Monday, November 29, 2010

Oh, no he didn't...

Just freeze pay for federal workers. This is wrong, wrong, wrong on so many levels.

I'm still too busy to post, but this is an outrage.

He's surrendering before the troops have even taken the battlefield. This will hurt the economy, screw people who are already underpaid, reduce his own chances of reelection, and signal to all that this is a guy who won't stand up for his own principles.

No one has had their reputations so thoroughly tarnished, in my eyes, as the Obama economic team...

Tuesday, November 16, 2010

Bernanke Looking Better by the Day...

From Politico .
Opposition to the idea from five regional Federal Reserve bank presidents succeeded in trimming down Bernanke’s plans for $1 trillion in stimulus to $600 billion, he said, and could end up blocking some of those bond purchases if there are signs of inflation.

“Bernanke’s facing a lot of opposition [on the Fed board] that is not ... evident in public,” he said.
Would have been nice to have those FOMC appointments sooner, Obama administration...

The Republican Party has wasted no time in "working the refs" so-to-speak. Where are Democrats? Where is the CEA? Are they all just going to sit back under the assumption that monetary policy shouldn't be politicized, while Republicans politicize it?

One Reason QE2 Might Work Better than it "Should"

"The Seven Deadly Ingredients to the Coming US Hyperinflation" .

If you think it's just wingnuts saying this stuff, you'd be wrong. First off, lot's of people do watch Glenn Beck and Fox News, which are reporting that the sky is falling. Secondly, this shit is also in the NY Times, the Wall Street Journal, it's everywhere. Inflation expectations have changed.

Does the Fed do any robo-polling on inflation? They should... If they do, I suspect they just sent expectations skyward. Sure, you can also look at bond yields...

What do Conservative Economics think of QE2?

Besides the atrocious letter in the WSJ against QE2, I do wonder what the other conservative economists think about it. What does N dot Greg Mankiw think, for example? Nary a word on his blog. It will be interesting to see how many line up with crazies...

Monday, November 15, 2010

Newsflash: Europe in Trouble!

See this .

For all the talk about how this shows that the Euro was ill-advised, I tend to think the real problem is that Jean-Claude Trichet is an idiot, and that's the whole of it.

Europe still hasn't even lowered their key interest rate to zero. Just like Bernanke here, the ECB has continually "guessed wrong" and had monetary policy which is, in retrospect (as it was in real time), clearly too tight. Even now the key rate isn't even zero. One novel way they may help to avoid an Irish default is to lower their key interest rates! Had they done this two years ago, there may not have been any solvency problem in the first place.

It's hard to know why exactly officials from Berlin to Tokyo have been so enraged over QE2, but one thing it suggests that these are people who don't know which way is up.

"Summers Cast as Dysfunctional Force"

Read it here.

Revelations are that he opposed the Volcker rule, second that he nixed the jobs tax credit, and third that he strong-armed the EPA into not treating coal ash as a hazardous waste.

Surprising he didn't just suggest sending the non-hazardous coal ash to third-world countries, which are inefficiently under-polluted given that their meager incomes make it impossible for them to be able to put high dollar-values on not living near toxic waste.

How long before Larry-I'll-let-you-know-Ken Lay-if-anything-helpful-for-Enron-crosses-my-Treasury-desk-Summers picks up more "adviser" fees from the financial or coal industries?

In any case, the article says nothing about Summers' role in the three big economic policy mistakes of this administration: 1. The small stimulus, 2. Reappointing Ben Bernanke, 3. The fateful (by which I mean stupid) decision to wait for nearly two years on an FOMC appointment, when the rest of the FOMC is stocked with crazies. I would guess the reason is that the people who are dishing on Summers now don't realize these were mistakes, or else they too were on the dumb side of these horrific lapses in judgment which have helped to make Obama the great failed hope of our generation.

