured by collateral that is unrealistically inflated.

The structural problems have been addressed somewhat, banks and financial institutions are much more liquid. Re: stress tests and deleveraging, etc.

Which measure of inflation is looking problematic? Many are reported regularly. Headline? Core?

Agree on the wages, but would attribute that to inevitable globalization. Gonna be solved with the coming labor shortages somewhat. That could lead to inflation at that point though.

A large chunk has gone undistributed. We shall see how much asset prices have been affected as interest rates rise.

Timing is everything. Greenspan did not act in a timely, aggressive manner. Bernanke , as a student of Greenspan, learned from this mistake. Six years have played out exactly as he intended. The next 2 - 4 will seal the deal. Either he will be proclaimed a failure or hailed as a hero. I vote for the latter!
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Old 03-06-2015, 11:30 PM
 
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Quote:
Originally Posted by rruff View Post
Wages and employment are low, personal debt is high, and it's much tougher to get loans than it was 10 years ago. There is nothing there to drive up prices.

IMO the best way they could have combated deflation would have been throwing cash at consumers. That doesn't however benefit the banks and mega-rich so well, nor follow the grand plan whereby the US is sucked dry to support globalization.
I would argue that you have to do both. Defending the banking/lending apparatus AND assist the consumers. We all know that the banks were supported. Additionally, consumer confidence must be addressed and employment and wages need to be addressed. The numbers seem to suggest that is happening, albeit slowly on the wage growth. But, patience may be key to avoiding bubbles.
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Old 03-07-2015, 11:28 AM
 
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Quote:
Originally Posted by texdav View Post
The only real bubble might be the tech sector but its too early to say really; IMO. Some of the fundamentals do not go along with normal bubble. But the reason no inflation is that people are not chasing product. From main street to corporation a huge mount of cash is being withheld on sidelines. Some companies have been using it to buy back their stocks rather than invest. Energy price are just following supplies and not for that long a period when there was also no real inflation. The surprise is that drop in energy price has not really translated into spending it to large degree. I think we are seeing a consumer trend that may last for decades.
The expectation is for dropping prices. In that case cash in a mattress gets a positive rate of return. If you want to create the expectation of higher future prices in a monetary deflationary environment then you need higher wages. The lever that can move this economy is the minimum wage law. And we aren't talking about a 25% to 30% increase, we need a 2X or a 4X or more on it to get thing moving.
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Old 03-07-2015, 12:58 PM
 
Location: Ruidoso, NM
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Quote:
Originally Posted by shaker281 View Post
Additionally, consumer confidence must be addressed and employment and wages need to be addressed.
I may have too strong of a tendency to look for "grand plans", but holy crap! We (meaning the great majority of people in the US) have been so thoroughly screwed over for the last 40 years, and the tiny few have gotten so incredibly rich.

Globalization was at the center of it. Lower income taxes, outsource, keep the $ boosted so the US consumer can be used as a giant repository for foreign production (trade deficits). Profits soared. Use fiscal deficits to fill the hole. Use loose credit, and also take advantage of the once in a lifetime event of women entering the workplace, to make the stagnant wages less obvious. Finish it all off with absolutely insane lending practices. And when the debt bubbles all come crashing down, bale out the banks and start over.

Now we are left with high debt, poor wages, poor infrastructure, and a host of financial issues, and none of the causes of this disaster are being addressed. Oh sure, we are at the point where it looks like we can muddle forward for awhile. Maybe even wages will rise a little? But wages should be 2x higher in real terms compared to 1975, not the same!!
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Old 03-07-2015, 01:07 PM
 
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Quote:
Originally Posted by ContrarianEcon View Post
The expectation is for dropping prices. In that case cash in a mattress gets a positive rate of return. If you want to create the expectation of higher future prices in a monetary deflationary environment then you need higher wages. The lever that can move this economy is the minimum wage law. And we aren't talking about a 25% to 30% increase, we need a 2X or a 4X or more on it to get thing moving.
Here, politics interferes with economics. There is no realistic way to get that large of a minimum wage increase through Congress. If you did, I'd argue it wouldn't be a positive thing. Too many "mom and pop" businesses wouldn't be able to afford it and would go out of business. I think it would add to the unemployment rate appreciably. Let me give a personal example. My fifteen year old daughter wants a summer job. She applied for work with a local amusement park and has been hired. Her starting wage will be low, but does meet the low federal minimum wage for her age group. If the minimum wage were to greatly increased, I'm confident the amusement park would cut way back on hiring 15 and 16 year old teenagers and these young people would not have summer jobs. The park hires a lot of them and they are working with a group with few job skills. The actual value of the labor they perform is not great enough to justify a wage much higher than what they get.

