PeakTrader.com

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PeakTrader said...

Morganovich, Scott Grannis said a couple of days ago:

"How has the Fed become less easy if they haven't announced such a change in policy? That's easy: the Fed has become less easy inadvertently, because they have not responded to an increase in dollar demand from global investors.

10-yr Treasury yields have plunged to an all-time low of 1.5%, but 10-yr TIPS break-even rates show no sign of unusually low inflation expectations, and 5-yr forward inflation expectations derived from TIPS and Treasuries have actually been rising for the past 9 months and currently stand at 2.6%. This suggests that the decline in nominal yields is being driven not by declining inflation expectations—which in turn would be what we might expect if there were a need for the Fed to ease—but by sharply declining expectations for real growth."

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Methinks, the 2012 election is shaping up to be a repeat of the 2010 election, which isn't good news for Obama to win reelection.

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Morganovich, there were no significant changes in U.S. policy to cause the huge flight into U.S. Treasury bonds recently.

Investors are abandoning Europe, and other countries, for the U.S..

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Morganovich says: "a hideously activist fed with loose money has caused bubble after bubble since the late 90's...this has essentially wrecked the stock market."

Obviously, you don't understand what causes "bubbles."

The Fed is not in the business of creating asset bubbles. It smooths-out business cycles, including long-wave business cycles, to optimize growth.

The last two major asset bubbles, from 1995-00 and 2002-07, created enormous real wealth in the U.S. economy (I've shown the data to you more than once before, and you obviously dismissed it, since it contradicts your ridiculous statements).

Those bubbles were only residuals of appropriate monetary policy to maintain sustainable growth. There are other factors beyond the Fed's control why the country is in depression. You should be praising rather than blaming the Fed.

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Greenspan didn't have the authority to slow the housing boom.

In hindsight, since the Fed works in the future economy, because of lags in the adjustment process, disobeying the dual mandate may have been better than the bursting of the housing bubble.

However, the housing bubble was created by Congress, along with the dual mandate.

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Morganovich says: "perhaps you missed the recent events in europe that have been driving a massive flight out of the euro and risk assets in general?"

Perhaps, you can explain what change in U.S. policy caused that?

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There are lots of people who've been fooled into believing it's the Fed's fault, like it's Bush's fault.

I guess, if you repeat a lie often enough, and long enough, some people will believe anything.

Of course, Congress can constantly shift blame and there's not much the Fed can do about it.

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Methinks, both asset bubbles, in 1995-00 and 2002-07, left U.S. households wealthier even at the post-bubble lows than before the bubbles began:

US household net wealth rises
But remains below the record level set in Q3 2007.
15 June 2010

At the end of Q1 2010, the value of US household assets amounted to $68.53 trillion.

At the end of Q1 2010, the level of US total household debt was $13.97 trillion.

US net wealth now represents a very respectable 491% of household disposable income. The current ratio is actually exactly in-line with the long-term ratio, which dates back to 1952, although there have been times when the ratio has risen over 600%.

Overall the US consumer remains extremely wealthy by historical and international standards; despite the high level of debt.

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Real wealth also increased, like nominal assets and nominal liabilities increased.

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Morganovich, if average nominal income doubles from $50,000 to $100,000 and average net wealth increases from $300,000 to $600,000 (or about 500% of income, which is the long-term trend it has maintained), there's an increase in net wealth, unless nominal income growth has been equal to or less than inflation.

If there's real income growth, there's real increases in net wealth.

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Morganovich, of course, that's how it has to work. Instead of 3% real growth per year, there's been zero real growth since 1997.

That way you can also avoid the compounding of the 3% per year real growth.

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Morganovich says: "Real income is at around 1997 levels today...there has been no growth in net real us household wealth since 1995."

It just about fits now, doesn't it.

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According to this calculator, real GDP per capita growth averaged 1.43% per year from 1995-2010, and averaged 1.90% per year from 1946-2010:

http://www.measuringworth.com/growth/

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Output = GDP = Income

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Jet Beagle, even if the real estate portion of household net wealth was stagnant, there was a huge amount of real growth in an extended building boom, e.g. housing tracts, shopping malls, tech buildings, etc.

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Morganovich, you still don't understand.

When income (equals output) rises over time, net wealth also has to rise over time to maintain the long-run trendline ratio, which is 491% of income since 1952.

In the two asset bubbles, from 1995-00 and 2002-07, net wealth increased faster than income and rose well above 491%, to over 600% (that's what the two bubbles represent).

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US household net wealth rises
But remains below the record level set in Q3 2007.
15 June 2010

"At the end of Q1 2010, the value of US household assets amounted to $68.53 trillion.

At the end of Q1 2010, the level of US total household debt was $13.97 trillion.

US net wealth now represents a very respectable 491% of household disposable income. The current ratio is actually exactly in-line with the long-term ratio, which dates back to 1952, although there have been times when the ratio has risen over 600%.

Overall the US consumer remains extremely wealthy by historical and international standards; despite the high level of debt."

