Bernanke led economy proving critics clueless

[Toro]

Except as prices start to rise it'll get taken out of the economy. They have a 2% target. They'll adjust the monetary base and the fed funds rate as necessary to keep in near there.

As I said in a previous post.

The Fed could raise interest rates, reserve requirements & taxes to combat the coming inflation, but they have always proven themselves to be irresponsible at the wrong times in the past, so plan for the currency to blow up in the future.

Like when? Since the Fed got its act together - that is, since Paul Volcker - the average rate of PCE inflation over the past 30 years has been 2.6%. Under Bernanke the average has been 2.2% and they recently announced that they're explicitly targeting 2%. I plan for the Fed to do exactly as its been doing for the past 30 years. I hope to god they aren't so hawkish that they immediately tighten if underlying inflation goes above 2% when unemployment and growth are still dismal. But if you look at similar central banks around the world, the ECB and the Bank of Japan, both on two occasions each prematurely tightened money and had to embarrassingly reverse the decision soon after. All this "plan for hyperinflation" nonsense is just garbage.

I agree that hyperinflation is nonsense but two massive bubbles occurred over the past decade and the Fed was utterly clueless both times. So I'm not going to extol the efficacy of Bernanke, Greenspan et. al., not after this massive epic fail by mainstream economics.

 

[DSGE]

As I said in a previous post.

The Fed could raise interest rates, reserve requirements & taxes to combat the coming inflation, but they have always proven themselves to be irresponsible at the wrong times in the past, so plan for the currency to blow up in the future.

Like when? Since the Fed got its act together - that is, since Paul Volcker - the average rate of PCE inflation over the past 30 years has been 2.6%. Under Bernanke the average has been 2.2% and they recently announced that they're explicitly targeting 2%. I plan for the Fed to do exactly as its been doing for the past 30 years. I hope to god they aren't so hawkish that they immediately tighten if underlying inflation goes above 2% when unemployment and growth are still dismal. But if you look at similar central banks around the world, the ECB and the Bank of Japan, both on two occasions each prematurely tightened money and had to embarrassingly reverse the decision soon after. All this "plan for hyperinflation" nonsense is just garbage.

I agree that hyperinflation is nonsense but two massive bubbles occurred over the past decade and the Fed was utterly clueless both times. So I'm not going to extol the efficacy of Bernanke, Greenspan et. al., not after this massive epic fail by mainstream economics.

First off, why do you think the Fed will be able to notice a "bubble" and the market not? Do you think markets aren't efficient? The very nature of "bubbles" is that you can't identify them til after they've popped. Anything before hand is just speculation, otherwise they'd be arbitraged away.

The Fed did exactly what they should have done. They kept aggregate nominal income growing smoothly (until mid-2008).

How is this at all a failure of mainstream economics? It failed to predict something inherently unpredictable? I suppose not being able to know a particle's position and momentum at the same time is a failure of modern physics?

 

[EdwardBaiamonte]

First off, why do you think the Fed will be able to notice a "bubble" and the market not?

it easy to know what you create. Its the Feds job to know what its doing!!!!Keynes said not one man in a million can notice inflation.

Do you think markets aren't efficient?

not at all when severely distorted by liberal inflation, as common sense and Keynes will tell you.

The very nature of "bubbles" is that you can't identify them til after they've popped. Anything before hand is just speculation, otherwise they'd be arbitraged away.

Prof. Henke: During the Greenspan years, and contrary to his claims, the Fed overreacted to real or perceived crises and created three demand bubbles. The last represents one bubble too many – and one that is impacting us today.

The Fed did exactly what they should have done. They kept aggregate nominal income growing smoothly (until mid-2008).

wow and I suppose they did what they should have done in 1929 too?? You must be the worlds only apologist for the Fed. When you get to college you learn that depressions are bad.

How is this at all a failure of mainstream economics? It failed to predict something inherently unpredictable?

all they had to do was follow the Taylor rule or Krugman in 2005:

"But last year he[Greenspan] encouraged families to take on those very risks, touting the advantages of adjustable-rate mortgages and declaring that "American consumers might benefit if lenders provided greater mortgage product alternatives to the traditional fixed-rate mortgage."

