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Archive for Tuesday, October 26, 2010

Federal Reserve leader Thomas Hoenig warns of future economic downturn

October 26, 2010

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A very big bet on the U.S. economy is about to be made, and one of the leading economists in the country fears federal leaders are set to bet wrong, a Kansas University crowd was told Monday.

Thomas Hoenig

Thomas Hoenig

Thomas Hoenig, president and CEO of the Federal Reserve Bank of Kansas City, invoked memories of the 1980s inflation crisis and warned that the country could face another major downturn if federal policymakers become too impatient with high levels of unemployment.

“There are no shortcuts,” said Hoenig, who spoke as part of the KU Business School’s Chandler Lecture Series. “You can’t go through this horrendous crisis, this horrendous recession and suddenly think the next day things are back to normal.”

Hoenig has emerged as the country’s leading critic of Federal Reserve Chairman Ben Bernanke’s discussion to stimulate the economy by purchasing more U.S. Treasury bonds and making it cheap for banks to lend money. The policy is expected to be discussed at the Fed’s next meeting on Nov. 2-3.

Hoenig, who serves on the 10-member Federal Open Markets Committee with Bernanke, called the policy a “very dangerous gamble.” He said the actions now under consideration cause him to recall the aggressive actions taken by the Federal Reserve in the 1970s to push down interest rates and unemployment levels. Hoenig argues those actions led to the high levels of inflation in the 1980s that produced a damaging recession.

“It put us in a harsh crisis that in this part of the world popped an energy bubble, an ag bubble, a residential real estate bubble and a commercial real estate bubble,” Hoenig said. “And in this region alone 350 banks failed.

“Now, there was never an intention to have those banks fail, there was never an intention to have high inflation. There was always the intention to bring unemployment down quickly. But when you have this kind of structural change it takes time for that to happen. When you try to accelerate it with monetary policy alone, you are making a bargain, I’m afraid, with the devil.”

Hoenig is urging fellow policymakers at the Fed to slightly raise interest rates before inflation gains momentum. But thus far Hoenig has been the only Fed leader to take that position. The majority of Fed leaders argue that raising interest rates even slightly could choke off the fragile recovery and the economy could fall into a dangerous period of deflation.

A large Lied Center crowd, estimated by KU leaders at 1,500 people, tried to make sense of it. Stu Entz, a Topeka attorney, said he’s uncertain which side has the correct answer.

“I appreciate his perspective and that we have to think long-term,” Entz said. “But there’s no question that we have to find an answer soon or we’ll never return to the economic machine that we should be.”

Comments

kansasmutt 4 years, 1 month ago

He is a wise man. He knows the pulse of the nation and the midwest. With all that Kansas leaders are doing, Kansas is in for a rough ride. All those who think different, i have a business i will sell you. Turn key, great location and NO Smoking !!!!!!! Great sales tax intake, well until the additional 1% came on board.

Stuart Evans 4 years, 1 month ago

the Federal Reserve is not your friend.

scott3460 4 years, 1 month ago

The bush tax cuts failed to produce the jobs and tax revenue promised, time to let them expire and increase revenue in order to decrease the deficit.

notajayhawk 4 years, 1 month ago

"scott3460 (anonymous) replies…

The bush tax cuts failed to produce the jobs and tax revenue promised, time to let them expire and increase revenue in order to decrease the deficit."

Really?

Did unemployment go up or down after the cuts took effect in 2003, scottie?

Did tax revenues go up or down after the cuts took effect in 2003, scottie?

See if you can answer either of those questions correctly. (I'm betting 'No'.)

notajayhawk 4 years, 1 month ago

Oh, and scottie: I assume you meant let ALL the tax cuts expire, since three times as much went to the non-'rich' as went to the 'rich'?

Danimal 4 years, 1 month ago

Actually the current debt started after Andrew Jackson's administration, he paid off the debt from the Revolution and the War of 1812. Interestingly, Pelosi has added more debt than Speakers 1-57 combined. She's still got a ways to go for that figure to include Gingrich and Hastert (58th & 59th Speakers), but she's well on the way.

thelonious 4 years, 1 month ago

Voice of sanity...uh, afraid not. Comparing our curent situation to the 70's/80's is like comparing water to oil - where is this inflation Mr.. Hoenig is so worried about? My house's value falls a little more each month, my wages have fallen, there is very little price pressure of any kind, and we have almost 10% unemployment - hardly the ingredients for an inflation spike.