Yes, yes, we "got" health care, but still, a once-in-a-lifetime opportunity has been squandered, and Larry Summers is a key villain. As much as I've got it in for Summers, though, I'd have to say Harry Reid/the White House's political people probably deserve as much if not more blame. They clearly should have just worked to pass the best policies, not to senselessly go after bi-partisan compromises. They could have pushed through as much as they wanted, for no one cares about Senate "process", instead they settled for a few (important) but watered-down bills. They did a lot, but given that we had a once in a lifetime majority given to us by Lehman/Palin, it wasn't enough. And thanks mostly to Summers, that majority is now history.

Sunday, November 7, 2010

The Battle to Come...

Check this out.

Dallas Fed President Richard Fisher, Minneapolis Fed President Narayana Kocherlakota and Philadelphia Fed President Charles Plosser have all questioned further monetary easing, and all three will be voters next year.

While three votes fall well short of a majority on the 12-vote Federal Open Market Committee, they could pose a big challenge to Bernanke's leadership. A Fed chairman has not faced three dissenting votes since November 1992.

"It matters because it's visible," Meltzer said. "We know that Fisher and Plosser and several others are unhappy with the policy, but it's a different thing when it comes out."

Fed policies supported by a strongly split vote could be seen as more tentative and to have less staying power than policies that get the full backing of the FOMC, he said.
You take a Republican GOP refusing to raise the debt ceiling, and then you add in Fed feet-dragging due to the likes of embarrassments like Plosser, and you don't get a pretty picture...

Economists for Firing Larry Summers are back!

We've been busy. Doing what? Trying desperately, and, as it turns out, in vain, to limit the damage in the midterms caused by Summers and Bernanke's mismanagement of the economy. (Can't win em' all...) The midterms were largely a referendum on how solid a grasp on economics principles Summers and Bernanke have. Have they really been "hitting the bulls-eye" as Alan Blinder is wont to say? The midterm results and unemployment rate would seem to suggest otherwise...

I'll have to give major props to Bernanke for doing $600 billion more in QE, although I'm not sure I understand why he waited until after the midterms. He wanted to appear non-political, but if he felt the economy needed a boost and held off in the interest of appearing "non-political", then the end result is that he hurt the incumbents and helped the GOP. The way to be non-political would have been to do what he felt was right for the economy regardless of the election.

In any case, at least Bernanke did more than I thought he would do, and apparently it also surprised currency traders given their reaction. And, given the adjustments in prices we've already seen, I think it is clear that QE helps. $600 billion is probably not enough, let's just hope Bernanke shows a willingness to adjust the amount when new data comes in -- a flexibility neither he or Summers has displayed so far. For it was clear 17 months ago that we needed more QE, and would have been much preferable for him to start out with an additional $200 billion then, and then up it by $400 billion if it had no effect, and then continue to adjust either upwards or downwards based on data. Instead his strategy was to do a bunch of QE almost two years ago and then essentially do nothing for the next 22 months, even though every month's data released all painted the same picture of the economy.

One of the most bothersome aspects of this is how the media continues to report on it -- it's Bernanke's "big gamble". Even the New York Times refers to QE2 as being "risky". It's just hard to see what planet these people are on. With no more QE, the most likely scenario is that we have continued high unemployment. In other words, no QE seems incredibly risky. With QE, the worst case scenario is that it isn't big enough and doesn't do anything -- the status quo. Clearly, this wouldn't represent any additional risk from the QE. It's hard to even guess at what the "risk" perceived by the NY Times is. Most likely they fear a scenario in which inflation somehow gets out of control, even in the context of slow growth and 9.6% unemployment. Trouble is, if this happens, it would most likely be accompanied by a robust economic recovery and falling unemployment, and could be met by a simple reversal of the QE and multiple interest rate hikes. In other words, this is precisely what we're hoping for -- getting out of the liquidity trap.

The real "risk" as I see it is that we'll continue to have a few more months of slow job growth and low inflation, and Bernanke will wait another 9-12 months before he makes any adjustment to the size of the QE. Then, perhaps he'll do a bit more 8 months of disappointing/marginally decent results later, in the interests of being non-political, wait until after the Presidential election of 2012 before doing anything further, while unemployment is still hovers above 8%...

Frustrating times...