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U.S. "Real" Net Wealth doubled from the 1991 trough to the 2007 peak:

http://www.advisorperspectives.com/dshort/charts/index.html?Z1/Real-TNWBSHNO.gif

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Morganovich, spreading the blame between Congress and the Fed is like giving tickets to both the drunk driver and the driver obeying all the laws after the drunk driver smashes into the good driver.

Also, the Fed prevented a deep depression in the 1970s, similar to the 1930s, in the bust phase of a long-wave business cycle.

Moreover, obviously, you don't understand what the $35 trillion of additional real wealth from 1991 to 2007 represents.

It was a massive increase in new and growing industries, new housing tracts, shopping malls, tech buildings, etc. (along with home improvements). It also reflected the huge real growth in high-technology, labor productivity, capital account surpluses, etc..

It was the current Administration and Congress who failed to achieve a normal V-shaped recovery, not the Fed. If you want to know where employment and wealth disappeared, look to the Administration or Congress.

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PeakTrader said...

Restrictive monetary policy, along with contractionary fiscal policy, caused the recession initially.

A liquidity "crisis" worsened the recession. There's plenty of liquidity now. However, banks are much more risk adverse.

Over the past few years, fiscal policy has focused on stimulating the "wrong" parts of the economy. So, we're in depression.

I suspect, inflation has been grossly overstated in the 2000s, even with appropriate adjustments to more accurately measure the true inflation rate, which were too little and too late.

The U.S. economy was most efficient after the quick and massive creative destruction process, mostly from 2000-02, and the country reached full employment. Yet, real GDP growth was low, and certainly didn't reflect the improvements in living standards.

After 3 1/2 years of depression, enough potential output has been destroyed to accelerate inflation when demand picks-up.

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Steve says: "Demand drives growth!!!"

Which is more likely to drive growth?

An individual buying a low-price high-value good, or a voter forcing another to buy a high-price low-value good?

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Food has to be grown before eaten. When government makes it harder to produce, e.g. through regulations and taxes, you may starve.

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Part of Keynesian economics is smoothing-out business cycles, e.g. reducing taxes and regulations, or running budget deficits, when the economy is underproducing, and raising taxes and regulations, or running budget surpluses, when the economy is overproducing.

When there's too much rain, you want to save some rain for when there's too little rain, to avoid periods of feast and famine.

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Obamanomics gave the weeds (government) too much water and the nutritious plants (private sector) too little water.

Now, there's little water left for either the weeds or nutritious plants.

We borrowed, and continue to borrow, lots of water from the rest of the world, to grow lots of weeds, because we didn't save any water.

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Paul says "If Keynesian economics actually worked, we would currently be in the midst of the biggest economic boom in history."

Keynesian economics doesn't work well when government squanders too much in both economic expansions and contractions.

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It's amazing the Fed has to do all the work to prevent falling nominal growth.

The Administration needs to massively deregulate, cut spending, and cut taxes.

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PeakTrader said...

Craig Howard says: "Let's not forget, everyone, that Keynes was wrong. Even if the sales figures prove to be true, consumer expenditures do not drive the economy."

That's a ridiculous statement that contradicts mathematical proof and empirical evidence.

Also, you may want to see some Keynesian ideas, including sticky prices and the paradox of thrift.

The U.S. needed a tax cut large enough to jolt the economy into a virtuous cycle of consumption-employment (where consumption generates employment and employment generates consumption).

Large tax cuts worked under Kennedy in '61, Reagan in '81, and Bush in '01.

Also, we see monetary policy has been working in reducing interest rates to historically low levels to stimulate demand, ceteris paribus.

This depression is a period of underconsumption (and underborrowing) after a period of overconsumption (and overborrowing), by U.S. households.

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PeakTrader said...

So, losing 700,000 government jobs, along with the services, is good news, because over 20 million Americans are unemployed or underemployed and pay less in taxes.

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VangelV, I doubt regulators and tax collectors lost their jobs.

It seems, you believe a higher level of unemployment is good, in this depression, because that would cause even more government job losses and services.

Ron, the trend in that chart, since 1960, represents the production capacity of the U.S. economy.

I don't believe the Fed that half the losses, since 2007, were structural and half cyclical.

I think, almost all the losses were cyclical, in part, because older Americans haven't saved enough for retirement, both from overspending and asset losses.

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Ron, so, a deeper depression is good, because it would get rid of more government workers?

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Ron, your theory is not supported by the facts.

VangelV, the Fed increased purchasing power through sustainable real income growth.

In a depression, you want people to spend, not save.

Anyway, capital gains on Treasury bonds increased, which benefit older Americans.

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About 150,000 jobs are needed each month just to keep up with population growth.

The output and employment gaps haven't begun to close. It's an L-shaped "recovery" so far.

BLS
Employment Situation Summary
September 7, 2012

"Since the beginning of this year, employment growth has averaged 139,000 per month, compared with an average
monthly gain of 153,000 in 2011."

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VangelV, you're still blaming monetary policy for adverse effects of fiscal policy and government laws.

The Fed doesn't micromanage the economy.

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