Mr. Hoenig is fighting the last war, when he should look back two wars ago, to the 30's - Bernanke has done/is trying to do what the Fed failed to do correctly in the 30's. The collapse of the "shadow" banking system in late 2008 blew a huge hole in our effective money supply, and without the Fed's quantitative easing, your $200,000 house that is now only worth $180,000 would be worth $95,000, unemployment would be 20% instead of 10%, and there would be no doubt about us being in Great Depression 2. Bernanke is a hero, whether the public recognizes it or not.

While I like a lot of things Mr. Hoenig has said about things like regulating Wall Street, etc., his criticism of the Fed's handling of the 2008 financial crisis and his concern about inflation are just wrong - and if he is ultimately right, at a minimum his concerns are two to three years too early.

just_another_bozo_on_this_bus 4 years, 1 month ago

“You can’t go through this horrendous crisis, this horrendous recession and suddenly think the next day things are back to normal.”

Of course you can. If you're a Republican wanting to blame Obama for the mess that you are yours are largely responsible for creating, you can do it quite easily.

thelonious 4 years, 1 month ago

If you expect hyperinflation by 2012 you are living in a fantasy world.....but then, based on many of your posts, we already knew that.

thelonious 4 years, 1 month ago

Gasoline at the pump is $2.62 a gallon, was over $4.00 a gallon in the summer of 2008 - as for food, prices may have gone up some, but not really in any meaningful way that I have noticed, certainly not hyperinflationary - I lived through the early 80's, and you would notice price increases at the grocery store every week. Don't see that now - a 2-liter of soda can be had for around $1 most of the time, less than I paid for it in 1985, etc., etc.

thelonious 4 years, 1 month ago

"Hyperinflation is when people are running away from holding cash."

Right - you just made my point. Instead of running away from holding cash in late 2008 during the collapse (and still today to some extent), people are doing the exact opposite - they are HOARDING cash, even with interest rates near zero, implying that the threat is DEFLATION, not inflation or hyperinflation.

But that doesn't fit the anti-government, anti-Fed, anti-Obama, etc. narrative as well, so we'll just pretend it isn't so, right?

Godot 4 years, 1 month ago

William Black on MSNBC basically agrees with Hoenig, unconstrained by the need to be polite:

http://www.msnbc.msn.com/id/32450072/vp/39836703#39836703

notajayhawk 4 years, 1 month ago

Of course, he's a smoker.

Wonder if the residence portion of the White House is considered a government building?

Jimo 4 years, 1 month ago

Good Lord, thank goodness they didn't follow this guy's advice at the beginning of the downturn at the end of the 1920s. Oh wait - they did! When the economy grew weak, they raised interest rates! When lending grew scarce, they withdrew liquidity! Hmm.....wonder how that turned out?

It's quite obvious that this fellow disregards Congress' requirement that the Fed pursue policies that achieve full employment. Pursuing his own policy preferences is not his job.

thelonious 4 years, 1 month ago

Thank you for supplying a little economic history and rational thought to this discussion - it won't be enough to offset the mouth-faoming rants of the knee-jerk reaction crowd, but maybe someone somewhere will read your comments and do some actual research and analysis.

thelonious 4 years, 1 month ago

My thank you was directed to Jimo, not Liberty One - while Liberty One is correct that the Fed initially cut rates and supplied liquidity, they reversed course too quickly, before the economy had begun to recover, thereby extending and deepening the 30's collapse (which I think is the ppoint that Jimo was making). This is what Mr. Hoenig suggests we do now, which actually seems kind of crazy to me.

The money supply collapsed in the 30's, which in hindsight suggests that the Fed did far too little. Were we to repeat that mistake again, your housing crisis would turn into a rout, think declines in value of 50% or more from where they are now, unemployment would double, etc. I don't think any of you really wants to live through a deflationary collapse, which is what we would risk were Mr. Hoening were in charge of the Fed (thankfully, he is not).

thelonious 4 years, 1 month ago

Deflation is not good for the average person - deflation is only good for the ultra-wealthy, who can scoop up fire-sale bargains for cash.

A bubble that pops and a crash in prices are flip sides of the same coin. While housing values in some markets had become unhinged from reality and needed to correct, a defationary collpase will drive them below true value, at a cost of massive destruction in our economy. Avoiding this is not the same thing as "propping up incorrectly high prices".

jafs 4 years, 1 month ago

How does one determine what the "correct" price for a house would be?

If it's market based, then it's whatever the market will pay for it, isn't it?

If not, what would the criteria be?

thelonious 4 years, 1 month ago

It was pretty bad for the people who lost their jobs and could not afford gas at any price...only a salve on the wound for most of us who lost most of our financial assets in the stock market meltdown and housing crash...and a boon only for the ultra wealthy for whom it doesn't really matter how much stuff costs.

David Roberts 4 years, 1 month ago

In a country ruled by debt, deflation erodes the ability to repay debt. The debt of each individual, municipal and state governments, the federal government, corporations, etc. can only be paid through growth. There can only be growth or default.

