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Saturday, April 28. 2007
Another person who needs to wake up. The guy is single-handedly slowing the American economy. His fear of inflation, as a newbie, is ridiculous at this time. Out-of-control inflation is not a current problem.
We are driving below the speed limit, and he is putting on the brakes. Probably worrying about his long-term reputation as a tough guy, but he is hurting everybody, and especially marginal homeowners. Not that our economy is doing poorly - it is fine - but he is fighting the last war, and not dealing with the present.
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I like him --core inflation is worrisome, and it's the cruelest tax, regressive and valueless.
Everybody wants the discount rate cut, but most likely, the Dollar will have to firm a bit, and absorb more of the liquidity created by the recession/911 delation stimulus, and/or the subprime problem will have to grow more than it lately appears that it will, before he cuts rates.
And I agree with the (non) action, because the last thing we need (because monetary inflation is in the data) is to let the 'perception' get started that we want growth so badly that we won't defend the Dollar, Such a perception will drive up long bond rates (incl mortgage rates). This action will drive down the stock and bond markets, which have for the longest time been behaving wonderfully well (Greenspan's "conundrum"), due to heavy demand created in part by confidence that G'span/Bernanke era inflations will be dealt with too early rather than too late.
The nature of the data--lagging indicators looking backwards--requires luck for prescriptive perfection (that is, to adjust, or not adjust, the discount rate neither too early NOR too late).
I think he is thinking what you are thinking, Buddy. Let things settle. I think the worry is exaggerated. But what do I know?
Lots of folks agree with you--on the premise that commodities & gold are high--and more importantly highly diverged from history re long bond rates--due to the unprecedented power of the global demand boom (esp China/India) rather than, as in the past, to monetary inflation.
OTOH, tho, this "Black Swan" notion is interesting (bell curve vs power law), and seems to me to be a vote for Fed caution re further 'easy' money, for the time being, on the premise that current risk premiums re exogenous events (esp terrorism in the oil mkts) are not well-priced and so the Fed needs to keep its big weapon (large rate cuts) in ready reserve:
If we cut now in order to amp growth, and to ease the pressure on subprimes, then we couldn't get the full effect of a stimulus if, say, those 172 just-stopped AQ had managed to decapitate the gov't of Saudi Arabia, AKA the gov't of the OPEC swing producer, price-stabilizer, and owner of almost a third of global proven reserves.
Folks forget that a governmental decapitation is what 911 intended. The intent was to demolish the executive, military, and financial headquarters of the nation.
Lord Almighty, there is a lot going on in this world.
We're going to get a "Monster" treasury number for April. Probably in the + $150 Billion range. That will get people to talking about the possibility of a "Balanced Budget" in 08'.
That will, quite possibly, start a "Firming" trend in the dollar. He'll have to chop, fairly soon. The curve is not only "Inverted," but "Nominal" GDP is below the FF target rate.
True, but countercurrents exist--March was crappy weather (some say enough to account for that Q1 dip), and consumer confidence numbers were strong (esp considering the watt-to-wall 'subprime disaster' media coverage). Bank of Japan may be key to a rate cut near term--if it signals intent to go up that next .25, then Dollar won't just be weak against Euro, but Yen, too.
Wonder how the Dems will play that avalanch of tax recpts. That one-day record recently collected a big yawn. They have to do something to this economy pretty quick, or let too many voters get a financial leg-up in the world.
I don't know, Buddy; them Japanese don't seem to want to grow much. I have a hard time seeing the Yen being a factor. I'm not optimistic (I'm a Fed-Hater from way back,) and, I'm afraid he will wait too long to pull the trigger, but he'll have to, eventually.
Our small businesses just aren't going to pay 5.25 + 3.50 for money just for the pleasure of competing against China.
Ah, the Times will give it one sentence, and then do ten paragraphs on the "Twin Deficits." I really want to cuss right about here, but I'm not familiar with this blog (I'm, also, relatively sober, at present.)
Anybody named Rufus must know since I once knew a brilliant one--
Keeping the sound level real low: this is the only site I can access and make comments on this weekend. Secondary links for other places gets me a “can’t find script engine for script “C:Program Files/Support.Com blah blah." Is the net messing up, the pc, or me?
Techie counterpart won’t be back til morn-- Are there any brilliant IT types here who can explain to a dinosaur how to fix this sudden prob-- in primitive, basic terms, please, to include explaining how the lit screen is called “the monitor,” etc?
Else I'll opine on economics, as in the more money the better.
Framing or a 10-pounder, maybe? I'm about at that point---
But, gee, thought you could say abracadabra. Am I the only one w/ PC probs (besides the Dems and Euros)?
Not only is his name Rufus, but he hail from Mississippi --don't THAT take the cake (a "buddy" from Louisiana & Texas can say that).
The Yen factor, to me (not talking about the 'carry-trade'), is covering the Dollar slide as a case of Euro strength rather than a Dollar weakness per-se. And it's working, as per the stable long rate even with the greenback skid.
But you're dead right--small business borrows short, and 5+ hurts. OTOH, local customers have the lower than usual mortgage rates, releasing more disposable income into trade. High short debt shrinks margins, but customer cash raises demand, and volume makes up the cash flow--which in the end is what small business gotta run positive all the time. i know, broad strokes there--
anon, try shutting down for a few minutes, and re-starting your puter. That's the first step. the hammer is way on down there, at step 2.
Buddy, I thot I wuz rong, once; but, it turned out I was mistaken.
Heck, I don't know. I've been screaming for a year that he went a point too far. I'm probably so invested in my pet theory by now that I wouldn't recognize it if I Wuz Rong.
It just looks to me like the Explosion in World-Wide "Productivity" has brought "Core" inflation down to a point that we just can't do business at 5.25%.
