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VangelV said...

If the market players believe that Ben is serious about ending QE2 you will see them send a signal. Given the fact that there is an election year coming and that Obama needs a reckless Fed that is what you will get. As such, you will follow the exact footsteps of Japan and will become largely irrelevant in the next decade or so.

It is obvious that our world is dominated by social democratic systems in which politicians meddle with the economy to benefit their patrons and their friends. We already know that such meddling leads to misallocations of resources that require serious corrections. By not permitting those corrections to happen the politicians and central banks are making the problem worse.

The politicians and central bankers have shown that they are not very smart.

Interest rates hit zero in 1995 and have stayed near that low since.

Without looking at the unfunded liabilities, Japan is the world's most indebted country as a percentage of its GDP. That is not caused by a tight monetary policy but by a loose one.

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PeakTrader said...

VangelV, it seems, you've been duped into believing the Fed should be blamed, or is equally responsible, for economic problems caused by lawyers in Washington.

Monetary policy has been offsetting failed fiscal policy.

Obviously, monetary policy is not accommodative enough without the quantitative easing (you may want to see the Keynesian Liquidity Trap).

Also, the U.S., with all its problems, is in a much better economic position than any other major economy (including China).

Also, I may add, when Japan reached its economic peak, around 1990, and some estimated the Japanese economy was larger than the U.S. economy (based on PPP), although the U.S. had twice the population, Japanese were still living in small houses, driving small autos, a glass of orange juice or a steak were ridiculously expensive, etc.

China is heading in the same direction, except there will be hundreds of millions of dirt poor people to take care of. Moreover, China has given away more of its "gains-in-trade" to the U.S. and other foreign countries, which caused them to work harder for less.

The Fed doesn't, and shouldn't, micromanage the economy. It uses its crude tools to smooth-out business cycles.

The Fed has been successful in recent decades. It prevented a deep depression in the 1970s (similar to the 1870s or 1930s), engineered a disinflationary growth boom from 1982-07, and is attempting to prevent another deep depression.

The Fed's ultimate goal is to raise U.S. living standards at the fastest sustainable rate, and it has done an excellent job.

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VangelV said...

"VangelV, it seems, you've been duped into believing the Fed should be blamed, or is equally responsible, for economic problems caused by lawyers in Washington."

I don't like central planning by the Fed or by politicians. Both are incapable of handling the complexity of the real economy.

"Monetary policy has been offsetting failed fiscal policy."

No, it has been allowing the failed fiscal policies to take place.

"Obviously, monetary policy is not accommodative enough without the quantitative easing (you may want to see the Keynesian Liquidity Trap)."

Accommodative? Why should we rob savers, workers, and investors of purchasing power to bail out idiots on Wall Street who made bad bets? Why should taxpayers cover the losses of lenders who thought that they could make a profit by lending money to people who lied about their income or job security?

"Also, the U.S., with all its problems, is in a much better economic position than any other major economy (including China)."

I do not see it this way. While other countries have some serious problems at least they have sufficient capital and infrastructure to produce wealth and have sufficient savings to finance investments. The US is dependent on the good will of others and is resorting to borrowing from savers in the developing world in order to finance its standard of living. That scenario does not end well for the US or for its lenders.

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PeakTrader said...

VangelV, you're making a lot of false assumptions.

Economists can handle economics. Lawyers can't.

If it wasn't for the Fed's quantitative easings, this country would be in depression.

Raising actual output towards potential output, which the Fed is attempting, benefits the country.

Wall Street not only made a fortune on the naive economic policies of politicians, but also raised U.S. living standards in many ways, and Wall Street knew the government would bail it out.

Other countries are holding U.S. dollars and losing through currency exchange rates, interest rates, and inflation.

If it weren't for U.S. demand, our trading partners would've had slower growth.

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VangelV said...

"China is heading in the same direction, except there will be hundreds of millions of dirt poor people to take care of. Moreover, China has given away more of its "gains-in-trade" to the U.S. and other foreign countries, which caused Chinese to work harder for less."

I take it that you have never been to China before and can't see the advances that have been made by the liberalization of the economy. The advances in the standard of living over the past generation have been staggering.

Of course, that is as it should be because the Chinese are not as dependent on their government looking after them the way that Americans are. They are more used to government being a burden and are quite happy to have seen some of that burden removed. And given the history of China, the Chinese are a lot more self reliant and used to having to scramble to survive. They are far better at reacting to crises and disruptions than Americans.

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PeakTrader said...

VangelV, you don't have to visit a sewer to understand a sewer.

China has been exploiting the masses to strengthen the communist government.

It's a fine line between raising their living standards enough to prevent rebellion and maximizing the wealth of the elite.

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VangelV said...

"The Fed doesn't, and shouldn't, micromanage the economy. It uses its crude tools to smooth-out business cycles."

Nonsense. It creates the business cycles by injecting liquidity into the system and fixing interest rates. Without the Fed there would have been no IT and housing bubbles. Or an Iraq/Afghan conflict. Or a welfare state.