In any event, I believe that we will suffer from the worst of inflation AND deflation as the cost of essential commodities (eg. food, water, clothing, fuel) and debt rise and the prices of paper assets (stocks-401K, housing) and wages crash.

notajayhawk 4 years, 1 month ago

"Deflation is not good for the average person - deflation is only good for the ultra-wealthy, who can scoop up fire-sale bargains for cash."

So lower prices aren't good for the non-rich? Really? Pssst - Mr. Monk: the rich don't care how much things cost, they can afford it when prices are high. It's the rest of us, trying to stretch our dollars, that are better off when prices fall - why, you can even afford that 2-liter bottle of pop again!

thelonious 4 years, 1 month ago

So, once again, let's see - were the average people in the 1930's deflation better off with the fantastic lower prices - of course not, due to their also fantastic lower wages (if they had any job at all).

If you all believe that living as an average person in a deflationary collapse is so swell, I suggest you find a time machine and go back to the 1930's and do it - or you could just read a book about it, starting with, say, 'Grapes of Wrath'.

As for the ultra-wealthy, they do like deflation, becuase they are about the only ones with money to spend, and stuff is dirt cheap.

thelonious 4 years, 1 month ago

Your standard of living certainly would change if you were out of work (25% unemployment in the 30's), and wages did fall during the depression - high wages did not cause the unemployment of the 1930's, a deflationary depression did. Talk about inverted logic. And your question is a false choice - I'd rather for people to have jobs, and for prices and wages to be stable. You don't have to have joblessness for stable prices, or falling prices and wages for stable employment.

notajayhawk 4 years, 1 month ago

Good book. For a novel.

BTW, I'm not too clear hear - are you re-writing history to the point where you're claiming nobody that was rich lost money during that time?

I'm also curious as to what you think drives prices up or down. Are you saying that lower prices put people out of work and lead to lower wages, not the other way around? Why do you think that, say, the housing market is "unhinged from reality and needed to correct", when I'm willing to bet you never even considered, nor would you consider, that the labor market is subject to the same forces?

I notice you didn't answer the question posed by another commenter above, asking about your statement that "While housing values in some markets had become unhinged from reality and needed to correct, a defationary collpase will drive them below true value". A home's "true value" is what someone is willing to pay for it. If a house was built in the 40's for $20,000, and it's worth $450,000 now, it's not because it suddenly grew more square footage, or more rooms, or more features. It (most likely) didn't change locations. It's value is determined by what someone is willing to pay you for it, not what it cost or even what you paid for it yourself.

jafs 4 years, 1 month ago

I'm not sure I'm completely comfortable with the idea that there is no intrinsic value, just market prices.

But I'm not sure what it would be based upon - the costs of building the house today?

It was disappointing that there was no response to my question.

notajayhawk 4 years, 1 month ago

The cost of building it does not accurately reflect it's value. It is entirely possible to spend more to build something than the finished product will be worth to anyone.

thelonious 4 years, 1 month ago

You are right, there would be some kind of intrinsic value - market values can be over or under that intrinsic worth, and frequently are, since markets are frequently irrational. Most economists would impute an intrinsic value of housing based on market rents, wages, and interest rates, with local norms factored in - in fact, there were several analysts who had models based on this who forecast the housing bust as early as late 2005. From 2006 thru 2008 the market, at least in some areas, was clearly wrong, and value did revert to some intrinisic norm, as we all know, and my point has been that if the Fed allows a full-blown deflationary collapse to develop, the market price of housing will probably over-correct to the downside, to the detriment of most average Americans and the benefit of a few ultra-wealthy who will scoop up the bargains.

notajayhawk 4 years, 1 month ago

"value did revert to some intrinisic norm, as we all know"

Um, no, we don't all know. Because it isn't true. There is nothing intrinsic about it. Prices rose because people were willing (and able) to pay more. Prices fell when people became unwilling (or unable) to pay those prices any more. They fell not to some intrinsic level, but to a new one that people were willing (and able) to pay. What you are talking about are market forces, not any intrinsic value.

thelonious 4 years, 1 month ago

Houses have intrinsic value as shelter - markets are not always correct - they sometimes (temporarily) overvalue or undervalue things (like housing). I believe some economist(s) won the Nobel prize in Economics for proving just such a theory recently, debunking the "efficient market theory", showing that markets do not alwys get it right.