If Mr. Greenspan had said two years ago what he's saying now, people might have borrowed less and bought more wisely. But he didn't, and now it's too late. There are signs that the housing market either has peaked already or soon will. And it will be up to Mr. Greenspan's successor to manage the bubble's aftermath.

How bad will that aftermath be? The U.S. economy is currently suffering from twin imbalances. On one side, domestic spending is swollen by the housing bubble, which has led both to a huge surge in construction and to high consumer spending, as people extract equity from their homes. On the other side, we have a huge trade deficit, which we cover by selling bonds to foreigners. As I like to say, these days Americans make a living by selling each other houses, paid for with money borrowed from China.

I suppose not being able to know a particle's position and momentum at the same time is a failure of modern physics?

I'd say you need some college under your belt before you comment on these matters

 

[CrusaderFrank]

Meanwhile, prices appear under control, according to Deutsche Bank’s Hooper. So-called core inflation, stripped of energy and food costs, climbed 1.8 percent in the 12 months ending in December, the personal-consumption-expenditures price index shows.

“It just doesn’t look like there’s any evidence right now” of an inflation surge, Hooper said. “There are no alarm bells going off in terms of the current picture.”


Bernanke-Led Economy Proving Critics Clueless About Federal Reserve Policy - Bloomberg

Inflation stripped of energy and food? That's hysterical!

 

[EdwardBaiamonte]

The Fed did exactly what they should have done. They kept aggregate nominal income growing smoothly (until mid-2008).

yes they did what they thought they should have done in 1929 too. Who disputes that??

Today's Daily Ticker guest Graeme Maxton, economist and author of "The End of Progress: How Modern Economics Has Failed Us," says it's because economists and market participants have neglected some of Smith's most important teachings,........

 

[samjones]

But there's still plenty of money in the upper eschlons of the world of capital so we could have bubbles in investments (that's inflation, ya know) even while most working people are cash poor.

So, if "bubbles in investments" are inflation - for example, we had a Blue Chip bubble and a housing bubble happening at the same time in '07, then we are to conclude that it is because "the Fed is printing too much money because they don't understand how inflation works".... yes? And it's only affecting Blue Chips and Houses for reasons that we do not need to understand or discuss.....


Okay, I'm on board so far.

So when the investment bubble bursts, then we are to believe that the correct thing to do is to stop "printing" money because that causes inflation even though investments and houses ('09) were exchanging at catastropic lows. In other words, regardless of the circumstances - inflation is high, inflation is becoming deflation - the only response that the Ron Paul Whackjobs can muster is that the "Fed should stop printing money".

It's not so much that I disagree with their opinion. More importantly I wonder if any of them take the time to think through their own positions thoroughly enough to evaluate whether their own approach makes any logical sense.

 

[Toro]

Like when? Since the Fed got its act together - that is, since Paul Volcker - the average rate of PCE inflation over the past 30 years has been 2.6%. Under Bernanke the average has been 2.2% and they recently announced that they're explicitly targeting 2%. I plan for the Fed to do exactly as its been doing for the past 30 years. I hope to god they aren't so hawkish that they immediately tighten if underlying inflation goes above 2% when unemployment and growth are still dismal. But if you look at similar central banks around the world, the ECB and the Bank of Japan, both on two occasions each prematurely tightened money and had to embarrassingly reverse the decision soon after. All this "plan for hyperinflation" nonsense is just garbage.

I agree that hyperinflation is nonsense but two massive bubbles occurred over the past decade and the Fed was utterly clueless both times. So I'm not going to extol the efficacy of Bernanke, Greenspan et. al., not after this massive epic fail by mainstream economics.

First off, why do you think the Fed will be able to notice a "bubble" and the market not? Do you think markets aren't efficient? The very nature of "bubbles" is that you can't identify them til after they've popped. Anything before hand is just speculation, otherwise they'd be arbitraged away.

The Fed did exactly what they should have done. They kept aggregate nominal income growing smoothly (until mid-2008).

