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  #51  
Old 10-13-2018, 12:57 PM
Little Nemo Little Nemo is online now
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Trump is going to do anything to the Federal Reserve Board. Because he's already done it.

This had nothing to do with actual financial policy. This was show business. Trump's economic policies are causing problems. Trump needed somebody else to put the blame on. Somebody told him this country has a Federal Reserve Board.

So Trump started yelling that all of our current problems are caused by the Fed. And not by him. And as far as Trump is concerned, he has now solved the problem.
  #52  
Old 10-13-2018, 07:21 PM
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Pretty much what Little Nemo said. It's pretty weird to have a President who complains about the Federal Reserve's tight money policy and simultaneously appoints a hawk to the board, but we live in weird times.

Interestingly, Presidents tend to screw up their Fed policy. Obama dragged his feet with his Fed appointments: looser Fed policy would have made a more successful Presidency due to a stronger economy. Greenspan screwed up financial regulation under GWBush. Greenspan performed better under Clinton.


We have a 2% inflation target. If recession hits, inflation goes down and the US enters another liquidity trap. Then we're back to QE. We need a higher inflation target to increase the efficacy of monetary policy. This is a difficult discussion to have during the best of times but it's basically impossible during a reality show Presidency.

Last edited by Measure for Measure; 10-13-2018 at 07:21 PM.
  #53  
Old 10-13-2018, 09:44 PM
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We would also hope that higher interest rates, higher bond yields, would at some point tip the so-called fiscal (chicken) hawks that their tax cuts for billionaires are signaling to borrowers and US debt holders that republitards in congress have given the US a reputation as a bunch of teenage mooches -- borrowing money without any intention of repaying it. We're heading toward trillion dollar deficits - at a time when more and more people are retiring and using SS and medicare to fund their retirement.
  #54  
Old 10-13-2018, 10:58 PM
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Originally Posted by wolfpup View Post
I thought -- rather naively -- that the title of this thread was some kind of breaking news announcement about unprecedented executive-branch interference in Federal Reserve monetary policy. Glad to see that it was pure fantasy.

This is the first time I ever stopped reading a post after the very first sentence. Really. Never happened before.
This is also part of Trump's "genius" for lack of a better term. He arouses such passions in his opponents that they won't even attempt to engage in serious dialog with those who have opposing views; thus ensuring a division beneficial to him is maintained.

Last edited by Mr. Nylock; 10-13-2018 at 10:59 PM.
  #55  
Old 10-13-2018, 11:42 PM
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After seeing the title of the thread:


When Cheeto American gets FOX news mislead
All those to oppose Mango Muss-olini must yield
If he’s lead to divide some parents and kids
Then the reds with some whites will the blues confront
When Cheeto American checks FOX News mislead! ♫
  #56  
Old 10-13-2018, 11:43 PM
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Trump is responsible for many things, but not for the first sentence of the OP.
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Originally Posted by WillFarnaby View Post
The Fed went off the rails years ago, but they still have a bit of sense and realize it is time to start raising rates.
The fed started increasing short term rates in Dec 2015, almost 3 years ago. Chart: https://fred.stlouisfed.org/series/fedfunds

Last edited by Measure for Measure; 10-13-2018 at 11:44 PM.
  #57  
Old 10-14-2018, 06:33 AM
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Originally Posted by CarnalK View Post
How many rate increases would you expect if they weren't yielding to Trump? From what I've read:

So what exactly is going to happen instead of that?
Are you kidding me? If I could make forecasts like that I’d be making serious money off of it.
  #58  
Old 10-14-2018, 06:36 AM
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Trump is responsible for many things, but not for the first sentence of the OP. The fed started increasing short term rates in Dec 2015, almost 3 years ago. Chart: https://fred.stlouisfed.org/series/fedfunds
Yes that sentence is unclear. The Fed went off the rails under Greenspan and Bernanke. They went nuts with the ideologically driven money printing. They now realize it is time to raise rates.
  #59  
Old 10-14-2018, 06:42 AM
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Originally Posted by Measure for Measure View Post
Pretty much what Little Nemo said. It's pretty weird to have a President who complains about the Federal Reserve's tight money policy and simultaneously appoints a hawk to the board, but we live in weird times.