Also, I never said none of the rich lost money in the 30's, only that they are better able to benefit from a deflationary collapse and drop in asset values that ordinary people.

notajayhawk 4 years, 1 month ago

"Houses have intrinsic value as shelter"

Um, no, they don't. They only have value as shelter if someone is willing (and able) to live in them. If you build a home where nobody wants to (or can) live, or price it beyond someone's ability to pay, or build it in the middle of a desert where there are no people, it has no intrinsic value whatsoever

"I believe some economist(s) won the Nobel prize in Economics for proving just such a theory recently"

Was that around the same time as Obama winning the Peace Prize? [snicker]

Suppose I have this old hulk of a car sitting out in the garage. I just want to get rid of it, so I advertise it as "make an offer". A couple of guys offer me a couple of hundred bucks for scrap. A couple offer me a couple of grand because they believe they can restore it. Then along comes a guy who really really really really really wants that car. Maybe it was the kind of car his beloved grand-daddy drove. Maybe it IS the car his beloved grand-daddy drove. Maybe it's the car he always wanted since he was three years old. Maybe he just won the lottery and has money to burn. He offers me a hundred grand. You know what? I really don't give a fig whether you, or your nobel-winning economists, think that was the 'wrong' price. For me (the seller) and him (the purchaser), it was the right price. And it really isn't anyone else's business to determine whether it was right or wrong.

thelonious 4 years, 1 month ago

Um, yes they do. You need to take (or re-take) Econ 101. And for those of you who worship at the altar of the almighty market forces, markets do not always value items properly because they are frequently irrational, which is no surprise because markets are made up of people, who are also frequently irrational.

It figures that you would have no respect for a Nobel Prize in Economics won by economists who proved an economic theory (about the functioning of markets, no less) based on research - you sound like you are part of that anti-intellectual tea-party crowd that thinks what you think and no amount of evidence to the contrary will change your mind. Good luck with that.

notajayhawk 4 years, 1 month ago

Don't think I need to re-take it, theo - I used to teach it. And you're right - I have do have less respect for theory than I do for the way things work in the real world. When you're old enough to get out of school, and have your nose separated from your economics professor's posterior quarters, you might understand such things. (And, incidentally, I have absolutely no additional respect for a person's theories just because the Nobel committee thought they were gee-whiz nifty - again, see the Obama Peace Prize.)

By "irrational", thelonious, your precious economists mean they can't objectively measure the factors that affect prices, they can't be quantified ans stuck into the economists' equations. And they don't like that.

Have you ever shopped for a house, thelonious? Especially in company with someone else, like a spouse, for instance? People don't buy houses because of their 'intrinsic value as shelter'. Do those French doors have some superior functionality as an egress than standard sliding glass patio doors? Does that big brass seashell with the frolicking dolphin fixtures get your hands any cleaner than the standard basin and faucet? Is there some "intrinsic value as shelter" that makes the exact same tract house built to the exact same plans using the exact same materials by the exact same contractor worth an additional $75K in a different neighborhood?

Your precious economists label a price as 'improper' because they don't like the fact that while they think a house should only be worth $250K, Mary will pay $275K because the kitchen is her favorite color. Or Bob will up that to $300K because it's near the football stadium. Or Jean and Bill will raise their offer to $350K because Jean's parents live across the street and they'll have built-in babysitting. And then along comes Jerry, who ups the ante to $400K because it's a 'green' home - not because he'll save enough on energy to make up the difference, but because he cares about the planet. (There was a story in this paper not too long ago about a 'green' home built on spec as a class project that they can't sell. What they think was of value apparently wasn't of value to prospective buyers.) And on top of all that, your economists have conniptions when that same house won't sell for $150K five years later, because granite and stainless steel kitchens have gone out of style, or because energy costs have shifted the market from homes with central air to ones with lots of big screened windows.

[continued]

notajayhawk 4 years, 1 month ago

[continued]

They label as "irrational" anything they can't plug into their equations and get the answer they were looking for. Guess what - it's not supposed to be "rational", except to the individual purchaser. A purchaser decides whether a home (or any other commodity) is of sufficient value to part with their money based on personal preferences, how well it meets their personal needs, an overall perception of value, and their ability to pay (and yes, that includes the availability of some unscrupulous bank that will coax the buyer into a mortgage that's beyond their means to pay). Only one of those, the latter, can be measured by your economic theorists. It's not the failure of market forces to set prices - that's all that sets prices. It's the failure of your precious economic theories and models to understand and objectively quantify, and explain those forces.

thelonious 4 years, 1 month ago

Yes, markets set the prices - but that doesn't mean that the prices markets set are rational. In a deflationary collapse, prices are irrational, due to lack of liquidity, fear, etc. In this environment, people with cash (i.e. the ultra-wealthy) are set up to take advantage of the irrational prices. This is essentially arbitrage, and nothing wrong with that per se, but when flawed Fed policy causes the deflation (like would happen if we listen to dear Mr. Hoenig), then it is wrong.