How is this at all a failure of mainstream economics? It failed to predict something inherently unpredictable? I suppose not being able to know a particle's position and momentum at the same time is a failure of modern physics?

The failure of modern economics is believing that markets are always efficient. If you start from that premise, the rest of your argument fails. And since much of modern economic orthodoxy assumes this - its much easier to model than, say, actual human behavior after all - modern economics fails.

Markets tend towards efficiency over time. Sometimes they are instantaneously efficient, sometimes they are not. Thus, modern economics is often but not always right. And it fails at critical times because it makes assumptions about human behavior that are false.

For example, assuming that bubbles are inherently unpredictable - which many economists believe - is an example of such a failure. This assumption is based not only on a lack of understanding of human behavior, the math is simply flat out wrong. Financial markets don't follow a normal Gaussian distribution. And creating a framework around a normal distribution methodology blinds the adherents to other possibilities and outcomes. One might not be able to predict exactly when a bubble will occur, but we can certainly identify one, or when one may be forming.

 

[DSGE]

I agree that hyperinflation is nonsense but two massive bubbles occurred over the past decade and the Fed was utterly clueless both times. So I'm not going to extol the efficacy of Bernanke, Greenspan et. al., not after this massive epic fail by mainstream economics.

First off, why do you think the Fed will be able to notice a "bubble" and the market not? Do you think markets aren't efficient? The very nature of "bubbles" is that you can't identify them til after they've popped. Anything before hand is just speculation, otherwise they'd be arbitraged away.

The Fed did exactly what they should have done. They kept aggregate nominal income growing smoothly (until mid-2008).

How is this at all a failure of mainstream economics? It failed to predict something inherently unpredictable? I suppose not being able to know a particle's position and momentum at the same time is a failure of modern physics?

The failure of modern economics is believing that markets are always efficient. If you start from that premise, the rest of your argument fails. And since much of modern economic orthodoxy assumes this - its much easier to model than, say, actual human behavior after all - modern economics fails.

Depends what you mean by efficient. I used the word so I'll clarify. I don't mean "prices always reflect the 'true' value of a good", I mean all relevant available information gets quickly incorporated into prices. That is, opportunities for arbitrage quickly disappear and you can only increase your expected return by accepting more risk.

If you think there's a significant deviation from this kind of efficiency, I'm sure you know full well that there are quite a few important questions you have to produce reasonable answers to.

For example, assuming that bubbles are inherently unpredictable - which many economists believe - is an example of such a failure. This assumption is based not only on a lack of understanding of human behavior, the math is simply flat out wrong. Financial markets don't follow a normal Gaussian distribution.

Where did normal distributions come into this?

Okay. So how is a bubble identified ex ante and why isn't it arbitraged away?

 

[KissMy]

Inflation stripped of energy and food? That's hysterical!

Ding Ding Ding - We have a winner!!!

I think they even exclude taxes & housing.

If the CPI excludes everything people need to live, then what fucking good is it? It only indexes no-essential discretionary items. They also use substitution. When something goes up they substitute something cheaper & crappier. True inflation on things you need to live has risen 8.5% per year since the US went off of the gold standard. Your wages, savings account & government bonds never paid you anywhere near that.

These 2% CPI retards will be living on the streets eating out of dumpsters wondering why they can't afford a house, food, water, sewer, heat, gas, taxes or electric.

I have owned the same house for 17 years. Property taxes have increased 500% over that period & to make ends meet the city sold the city park adjacent to my property line to an industrial developer & took away our free city trash service.

 

[EdwardBaiamonte]

Like when? Since the Fed got its act together - that is, since Paul Volcker - the average rate of PCE inflation over the past 30 years has been 2.6%. e.

OMG! That is so pathetic, innocent and liberal. The Fed didn't get its act together Reagan and Friedman did. Now we have BO and Krugman.

I think I'm gonna start rationing my responses to your ravings. Replying to every profoundly ignorant thing you say is probably bad for my health.

translation: I lack the IQ to respond rationally

 

[EdwardBaiamonte]

- the only response that the Ron Paul Whackjobs can muster is that the "Fed should stop printing money".

actually Ron Pauls position is that we should be on Gold Standard
so we have stable prices and an increasing standard of living; not on a liberal inflation employment fiat standard that produces boom and bust cycles with a lower standard of living.