"The Fed has been successful in recent decades."

You have lousy standards. The Fed has been a failure. Since its creation it has managed to devalue the USD by more than 95%.

"It prevented a deep depression in the 1970s (similar to the 1870s or 1930s), engineered a disinflationary growth boom from 1982-07, and is attempting to prevent another deep depression."

It destroyed the purchasing power of the USD and allowed bubbles to form. It prevented corrections from taking place. It allowed the government to run up huge debts and run massive deficits. It destroyed those dependent on fixed incomes.

"The Fed's ultimate goal is to raise U.S. living standards at the fastest sustainable rate, and it has done an excellent job."

As I wrote, you have very low standards. And no ability to think logically.

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PeakTrader said...

VangelV, your statements are full of contradictions and you say I have "no ability to think logically." LOL

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VangelV said...

"Economists can handle economics. Lawyers can't."

I am saying that the Keynesians at the Fed don't know much about economics.

"If it wasn't for the Fed's quantitative easings, this country would be in depression."

The Fed created the crisis by being too easy on interest rates and by printing money. More of the same did not help the real economy or prevent the necessary correction from taking place.

"Raising actual output towards potential output, which the Fed is attempting, benefits the country."

The Fed can't increase output. All it can do is print money and create distortions.

"Wall Street not only made a fortune on the naive economic policies of politicians, but also raised U.S. living standards in many ways, and Wall Street knew the government would bail it out."

Raised living standards? You have retired people with mortgages and nothing in the way of savings. You have one in seven people on food stamps and almost a fifth of income coming from transfer payments. That is not rising living standards. It is delusion.

"Other countries are holding U.S. dollars and losing through currency exchange rates, interest rates, and inflation."

As one of my friends pointed out. When the USD becomes toilet paper and is no longer the reserve currency all the infrastructure and factories built in the developing world will still be there. But at that time Americans will be broke and unable to pay to build their own infrastructure and build their own factories. I suspect that at that time you will still be trying to justify your unjustifiable position.

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VangelV said...

"China has been exploiting the masses to strengthen the communist government."

The masses have seen their standard of living go up much faster than your standard of living. Go to a Chinese airport. Then go to an American airport. Which one looks like it belongs in the developing world?

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PeakTrader said...

VangelV, you could also cite China's bullet trains, and many Chinese no longer live in small huts with dirt floors.

Nonetheless, even China's middle class (and exclude the 1 billion Chinese living below them) view Wal-Mart as a luxury store (and shop at Wu-Mart).

China's middle class of 200 million people live almost as well as the bottom 10% of Americans.

I stated before:

Who's better off?

China's per capita real income rising from $500 to $3,000, while U.S. per capita real income rising from $15,000 to $45,000 over the same period?

China gained 500%, while the U.S. gained 200%.

Or, China gained $2,500, while the U.S. gained $30,000.

However, U.S. real per capita GDP has been flat the past four years, at around $43,000, while China is expected to add another $3,000 to real per capita GDP by 2020:

China's per capita GDP to hit US $3,000 by 2010
(Xinhua)
2008-01-04

China's per capita GDP will reach 3,000 US dollars by 2010...the figure would reach 6,000 US dollars in 2020 if it maintained the current growth rate.

That Chinese airport looks almost as good as the Denver airport (DIA).

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VangelV said...

"Nonetheless, even China's middle class (and exclude the 1 billion Chinese living below them) view Wal-Mart as a luxury store (and shop at Wu-Mart).

China's middle class of 200 million people live almost as well as the bottom 10% of Americans."

Most of China's malls sell hand made Swiss watches that go for $20K-$50K a pop. Sales are brisk. Hermes, Coach, Louis Vuitton, and other high end retailers now sell about as much in China as they do in the US. With growth in China much faster than it the US China will soon pass Europe as the largest luxury retail market in the world.

As I wrote before, the standard of living in China is now rising much higher than in the US, where the standard of living is stagnant of in decline.

"VangelV, that Chinese airport looks almost as good as the Denver airport (DIA)."

Actually, it is a lot better. You can go through customs or get cleared for boarding in a fraction of the time. You have much more variety when it comes to duty free goods, restaurants, etc., and have a cleaner environment. Most American airports are inefficient, old, and run down. They pale in comparison to the airports in China or most of the developed world.

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PeakTrader said...

I suspect, the high cost of taxes, regulations, fees, etc. force businesses to cut corners.

I never had food poisoning in Colorado, but had food poisoning twice in California, although I've eaten out in Colorado much more often.

Unless you're one of the 20% of U.S. households who earns at least $100,000 a year, when tenants pay high rent, they attempt to compensate by finding bargains elsewhere.

Unfortunately, San Francisco drives-up the costs of almost everything. So, it's difficult for consumers to find bargains, since producers are squeezed by low prices (which consumers demand) and high costs (which government imposes). Lower quality or failed businesses is often the result.

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