Funny, oh so funny that you peg me as a college student - not quite. I do own a home - the third one in my lifetime. Let's just say that when I did take my college econ classes, Reagan was President and Volcker was running the Fed, and it made for some interesting "real life" stuff to study along with the "theory" you think is junk. I find it hard to believe that you taught economics anywhere, but whatever. For the record, I got an A in microeconomics, an A in macroeconomics, and an A in money & banking, so I know a little about what I am talking about.

Bottom line - Bernanke & all of the Fed governors but one (Hoenig) think deflation is the biggest risk and are acting accordingly - the only one worried about inflation is Hoenig, and I just don't think he is correct, and fortunately he is not making policy.

notajayhawk 4 years, 1 month ago

"Yes, markets set the prices - but that doesn't mean that the prices markets set are rational."

And, once again: They only have to be "rational" to the purchaser. Matters of personal preference can not be quantified by someone that is not a party to the transaction. If the purchaser perceives the product is worth the money, THAT is the value. There is no intrinsic value, period.

"Funny, oh so funny that you peg me as a college student - not quite."

You do a fair impression of one, and may as well still be one - still more enamored of theory than reality.

"I find it hard to believe that you taught economics anywhere, but whatever."

As I find it difficult to believe you ever took economics anywhere.

"For the record, I got an A in microeconomics, an A in macroeconomics, and an A in money & banking, so I know a little about what I am talking about."

No, you know a little bit about spouting back to your professors what they wanted to hear you say. Again: Theory. Nice concept, especially when they can never be proven, or for that matter, even tested.

David Roberts 4 years, 1 month ago

"Houses have intrinsic value as shelter "

How much does a tarp cost? Methinks the intrinsic value of housing in an all-out collapse is pretty low.

Armored_One 4 years, 1 month ago

I'm kind of curious...

What role do the policies and what not from previous Presidents play in our current economic issues?

If Obama is having to deal with the "fallout" from Bush's terms, what did Bush have to put up with when he came into office? So on and so forth. Perhaps this is just a snowball effect and now that it is big enough to actually notice, it's just easiest to blame the guy that was just at bat, so to speak.

gatekeeper 4 years, 1 month ago

You must be young to not know what things were like just a decade ago. When Clinton took office, we were in a recession. In his first 2 years, he helped create almost 6 million jobs. Cinton signed into law the largest deficit reduction plan in history. He did pay as you go. Under Clinton we had the lowest combined rate of unemployment and inflation since 1968. He cut taxes for low income families and raised them for the wealthy (the current tax debate is about going back to his tax levels or keeping the failed Bush tax cuts for the wealthy that helped create the hole we're in now).

When Bush took office, we had a budget surplus. Then Bush gave tax cuts to the wealthy, decided he should play war in Iraq and blew it. We borrowed money to play war in Iraq (hello deficit) while cutting taxes on the 1-2% of the wealthiest citizens.

Hmmm, we have to borrow money from other countries, but he gives tax cuts to his wealthy friends. Yeah, great Prez.

Clinton wasn't perfect (no prez is), but Bush was a devasting failure. Ever wonder why so many cheered as he flew away from the White House for the last time?

notajayhawk 4 years, 1 month ago

"the current tax debate is about going back to his tax levels or keeping the failed Bush tax cuts for the wealthy that helped create the hole we're in now"

Speaking of too young to remember, is that the excuse you're using for re-writing history, or are you just being dishonest?

Or maybe you really mean it - so, if when you say we should go "back to his tax levels", we should do away with the 10% tax bracket, eliminate the additional child tax credit, etc.? You know, those tax cuts for the NON wealthy that amounted to three times what the cuts for the so-called 'wealthy' amounted to? Tax cuts that you, yourself, benefited from (unless, of course, you weren't paying any)?

The recession that occurred prior to our current one started under Clinton. Capital goods purchases dropped off around May of Clinton's last year, domestic production about 6 months later. Even the 'official' start of that recession is pegged around February of the next year, a month after Bush took office and while still operating on Clinton's budget. Oh, and by the way, Clinton never ran a balanced budget. The overall national debt increased every year of his presidency, it was only the public debt that decreased because he took the money from Social Security - money that had to be paid back.

You could at least make a small effort to get some of your facts straight before accusing someone else of being too young to remember.

David Roberts 4 years, 1 month ago

All y'all are too young. There was a day in American history when there was NO federal income tax.

Brendon Allen 4 years, 1 month ago

Hopefully you idiots go and do this, nothing would stimulate the economy better and allow rates to rise.

I am so glad I do not live in the same state of fear as you all do, it would be impossible to feel any joy.