BUT, my argument does seem to have one Big, Glaring Weakness, and that's Exports. They Surging maybe a little bit better than they should be if I'm right. Now, Whut do I do about That?
All the way down to Step #2?
Thanks, Buddy; that's the first real chuckle I've had all day.
Shutting down worked, dang it. I knew it, too, but just had to be reminded. Thanks!
Carry on with the Econ 301, or post-grad level, or what you know we all know but know it's good to post to remind us who forget we know...
Rufus, maybe the Fed only knows what 'too far' is after it goes too far. and gets a growth or even an actual recession. How else can it know? If it had to cool the real-estate price boom (tho in your argument's favor, 'affordibility' would have eventually worked as well on all but the gamblers).
Gold, too, and copper--the whole basket--has to scare you silluy if uyou're Bernanke--as, when is this parabolic growth gonna stop? What if the system goes weird on me? Can i get outta town unrecognized?
Export surge --weak greenback, but also, we make good stuff except for the dang cars--which ain't really bad except for the huge chunk of the purchase price that goes to keep union bosses rich enough to pay Democrats to attack global trade so as to keep freedom from interrupting the flow of cash that keeps them rich enough to...oh shit, stuck in a loop loop loop
Buddy, you've probably heard me espouse my "Virgin in the Volcano," bit. I figure Ben's like the local shaman. As long as he throws the virgin in the volcano no one will get on him too hard; but, G-d help him if he doesn't throw the virgin into the fire and the Volcano "Erupts."
I figure if he does something slightly out of the script, and, for one reason, or another, inflation erupts his life is ruined.
He doesn't strike me as someone "aching to play chicken" with the volcano. BUT, he does strike me as someone who's smart enough to know that most "Economic Theory" is Hogwash.
Yu didn't invent nuthing; I been speling like that my intir life.
I couldn't agree more--virgin in volcano is perfect. After all, he's the Chairman of the United States Federal Reserve Board of Governors, not Evil Kneival or Amarillo Slim.
yeah, but you dint get no patton protection, so it air in the publik duh main.
I gotta "Give up" on that one.
Take The Pot :-)
I'm whupped - Nap time for Rufus.
Damn. Would someone please invent an autosave feature for comment boxes. Just a quick copy to the clipboard every fifteen seconds or so. Please.
Well Buddy I finished my drink since writing out that comment I just lost...so we'll see.
Despite my lack of knowledge re the subject, I think 'the Barrister' has a point. It has been my experience that a large part of 'economics' is perception and often is not based on long term reality, except for the really smart on the subject, such as yourself. I think Bernanke could be a little more circumspect in some of his musings, course I felt the same about Greenspan on occasion. The crux as I see it is that a stable and uplifting market will get no help from big media and the Dem's. Every little bit of 'negative' news is amplified way beyond its true importance and effect. I'm not saying there's nothing to worry about, and your point about 'timing' is certainly on point, I just think it better too tread lightly versus causing undue alarm.
Rufus posts a lot over at Larry Kudlow's blog, if you want to read more of his good-humor & perspicacious economical observationisms.
Luther, your 'more circumspect' might be already in play, as he was no doubt pretty embarrassed over his shake-down cruise.
Especially that interview with Maria Barteromo (sp?), where a little verbal flourish accidentally moved the markets the next day.
I think he has learned. His last few testimonies to congressional committees were models of how to tame the wild DC Posturing Loonus species.
I enjoy Kudlow a lot. I dont read his blog often, but I hear him on the radio on Saturday. A delightful, rational guy.
I hope you're right Buddy. Once bitten twice shy. I always enjoy Kudlow's segments when he's on Hewitt's show. He makes a lot of sense.
Interesting discussion here. From my limited experience, the connection between a low US dollar and rising US exports coupled with a rising US stock market, is to be expected. I do not completely agree with the idea of a trade 'deficit'. 'Trades' are conducted between two willing partners. No one would willingly enter into a trade that does have a benefit or fill a need. For instance, Americans buy lumber from Canada to build American infratructure. Where is the deficit? Canadians will usually spend or invest those US dollars back into the US or else they have to pay a premium to convert those dollars into Canadian dollars.
Coyote blog has some nice ways to savvy what the dickens the balance of trade account really accounts.
Suffice to say, the Dem howling over the trade deficit is just more propaganda--we've run a trade deficit forever, meanwhile becoming the world's economic engine, and creating the highest living standards. Dems always want to quote the numbers, which always grow in a growing economy, when if they were honest, they would quote the relevant ratios. Basic accounting.
"The HIGHEST BUDGET DEFICIT IN HISTORY" is actually an historical low-normal percentage of the GDP.
The problem we DO have, out-year entitlements for the massive boomer cohort, is the one economic issue they DON'T demagogue.
In fact, they barely mention it, other than to applaud themselves for stopping Bush's every effort to save our entire financial system from a future purchasing-power bust (either thru BIG tax hikes on the younger generation, or by cheating and just inflating the currency).
...neither of which will work. The youngsters are already in pre-tax-revolt mode (and good for them), and the old printing press solution, where fiat money and inflation & high interest rates used to have a little lag time where a given gov't could buy itself a little time (to maybe get outta town, if an election year), just ain't gonna work anymore.
The rubes have caught on.
Their black-box trading is lightning fast, and hair trigger, now. That's one thing Jimmy Carter did for us--taught us--by tragedy--to stay hyper alert to what Leviathan is up to.
No inflation? I would say then that you don't buy the groceries in the house. Even our local feed store has the commodities charts up, showing why feed prices are going up. I know that gas prices are likely rising in preparation for Memorial Day. I suspect that they will not go down.