Interestingly, Presidents tend to screw up their Fed policy. Obama dragged his feet with his Fed appointments: looser Fed policy would have made a more successful Presidency due to a stronger economy. Greenspan screwed up financial regulation under GWBush. Greenspan performed better under Clinton.


We have a 2% inflation target. If recession hits, inflation goes down and the US enters another liquidity trap. Then we're back to QE. We need a higher inflation target to increase the efficacy of monetary policy. This is a difficult discussion to have during the best of times but it's basically impossible during a reality show Presidency.
“President” and “Presiency” are not capitalized.

Greenspan “performed” better when he blew up the tech bubble and bailed out LTCM than when he blew up the housing bubble and set Bernanke up to bailout the banks? That isn’t much of a statement.
  #60  
Old 10-14-2018, 03:14 PM
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He doesn't have to go that far; he can just bully the Fed with his microphone. I think one thing that Trump has already demonstrated is the ability to use that microphone with great effect.
... On people for whom public pressure matters, yeah.

The Fed doesn't give a shit what the public thinks.
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  #61  
Old 10-14-2018, 09:26 PM
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Yes that sentence is unclear. The Fed went off the rails under Greenspan and Bernanke. They went nuts with the ideologically driven money printing. They now realize it is time to raise rates.
A casual reader might not realized that both Greenspan and Bernanke routinely raised interest rates.

Here's a chart of the short term interest rate, which the Fed controls:
https://fred.stlouisfed.org/series/FEDFUNDS

Monetary policy goals of the Federal Reserve are set by statute. They are, "...to foster economic conditions that achieve both stable prices and maximum sustainable employment." That is sometimes referred to as the Dual Mandate.

Monetary policy that is too loose creates inflation. Alan Greenspan was Chairman of the Federal Reserve from August 1987 to Jan 2006: he was succeeded by Ben Bernanke. The core PCE, the Fed's preferred target for inflation, was 3.4% in August 1987. Since January 1992, it has never been above that level. Not once. Chart: https://fred.stlouisfed.org/series/PCEPILFE

So the idea that monetary policy "Went crazy" while implying that it was too loose is sorta nuts. Inflation was very much under control during the Greenspan/Bernanke era. There's plenty to criticize about their tenure, but the first sentence of the OP is poor guide.

And giving Greenspan sole blame for the tech bubble is silly.

Last edited by Measure for Measure; 10-14-2018 at 09:29 PM.
  #62  
Old 10-14-2018, 09:53 PM
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So the idea that monetary policy "Went crazy" while implying that it was too loose is sorta nuts. Inflation was very much under control during the Greenspan/Bernanke era. There's plenty to criticize about their tenure, but the first sentence of the OP is poor guide.

And giving Greenspan sole blame for the tech bubble is silly.
Greenspan himself admitted a mea culpa. He might not be solely responsible but he was at the helm. If anyone was to turn the ship before it hit the iceberg it was him.

Quote:
But on Thursday, almost three years after stepping down as chairman of the Federal Reserve, a humbled Mr. Greenspan admitted that he had put too much faith in the self-correcting power of free markets and had failed to anticipate the self-destructive power of wanton mortgage lending.

“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief,” he told the House Committee on Oversight and Government Reform.

SOURCE: Greenspan Concedes Error on Regulation
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Last edited by Whack-a-Mole; 10-14-2018 at 09:54 PM.
  #63  
Old 10-14-2018, 11:57 PM
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Greenspan screwed up financial regulation under GWBush.
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Originally Posted by Measure for Measure View Post
And giving Greenspan sole blame for the tech bubble is silly.
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Originally Posted by Whack-a-Mole View Post
Greenspan himself admitted a mea culpa. He might not be solely responsible but he was at the helm. If anyone was to turn the ship before it hit the iceberg it was him.
Greenspan admitted screwing up regulation during the housing bubble. He didn't admit to having too loose monetary policy during the tech bubble. (He could have raised margin requirements for buying stocks, but that's regulatory policy not monetary policy.)