In the words of your boy rummy "I picked up a newspaper today and I couldn't believe it. I read eight headlines that talked about chaos, violence, unrest. And it just was Henny-Penny, "the sky is falling." I've never seen anything like it." Touché.

There are real issues and I am glad people like Hoenig exist to make the others at least question their current course. I am not convinced he is right in the short term but I appreciate his involvement in the discussion.

These are big decisions that effect us all and the knee jerk of some to make comments like this add nothing to the discourse and in fact is fear mongering others into thinking things are far worse than they are.

I know you will post some frivolous remark probably ending with an obamacare reference but why should this even be political, getting this right is more important than any politics or blame we can place at any administration. When did america lose the ability to have civil discourse on things? Fox News and I might even throw MSNBC (though you can see from the link above they are not taking a "liberal pro-government stance on this issue) in there but I still think they are different beasts, polarize us to the point we can't even agree on the facts which is just a shame for the country and our future.

Again I don't know why I even take the time to respond (actually this is one of my first though I read this crap all the time) as I know it will fall on deaf ears. I appreciate learning from thelonious and Liberty_ones comments.

thelonious 4 years, 1 month ago

Thanks. It comes down to a calculated guess whether our risk is greater from deflation or inflation, and which course is easier to correct if you pick wrong - personally, I come down on the side with Bernanke that deflation is a greater risk, at least in the short to medium term, and that any nascent inflation can be dealt with later. Mr. Hoenig and Liberty_One are on the side that inflation is a greater short-term risk - while I do not agree, nothing is ever 100% certain with economics, so who knows, they could be right - I don't think so, but they could be. Even though I mostly believe a deflationary collapse is more likely and a bigger risk to the economy, I do have inflation hedges in place in my investment portfolio in case I (and Bernanke) turn out to be wrong. As for Bernanke, his economics Ph.D dissertation was about policy choices the Fed made during the Great Depression - he probably knows more about Fed policy during the Great Depression than any other economist alive, so I think we are fortunate he is currently in charge of the Fed, and with his knowledge and background I would certainly defer to his judgement. I do give Mr. Hoenig credit for remarks he has made about the need for tighter regulation of the Wall Street banks - he is certainly right on point there.

notajayhawk 4 years, 1 month ago

"As for Bernanke, his economics Ph.D dissertation was about policy choices the Fed made during the Great Depression - he probably knows more about Fed policy during the Great Depression than any other economist alive, so I think we are fortunate he is currently in charge of the Fed"

[sigh]

In case you haven't looked at a newspaper lately, this isn't the 1930's.

You said above that the market is not rational. I don't agree with that, incidentally - the fact that we can not explain every event does not mean there is not an explanation; there are always unknown variables, and any one or any combination of those could account for unexpected or unexplainable results. But whether we are talking about the effects of an unknown variable or the system is truly irrational, then almost by definition it is not predictable and pretty much non-repeatable.

The entire world has changed, quite considerably, in the past 80 years. The fact that Bernanke did his dissertation on, from the comfortable position of hindsight, on the events of an entire lifetime ago really does not necessarily make him the ultimate authority on the current state of affairs.

Except, of course, in theory.

thelonious 4 years, 1 month ago

notajayhawk says -

"In case you haven't looked at a newspaper lately, this isn't the 1930's."

Uh, based on what I have read of the '30's, and what my grandfather who lived through them has told me, this (what we are going through) is a lot more like the '30's than the '70's (which I did live through). Our time period is nothing like the '70's.

Also, I did not say the market is not rational - I said markets are not always rational. Sometimes they are, sometimes (like during a deflationary collpase) they are not. When they are not, pricing becomes distorted, due to lack of liquidity, fear, panic, etc. The stock market fell from 11,000 in the summer of 2008, to 6,500 in March of 2009, only to rebound back to 10,000 by the fall of 2009 - those price swings were driven by lack of liquidity, fear, and panic, and the market was almost certainly overvalued at 11,000 in the summer of 2008, and undervalued at 6,500 in the spring of 2009. I am not saying that there is anything wrong with that - just observing that price swings in markets affected by fear and panic can be more than what fundamentals would call for.

It's fine for you to express your opinion, but please stop distorting what I am saying in my posts.

notajayhawk 4 years, 1 month ago

"Uh, based on what I have read of the '30's, and what my grandfather who lived through them has told me, this (what we are going through) is a lot more like the '30's than the '70's (which I did live through)."

In terms of what? General population, GDP? The dependency of our economy on the availability of foreign oil (not to mention the existence of OPEC)? The prevalence of multinational mega-corporations? The power of unions in some of our largest industries? General political climate?

"Our time period is nothing like the '70's."