A 25% increase? That might work. I'd support that. However, that type of increase is likely to be defeated by the current republican/conservative Congress.

Unions used to help obtain higher wages for Americans, but they have largely disappeared and a huge percentage of this country is earning $10 an hour or less.

Politics is the art of the possible. Your idea is not possible.
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Old 03-07-2015, 01:19 PM
 
Location: Ruidoso, NM
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Quote:
Originally Posted by markg91359 View Post
Too many "mom and pop" businesses wouldn't be able to afford it and would go out of business. I think it would add to the unemployment rate appreciably.
No. You are ignoring the fact that that all those people now have more money to spend. If you assume that everyone in business increases their prices exactly in line with their cost increase, then aggregate buying power and aggregate consumption will be exactly as before. It's just that the working poor will have more, and everyone else a little less. Businesses that both hire a lot of low-wage and cater primarily to the wealthy will experience a loss of sales, but others will experience an increase. Net effect in the economy will be zero.

If you wish to shift income towards the working poor a higher MW is a good way top do it.
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Old 03-07-2015, 01:26 PM
 
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Quote:
Originally Posted by markg91359 View Post
Here, politics interferes with economics. There is no realistic way to get that large of a minimum wage increase through Congress. If you did, I'd argue it wouldn't be a positive thing. Too many "mom and pop" businesses wouldn't be able to afford it and would go out of business.
We have a lot of economic pain coming our way one way or another. How many mom and pop shops would fail with 20% or 30% unemployment? That is what Greece has.
Quote:
Originally Posted by markg91359 View Post
I think it would add to the unemployment rate appreciably.
Here is where things get non linear. The FED is hell bent on getting enough money printed to get positive inflation. What they need is people that aren't maxed out on debt. If you up the minimum wage to $30 an hr. then every full time job added to the economy will support the purchase of a $180k house. And that is for a one income family. A two income family will be able to afford a $360k house. Housing inflation instead of housing bubble. That will drive back to full employment.
Quote:
Originally Posted by markg91359 View Post
Let me give a personal example. My fifteen year old daughter wants a summer job. She applied for work with a local amusement park and has been hired. Her starting wage will be low, but does meet the low federal minimum wage for her age group. If the minimum wage were to greatly increased, I'm confident the amusement park would cut way back on hiring 15 and 16 year old teenagers and these young people would not have summer jobs. The park hires a lot of them and they are working with a group with few job skills. The actual value of the labor they perform is not great enough to justify a wage much higher than what they get.
Inflation. Crank up the wages and crank up the prices and it balances out.
Quote:
Originally Posted by markg91359 View Post

A 25% increase? That might work. I'd support that. However, that type of increase is likely to be defeated by the current republican/conservative Congress.

Unions used to help obtain higher wages for Americans, but they have largely disappeared and a huge percentage of this country is earning $10 an hour or less.

Politics is the art of the possible. Your idea is not possible.
I had a conversation with a Goldman Sachs Analyst last summer. I told him his company was broke if they didn't get a $30 an hr minimum wage. He crunched the number and agreed with me.

What GS wants GS gets.

It is just a hard sell.

But getting US minimum wag respected across the world is an easier sell and a necessary first step.
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Old 03-07-2015, 03:53 PM
 
5,086 posts, read 3,348,200 times
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Quote:
Originally Posted by Hoonose View Post
That interest money should have gone to the private sector, so that's a big negative, and another reason QE has not be so effective or inflationary.

I think a better idea would be Trillion Dollar Platinum Proof Coins. Stamped via the Executive/Treasury and deposited at the Fed, effectively cancelling as many $T's of debt as we the people desire.
Bad idea.

The cheap money needs to dry up. Interest rates need to go up. We need to stop going from one asset bubble to the next.

Be painful short term, but be worth it long term.
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Old 03-07-2015, 04:07 PM
 
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Quote:
Originally Posted by LordSquidworth View Post
Bad idea.

The cheap money needs to dry up. Interest rates need to go up. We need to stop going from one asset bubble to the next.

Be painful short term, but be worth it long term.
How to get from here to there is the trick.
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