 

[DSGE]

OMG! That is so pathetic, innocent and liberal. The Fed didn't get its act together Reagan and Friedman did. Now we have BO and Krugman.

I think I'm gonna start rationing my responses to your ravings. Replying to every profoundly ignorant thing you say is probably bad for my health.

translation: I lack the IQ to respond rationally

Edward, If I thought for a second that you could respond to my posts with rational, intelligent thought, I'd be happy to engage in conversation with you. But time and time again you've shown yourself to be incapable of that. I no longer have any interest in humouring your impermeable ignorance.

 

[EdwardBaiamonte]

I think I'm gonna start rationing my responses to your ravings. Replying to every profoundly ignorant thing you say is probably bad for my health.

translation: I lack the IQ to respond rationally

Edward, If I thought for a second that you could respond to my posts with rational, intelligent thought, I'd be happy to engage in conversation with you. But time and time again you've shown yourself to be incapable of that. I no longer have any interest in humouring your impermeable ignorance.

of course if true the liberal would not be so afraid to present his best example for the whole world to see. What does your fear tell you?

 

[Toro]

OMG! That is so pathetic, innocent and liberal. The Fed didn't get its act together Reagan and Friedman did. Now we have BO and Krugman.

I think I'm gonna start rationing my responses to your ravings. Replying to every profoundly ignorant thing you say is probably bad for my health.

translation: I lack the IQ to respond rationally

Yes, it does appear you lack the IQ to respond rationally. You're responses couldn't fill a bumper sticker, even ones sold by the John Birch Society, whereas DSGE is clearly informed and educated.

Volcker was appointed by Jimmy Carter and was perhaps the best Fed Chairman in the history of the Federal Reserve, and he was FIRED by Reagan, who then appointed Alan Greenspan, who may have been the worst FOMC Chairman. So cut the nonsensical partisan crap.

 

[EdwardBaiamonte]

Yes, it does appear you lack the IQ to respond rationally. You're responses couldn't fill a bumper sticker, even ones sold by the John Birch Society, whereas DSGE is clearly informed and educated.

of course if not rational you would not be so afraid to present your best example for the whole world to see.

Volcker was appointed by Jimmy Carter

a little history for you!!

"appointed by Jimmy Carter. Miller didn’t have a clue about monetary policy and only made the dismal inflation situation he inherited far worse."

"Volker was appointed in August, 1979 by Carter as a signal to finacial markets that Carter and his team of incometent bimbo's were not going to interfer in monetary policy anymore. By the end of September the Prime Rate hit 13.5% and 15.25% by the end of the year"



"It is not now remembered how much pressure there was on Reagan to get rid of Volcker and have the Fed run a more accommodative monetary policy. Yet he not only supported Volcker publicly, he appointed like-minded people to the Fed whenever he had the chance. He reappointed Volcker to the chairmanship in 1983 and appointed Alan Greenspan to replace him in 1987."

 

[Toro]

Depends what you mean by efficient. I used the word so I'll clarify. I don't mean "prices always reflect the 'true' value of a good", I mean all relevant available information gets quickly incorporated into prices. That is, opportunities for arbitrage quickly disappear and you can only increase your expected return by accepting more risk.

If you think there's a significant deviation from this kind of efficiency, I'm sure you know full well that there are quite a few important questions you have to produce reasonable answers to.

Again, it depends. Most of the time, that happens, but sometimes it does not.

But to me, what matters is that it is priced correctly. I can give example after example of when it doesn't happen correctly, but I'll give you one example. In January 1998, I was at a Credit Suisse technology conference in Phoenix. The CEO of Telabs (if I recall the company correctly) was scheduled to speak at the conference. However, word spread that he wouldn't be arriving, and given that the company was subject to takeover rumours, investors assumed that perhaps an announcement was about to be made that the company was about to be bought and the stock jumped something like $15 in a few minutes. Less than an hour later, word circulated that the reason why the CEO wasn't showing was because he was in upstate NY and his plane had been snowed in. Do you know what the stock did? It did nothing. It just sat there. I think it ticked down a few points over the next few days but it basically held its gains.