Speaking of "distorting what I am saying", I mentioned the 70's when, again?

"I did not say the market is not rational - I said markets are not always rational."

Which, again, tends to suggest the existence of an unknown variable rather than an irrational nature. But, also again, it doesn't matter. If it's irrational even some of the time, that still makes it unpredictable and less than fully repeatable. In determining whether the interventions that worked or didn't work in the 30's will be effective now, how would you quantify fear and panic? Intuitively, it would seem those variables are subject to a learning curve, similar to the fear and panic one might expect from untested troops before their first battle and before subsequent encounters.

Look, I'm not saying that Bernanke is an idiot or that he is necessarily not the best guy for the job. But to say he's the best choice because he did his dissertation on 80-year-old events is like saying the best choice of a general to defend western Europe from an invasion is one whose dissertation was on the Battle of the Ardennes. Some of the basic principles are sound and still applicable, but it doesn't mean he knows anything about coordinating modern air power with laser-targeted bombs, submarine-launched cruise missiles, or tactical nukes, not to mention the everyday tools like digitally encrypted communications, GPS, and computers.

thelonious 4 years, 1 month ago

In terms of inflation risk versus deflation risk, which was the topic at hand. I think our current situation is more like the '30's (deflation risk) than the '70's (inflation risk).

I never said YOU mentioned the '70's. I said our time period is nothing like the '70's - that's my opinion. Again, in terms of inflation risk. No refernece to you in that statement.

notajayhawk 4 years, 1 month ago

"In terms of inflation risk versus deflation risk, which was the topic at hand."

And without context, that means absolutely nothing.

notajayhawk 4 years, 1 month ago

"Does anyone trust any banker any more?"

Absolutely. Of course, I know my banker. Do you?

greenstrings 4 years, 1 month ago

Playing the blame game on politicians will always take place. But it's that mentality which I feel obscures prosperity. If we cannot work together at these basic levels of society, how ever will we change the big picture. Or the long term economic grasp. Instead of complaining, why not ask, what can I do to help? Then we will create real progress. Try to justify political disdain by becoming more involved. It's easy to sit back and call out those who make an attempt to help.

Just like after World War I, returning soldiers take away jobs from other civilians. On the flip side, soldiers have difficulty finding jobs when returning. Not too surprising that we have our unemployment hit so hard after recent/current military action. Not that I am for or against military action. Sprinkle in some inconceivable affects of the credit system amongst other troubles with the financial market, particularly the subprime mortgage crisis, and were bound for difficult times. Personally I do not see how government could avoid stepping in to soften the blow of that mess.

Raising the interest rates right now would cause more trouble than we can anticipate. Lowering them could be short term relief. The realty is not knowing the full impact or result of those actions. We trust in these people to work together and do there job, or we step up and fight for bettering humanity on all levels.
Basing decisions off historical events is good, although so many varying factors result in altered scenarios or results. Many people simply do not know the full impact of decisions on such a large scale. Many will admit the difficulty in finding short term solutions to balance the long term. People are scared, me too, about the outcome of policy or political decisions. But we have no way of fully understanding or seeing into the future how some agendas will play out. If the threat is so damaging than I would like to hear specifics on how, otherwise, it is easy to say trouble is ahead, while no other solutions are presented. Sometimes a solution is created through the process of opposing views, I appreciate that, but let's keep our manners in place and show some respect for our country's foundations and those who fought to have everything we have today. I'm disgusted with people calling out Obama as if he is some evil dictator. I did not particularly find President Bush to exciting, but I show respect for that office. When we loose sight of these basic values, then we begin loosing sight of so much more.

Trusting a banker? What banker? Your neighbor? Your cousins best friend? Who is this banker we keep asking ourselves to trust? The issue is bigger than a banker, the financial market is unstable. Should we blame the bankers? Seems like more of the same kind of mentality that destroys finding solutions.

notajayhawk 4 years, 1 month ago

"If we cannot work together at these basic levels of society, how ever will we change the big picture."

When one side is saying 'Let's hold hands and jump off the cliff' and the other is saying 'Let's not', what do you consider "working together"? Jumping off but only falling half way?

greenstrings 4 years, 1 month ago

When one side is saying "Let's work together" and the other saying "OK". I would not suggest jumping off a cliff. It is a dangerous thing to do. I know the cool kids are doing it.... It might be possible to fall halfway via parachute, a very strong birds nest landing, bungee cord, the list could really go on from here. I am simply saying that calling out politicians in a derogatory manner on a forum such as this is unfortunate. For instance, I do not support Brownback all the way to becoming KS governor. However, I do not believe that by calling Obama the anti-christ, as mentioned previously in this comment forum, is going to better anything. It's ridiculous and misguided hostility that does no good. It's at that basic level of society I wish we could better the bigger picture. Capisce...

notajayhawk 4 years, 1 month ago

Capisco bene, grazie. E voi?