I agree that Greenspan should have regulated financial markets more stringently. His monetary policy during the 1990s was by and large successful though. In fact, real short term rates were high during the tech bubble, higher than they were in the 21st century so far.

Elaboration:
Ok, I took 3 month treasury bill rates and subtracted core cpi inflation for the previous year. Then I took averages. Standard deviations in parentheses, for those who know what that is.

Jan 1970 - Sep 1979 (Inflationary era, before Volker) -0.23 (2.11)

Jan 1995-Mar 2000 (tech bubble) 2.54 (.34)

Apr 2000- Dec 2007 (before Great Recession) .90 (1.44)
Jan 2000 - Sep 2018 -0.39 (1.59)

Sep 2018: -.04 and rising. Core inflation: 2.17. Nominal 3 month rate: 2.13
The rates during the 1970s were too low. Monetary policy during the tech bubble was certainly not especially loose as it was. 2.54 as an average isn't low, relative to other periods. (Sure you can take tight policy and make it tighter, but it isn't a no brainer and we almost had a recession during the mid 1990s, which Greenspan happily evaded by lowering rates a tad.)
  #64  
Old 10-15-2018, 07:44 AM
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2% inflation is not “stable prices”. It is an ideologically driven attempt to increase growth. Stable prices are, believe it or not, prices that remain stable.

In any case, they went crazy with money printing via credit expansion. Just because the outcome was not hyperinflation but massive malinvestment on an enormous scale twice in two decades does not mean they did not lose their marbles. Proof is the third bout of malinvestment that is about to burst. 30 years of bubble making without any real ideological introspection is insane.

Last edited by WillFarnaby; 10-15-2018 at 07:47 AM.
  #65  
Old 10-15-2018, 08:06 AM
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Originally Posted by Measure for Measure View Post
So the idea that monetary policy "Went crazy" while implying that it was too loose is sorta nuts. Inflation was very much under control during the Greenspan/Bernanke era. There's plenty to criticize about their tenure, but the first sentence of the OP is poor guide.
OP may be in a different timezone; let me recapitulate what I think is his argument:
The FRB is an agency of Government; it prints banknotes willy-nilly and forces citizens, at gunpoint, to accept those banknotes.

In a free-market system people would use gold, or silver, or Bitcoins, or whatever common agreement led to, as money. Interest rates would be determined by the free market: "Hey, what would it take for you lend me that bar of gold bullion for a year?"

In the 1990s, with corporate bonds yielding a mere 7 or 8%, money flooded in to buy useless fiber optic cable. Had interest rates been a more sensible 10 or 12%, business invesments would have been more sensible.
@ Will — Is that a pretty good synopsis of your views?



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Originally Posted by Measure for Measure View Post
Greenspan admitted screwing up regulation during the housing bubble. He didn't admit to having too loose monetary policy during the tech bubble. (He could have raised margin requirements for buying stocks, but that's regulatory policy not monetary policy.)
...
I wondered if the Fed should raise margin requirements when "exuberance" becomes "irrational," but I suspect that would lead to a political take-over of the Fed.
  #66  
Old 10-15-2018, 12:15 PM
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No that is not a good synopsis. A good synopsis would be what I have already said. Fed suppression of interest rates led to malinvestment which inflated a bubble that popped. Ideology caused the Fed to further suppress interest rates and subvert honest price discovery leading to another inflated bubble that popped. Ideology caused the Fed to further suppress interest rates and subvert honest price discovery leading to another inflated bubble that is poised to pop.

This is not a strange view of recent history to mainstream commentators. Larry Summers has said that this is what happened in so many words. He thinks this is the path to prosperity, endless malinvestment followed by interrupted corrections. And of course bailouts. Lots of bailouts.

