dagblog - Comments for "The Mighty, Mighty Fed"

Cool. I like Steve.

Michael Maiello — Sat, 06 Nov 2010 19:38:39 +0000

In reply to fair enough. point taken on

Cool. I like Steve.

fair enough. point taken on

Deadman — Sat, 06 Nov 2010 19:18:59 +0000

fair enough. point taken on their charter - i havent read it, don't know the history so well, so im not about to argue with you or your sources. i think anything that far afield would raise quite the ruckus and certain judicial and legislative challenges, but i know a lot of conspiracy theorists believe the Fed runs the whole joint anyway.

Good point on the foreign creditors. Although I would assume the Fed would have to buy consumer debt with government funds (new debt), which would cheapen the dollar, destroying the value of all the debt already owned by foreign nations (something you think we have room for, something I think would unleash an inflation shitstorm).

btw, our backgrounds are eerily similar ... financial journalist for three-plus years, working in the industry for the past 11 (and somehow in the process avoiding to get my share of all that funny money and undeserved riches!!!!)

btw, i thought both you and steve (my good friend from college and an American hero) had a interesting, pretty testy-free discussion all in all.

You are right, Helicopter

NCD — Sat, 06 Nov 2010 18:28:29 +0000

In reply to I was just at TPM reading

You are right, Helicopter Ben, and our political system, seem beholden to the Big Money so that is where he drops the newly printed cash. The 'average worker economy' be damned.

Perhaps this different emphasis on big money vs, workers is why the Germans and many other countries have expressed displeasure at Ben's never ending Wall Street 'bonus priming'. It is a safe bet these other countries are run with the average citizen's welfare more in the forefront than here.

I was a journalist who

Michael Maiello — Sat, 06 Nov 2010 18:12:00 +0000

In reply to Sorry for letting this

I was a journalist who covered Wall Street for ten years and I now work in finance, in a marketing capacity but closely with people who make investment decisions. I feel like I'm pretty well grounded in this stuff, even if my conclusions are out there. I don't consider myself a socialist or communist, though I think we could incorporate elements of that into what we have, which is managed capitalism, just managed in a more subtle way than the Chinese have.

One thing I do want you to know is that I have not overstated the Fed's flexibility to act. A few years ago I was working on a story and an investment manager told me that the Fed had vastly greater powers than most people think. When Congress created the Fed it very specifically gave it a flexible mandate. While tradition dictates that it acts mostly through its control of interest rates and by giving bank holding companies access to its discount window, that is not the extent of what it can do. The Fed can, under it's charter, loan you $5 at no interest with repayment in 100 years. It doesn't only because it would serve no purpose for it to do so.

Well... some investment manager told me that. I didn't believe it either. I called the New York Fed, was put through to an economist and explained what I'd been told. He confirmed it. I get along with that economist very well and have kept in touch. I actually ran my "great debt do over" idea by him before I posted it anywhere and... well... he doesn't by any means support it but he grants that it is within the Fed's charter to do exactly what I've described. The Fed never will, he says, because there'd be a huge political backlash and because he believes it would be more inflationary than I think. He also thinks I'm looking for a free lunch for the economy and... yeah... I am. That might be the most damning critique. As you have said, there are always consequences.

You mentioned foreign creditors being ticked at this kind of solution. I have to wonder what you mean. The Fed or Treasury would obviously buy this debt back at prevailing rates. If my debt is owned by a sovereign wealth fund and trades at 40 cents on the dollar, the Fed buys it for 45 cents and settles with me for 50 cents, the SWF doesn't have any cause to be angry, does it? It ultimately got a nickel more than the market would pay. Frankly, our foreign creditors should like this solution. They get taken out above market rates. I expect a thank you note.

I was just at TPM reading

Michael Maiello — Sat, 06 Nov 2010 17:56:03 +0000

In reply to America's 2 economies, Robert

I was just at TPM reading this when you posted this here. Reich makes an excellent point. Here's where I differ from him (though I'm not sure we actually differ) -- I think the easy money policies are entirely appropriate but it's all about who gets the money. I say bottom up would be more effective than the current top down approach.

America's 2 economies, Robert

NCD — Sat, 06 Nov 2010 17:42:01 +0000

In reply to The Mighty, Mighty Fed

America's 2 economies, Robert Reich:

Next time you hear an economist or denizen of Wall Street talk about how the “American economy” is doing these days, watch your wallet.

There are two American economies. One is on the mend. The other is still coming apart.

The one that’s mending is America’s Big Money economy. It’s comprised of Wall Street traders, big investors, and top professionals and corporate executives,

The Big Money economy is doing well these days. That’s partly thanks to Ben Bernanke, whose Fed is keeping interest rates near zero by printing money as fast as it dare. It’s essentially free money to America’s Big Money economy.

Free money can almost always be put to uses that create more of it. Big corporations are buying back their shares of stock, thereby boosting corporate earnings. They’re merging and acquiring other companies.....But there’s another American economy, and it’s not on the mend. Call it the Average Worker economy.

Last Friday’s jobs report showed 159,000 new private-sector jobs in October. That’s better than previous months. But 125,000 net new jobs are needed just to keep up with the growth of the American labor force. So another way of expressing what happened to jobs in October is to say 24,000 were added over what we need just to stay even.

Yet the American economy has lost 15 million jobs since the start of the Great Recession........

A simple calculation from the above figure of 24,000 jobs added above those needed for the growth of the labor force shows it would take 600 years for the 15 million lost jobs to 'come back' to the 'average worker economy', at the rate of job growth in October, which was the best month since May!

link

He is. But I owe you an

Michael Maiello — Sat, 06 Nov 2010 15:40:23 +0000

In reply to Told you he was more

He is. But I owe you an apology for getting testy yesterday. I very much enjoyed debating with you.

Happy birthday! Smart

Michael Maiello — Sat, 06 Nov 2010 15:39:51 +0000

In reply to Sorry for letting this

Happy birthday! Smart stuff. Needs some thought on my part but more later for sure.

Good discussion. Here's my

Oxy Mora — Sat, 06 Nov 2010 14:01:30 +0000

In reply to The Mighty, Mighty Fed

Good discussion. Here's my take on this. I am a cultural liberal and I own a profit making small industrial services company. Nothing is fair in life. A subsidy is a politically enabled value judgement. Some win, some lose. George Bush skewed assets so far to the wealthy it will take a generation to reverse it. We lost that ecoonmic war.

When the collapse occured in 2008 I got a call from my bank. My company had had a credit line for about 10 years, the loan amount varied according to sales level. The bank froze the credit line at what happened to be a low level. There was nothing wrong with my credit record or payment history. The bank's reason..."everybody is getting a hair cut". Was that fair? I as a small businessman was a tool in the bank's plan to repair its balance sheet. Not only that, but credit card interests rates were increased--the other method the banks are using to refund themselves.

If Obama is to have any hope of getting the employment number up he must focus every resource on small businesses, they are the engine. I have done some hiring in the business. I love the idea of a 100% writeoff on equipment, I'll probably buy a truck I don't need, it's just too good to pass up the idea of cutting my business income taxes. So subsidies, yes, the more the better. Make them count. Let's try to get that employmnent number up. If we don't we'll be looking at Huckabee or Jeb Schiavo Bush as President.

Told you he was more

Steve — Sat, 06 Nov 2010 12:32:08 +0000

In reply to Sorry for letting this

Told you he was more diplomatic!