The point is that some things lend themselves to compromise, others, not so much. Your mention of interest rates, for example - when one side thinks lowering the interest rates is the way to go and the other thinks we should raise them, a compromise is, what - leaving them the same? How about whether tax relief should be given to the wealthy, or the non-wealthy - again, compromise is to cut everyone's, or no one's? See where this is going?

Or how about a war? One side says invade, one side says use diplomacy - what's the compromise there, invade just a little bit - diplomatically, of course?

Those things that do not lend themselves to compromise make the concept of "working together" a moot point, since if compromise is not an option, "working together" necessarily entails one side abandoning their position to agree with the other. That is not "working together", it's one side winning and the other side losing. And that's politics.

greenstrings 4 years, 1 month ago

My point is about working together through constructive discussion. Opposed to blasting a President as the anti-christ,etc... Compromise is a good thing. I am saying that both side will always foresee potential downfalls to the other side. That is good, that is progress toward compromise. To reiterate, my point is that on this level, this one I type on, I wish more people would work together by avoiding trash talking. Were not drunk hooligans at a game, well, maybe some are... Look it's a matter of working together not accepting each others stance or issue and finding they cancel out. That's plain silly. It is a misconceived notion that I hope is now clear to you.

notajayhawk 4 years, 1 month ago

Please don't get me wrong. I agree with you in principle, and it's an admirable and worthwhile goal - in principle. The problem, as I said, is that so many of the options the country is faced with are dichotomous choices, diametrically opposed, where there really is no compromise (again, for example, raising or lowering interest rates).

I also agree that it seems downright silly at times for these message boards - and yes, I'm guilty too - of deteriorating into vicious, vehement, maniacal rantings of "Duck season! Rabbit season!" At this level, it does, on its face, seem silly. But then, on this level, let's face it - WE are not going to find the solutions to the problems, let alone have the power to implement them. So yes, in a way, we do have more in common with spectators cheering their favorite football team, because unless beatrice really IS Barack Obama, none of us is out there on the field with the power to influence the outcome of the game.

Besides, it's fun. ;-)

[sigh]

Okay, I've mentioned this a time or two before. I'm old enough to remember an age when we argued about an election, we voted, and then it was over. We had a president - one president - OUR president - and that was it until four years later, when we'd decide if he was doing a good enough job to let him keep it. I really think the information technology age we live in has a lot to do with it. Things change faster. Prices at the gasoline pump change daily based not on what the station's invoice from the wholesaler said, but on whether there's a chance of a civil war in some third-world oil-rich country on the other side of the world, or an oil refinery fire in Upper Voltabeckistanburg. Bad news travels faster - we don't know what the Dept of Labor reported as last year's unemployment, we know how many additional claims were filed last week. We have oodles and oodles of information and statistics at our fingertips, we're inundated by all of it, on every vote a representative ever cast, every case a prospective Supreme Court justice ever ruled on, every traffic ticket or late tax payment any candidate ever had (as well as where they go to church, and how often), every single politcal donation made to any candidate or sitting official.

Or, in short: We have a whole heck of a lot more to b**** about.

Jcjayhawk1 4 years, 1 month ago

What I don't get is how the Fed can make rate decisions that effect every single loan and line of credit in the US and none of the board members including the chair are elected officials. We need to stop the quasi governmental status and either make it a representative entity or a private company completely.

Smokie408 4 years, 1 month ago

I think maybe it is time to give all you tea baggers what you want, or you think you want and just see what you think then. Maybe we should do it here in Kansas for a starters with Brownback as starters. First we fire all the goverment workers (or give them a ferlow for a year) same with the teachers and all the professors home, and of course get rid of all taxes (income tax, sales tax and the like. I don't think it would take the most of you tea baggers to start crying about why there is no drinkable water, the roads are impasable, violence would be crazy. Something to think about.

notajayhawk 4 years, 1 month ago

Was that post the end result of teachers and professors not being on "ferlow"?

notajayhawk 4 years, 1 month ago

To you, bea? On my worst day. And it's not even close.

Flap Doodle 4 years, 1 month ago

The comment pre-removed for using a vulgar sexual term to refer to a progressive.

beatrice 4 years, 1 month ago

Which term would that be? You sure have a problem accepting the fact that words have the potential of having more than one meaning.

notajayhawk 4 years, 1 month ago

I'm afraid he may have been considering using the "b" word, beatrice.

phoggyjay 4 years, 1 month ago

We'll soon be following California's lead and legalize cannabis for tax purposes.

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