Of course, the retort would be "that's just one example." Well, the problem is this irrationality happened over and over and over again. Companies with $10 million in revenues were being valued at $2 billion overnight. Companies getting their tickers mixed up in Barrons were up 500% the next day. AOL buying TimeWarner. It was staggering. Yes, within a few years, all that was wiped out, but that's my point. It took a few years. Often, the market gets it right. Over the long-run, the market is right. But sometimes it gets it wrong, particularly in the near and medium term, and sometime spectacularly.

Okay. So how is a bubble identified ex ante and why isn't it arbitraged away?

Any psychologist or sociologist knows why - because people aren't always rational. The investors shorting dotcom stocks in 1998 were eventually proven right, but very few people made money doing it, and many were taken out. There are structural barriers too, but the reasons are primarily because people are overcome by greed and fear. I majored in economics, and after spending nearly 20 years investing and trading, I would require every economics major to take 15-18 credit hours of psychology and sociology (which I did not formally study) so they can better understand how humans behave.

 

[Toro]

Yes, it does appear you lack the IQ to respond rationally. You're responses couldn't fill a bumper sticker, even ones sold by the John Birch Society, whereas DSGE is clearly informed and educated.

of course if not rational you would not be so afraid to present your best example for the whole world to see.

Volcker was appointed by Jimmy Carter

a little history for you!!

"appointed by Jimmy Carter. Miller didn’t have a clue about monetary policy and only made the dismal inflation situation he inherited far worse."

"Volker was appointed in August, 1979 by Carter as a signal to finacial markets that Carter and his team of incometent bimbo's were not going to interfer in monetary policy anymore. By the end of September the Prime Rate hit 13.5% and 15.25% by the end of the year"



"It is not now remembered how much pressure there was on Reagan to get rid of Volcker and have the Fed run a more accommodative monetary policy. Yet he not only supported Volcker publicly, he appointed like-minded people to the Fed whenever he had the chance. He reappointed Volcker to the chairmanship in 1983 and appointed Alan Greenspan to replace him in 1987."

And he was FIRED by Reagan in 1987.

A little history for you.

 

[CrusaderFrank]

Leaving food and energy out of inflation is like leaving the assassination out of Lincoln's trip to Ford Theater; do people take that number seriously?

 

[EdwardBaiamonte]

Yes, it does appear you lack the IQ to respond rationally. You're responses couldn't fill a bumper sticker, even ones sold by the John Birch Society, whereas DSGE is clearly informed and educated.

of course if not rational you would not be so afraid to present your best example for the whole world to see.

Volcker was appointed by Jimmy Carter

a little history for you!!

"appointed by Jimmy Carter. Miller didn’t have a clue about monetary policy and only made the dismal inflation situation he inherited far worse."

"Volker was appointed in August, 1979 by Carter as a signal to finacial markets that Carter and his team of incometent bimbo's were not going to interfer in monetary policy anymore. By the end of September the Prime Rate hit 13.5% and 15.25% by the end of the year"



"It is not now remembered how much pressure there was on Reagan to get rid of Volcker and have the Fed run a more accommodative monetary policy. Yet he not only supported Volcker publicly, he appointed like-minded people to the Fed whenever he had the chance. He reappointed Volcker to the chairmanship in 1983 and appointed Alan Greenspan to replace him in 1987."

And he was FIRED by Reagan in 1987.

A little history for you.

The Great Inflation tells the story of how smug economists and politicians in the post-war era almost wrecked the U.S. and how President Ronald Reagan and Federal Reserve head Paul Volcker tamed double-digit inflation in the 1980s. Samuelson provides a rich history of wisdom triumphing over hubris-and he provides a singular commentary on just where the U.S. economy might be headed for the next decade or more.


not to mention that he appointed Greenspan, as much of a stable money guy as Volker or more and a libertarian, and deregulator to boot.

 

[CrusaderFrank]

If you don't have to eat anything except what you grow and never travel anywhere, inflation is low; it's the Walking Dead economy