Last edited by WillFarnaby; 10-15-2018 at 12:19 PM.
  #67  
Old 10-15-2018, 12:40 PM
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Credit expansion by the Fed does not need to result in hyperinflation. Credit expansion can result in price inflation that is higher than it would have been in the absence of expansion. What do we know about the 1980s through today? We know that there has been huge developments in production especially in China. This resulted in deflationary pressure. Prices should have been dropping like they did in the 19th century, another period of great developments in production. Unfortunately, consumers were deprived of the beautiful deflation that never was.

They were treated to an unrelenting mild inflation and malinvestments all over the place. A simple observer might ignore basic economics and opportunity cost and say we had the same economy we would have had absent intervention + fiber optic cables. No. It is not simple.

You had diversion of vast resources into bad technology and it’s support structure. Factories were built and tooled. Supply chains were erected. Human capital was diverted. After the burst, liquidation was prevented. There is a global structure of production that is being distorted by central banks and countless resources of human activity, ingenuity, time, and savings are being diverted into sectors and investments that will not bare fruit.
  #68  
Old 10-15-2018, 02:23 PM
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, I think that he fully recognizes what Fed non-independence would do. He doesn't want his assets completely devalued and the dollar not the world currency. He also recognizes that the bull market wasn't going to last forever, so he is looking for a scapegoat. I fully expect him to rail against the Fed and talk about how horrible it is and how it's destroying the wonderful economy that he built. I also fully expect him to do nothing about it of substance and complain that 'the swamp' has his hands tied. The Feds independence is too valuable to him for him to screw with it, so he might complain, but it's virtue signalling to his base rather than notice of intent.
It always goes off on a tangent to categorize Trump's intelligence or 'cunning' (which sometimes just means smart people you want to make sure everyone knows you think are your moral inferior), but this part is basically right. He is putting himself on record to be able to blame the Fed if the stock market gets worse or real economy wilts. That's it.

And actually it's not unprecedented, presidents complaining about Fed rate hikes that is, just fairly unusual. But Trump makes complaints about actions of people who *do* work for him in the executive branch proper, and then does nothing. He does not even say 'the swamp ties my hands'. That's what die hard Trump supporters say to justify his non-action. He himself doesn't give any such excuse. He will just make certain complaints about stuff he could change as head of the executive branch then *do* nothing. Along with myriad things (the NFL, the media etc) he has no direct control over and likewise does nothing. IMO it's 99% likely this will be the same. Or come down to the same debate as whether players/coaches are getting any benefit from the refs for arguing prior calls. If the Fed slows down rate increases, some people will say it's Trump's complaining. But markets don't seem to believe that's likely.

Last edited by Corry El; 10-15-2018 at 02:27 PM.
  #69  
Old 10-15-2018, 05:30 PM
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I'll note that the OP's remarks are free of inconvenient data constraints. See my discussion of real interest rates -- they weren't low during the mid 1990s and if they were higher there's reason to believe they could have set off recession.

For WillFarnaby, 2% inflation, of the sort that we've experienced for the past couple of decades, appears to be a terrible problem.
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I wondered if the Fed should raise margin requirements when "exuberance" becomes "irrational," but I suspect that would lead to a political take-over of the Fed.
No it wouldn't. Greenspan didn't raise margin requirements because he thought that they would be easy for investment banks to circumvent. I say partially effective policy is superior to not doing anything at all. I admit I haven't looked at any studies on margin requirements. (I'd agree that wholly ineffective policies are not worth doing.)

More generally, fed policy during any time period is certainly debatable. But a discussion that's proceeds with an unargued presumption that 0% inflation is optimal inflation ain't the way to do it.

ETA: Another plug for Tim Duy's FedWatch: https://blogs.uoregon.edu/timduyfedwatch/

Last edited by Measure for Measure; 10-15-2018 at 05:34 PM.
  #70  
Old 10-15-2018, 10:09 PM
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I'll note that the OP's remarks are free of inconvenient data constraints. See my discussion of real interest rates -- they weren't low during the mid 1990s and if they were higher there's reason to believe they could have set off recession.
Yes there is reason to believe that. Raising rates sooner would have forced liquidation of malinvestment sooner and the dot-com crash would not have been as drastic.

Quote:
For WillFarnaby, 2% inflation, of the sort that we've experienced for the past couple of decades, appears to be a terrible problem.
No I said it was not "stable prices". It is a problem, but the malinvestment is the main problem with artificial credit expansion.

Quote:
More generally, fed policy during any time period is certainly debatable. But a discussion that's proceeds with an unargued presumption that 0% inflation is optimal inflation ain't the way to do it.
You are one who brought up the dual mandate. There is no non- ideological way to spin "stable prices" into 2% inflation. That is why nobody tries to. They instead focus on the supposed magical benefit of more dollars, namely growth. Is fostering growth among the Fed's mandates?

I didn't say it was optimal. I make no claims about what the inflation rate should be, that is hubris. There are billions of market actors, the trillions of transactions between these actors create prices. There are major developments in the economy you may have heard about. China.

When millions of Chinese were brought in from the unproductive subsistence farms and began working in, at first, primitive, then more efficient factories producing consumer goods that drive down prices and capital goods that in turn increase productivity, the general trend in a world of sound money would be a beautiful, gentle deflation like the great deflation of the 19th century. There is no reason why prices should have rose like that in the 90s and 00s besides credit expansion.

Last edited by WillFarnaby; 10-15-2018 at 10:12 PM.
  #71  
Old 10-16-2018, 12:52 AM
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Price stability, the ECB: "The primary objective of the ECB is to keep prices stable. That means prices should not go up (inflation) significantly, and an ongoing period of falling prices (deflation) should also be avoided. This is because long periods of excessive inflation or deflation have negative effects on the economy." Emphasis added.

Price stability, according to 2 inflation hawks:
"Price stability" is usually interpreted to mean a low and stable rate of inflation maintained over an extended period of time. In our view, the ideal rate of inflation is zero, properly measured. Biases in price indexes imply that, in practice, price stability will likely be consistent with a small positive rate of measured inflation, say 0.5 to 1 percent, depending on the specific price index one looks at.1 Further, price stability does not mean that the price index is constant. Monetary policy could never eliminate every wiggle in the inflation rate; nor should policymakers try to do so.
So the claim that "Nobody tries to spin stable prices into 2% inflation", is falsified. It would be better to substitute, "Most informed observers" for "Nobody".


Will Farnaby appears to advocate a maximally interventionist Fed, that not only targets inflation and output, but also investment and the stock market. There was actually a debate on this during the 1990s; my take is that credit conditions were not especially loose during the 1990s, so fixing chief blame on the Fed for boneheaded decisions on Wall Street seems courageous.

Also the great deflation of the 19th century was anything but gentle: it was an era of volatile output, frequent financial panic, child labor (I just thought I'd throw that in there, though it has nothing to do with monetary policy) and farm unrest.
  #72  
Old 10-16-2018, 01:43 AM
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Price stability, the ECB: "The primary objective of the ECB is to keep prices stable....
Price stability, according to 2 inflation hawks:
"Price stability" is usually interpreted to mean a low and stable rate of inflation maintained over an extended period of time. In our view, the ideal rate of inflation is zero, properly measured. Biases in price indexes imply that, in practice, price stability will likely be consistent with a small positive rate of measured inflation, say 0.5 to 1 percent ...
Am I wrong that a majority of serious economists regard 2% predictable inflation as better than 0%? And that 4% predictable inflation is hugely better than 4% deflation? Reasons:
  • If inflation rates are predictable, they can be built into interest rates and other transactions. With interest rates set appropriately neither borrowers nor lenders will be victimized by predictable inflation.
  • With the dollar worth only 98¢ next year, employees with poor performance can be penalized by simply not giving them a raise.
  • consumers sitting on cash will be motivated to spend it, stimulating the economy.
  • some businesses will be motivated to seek efficiencies to avoid re-printing menus. And most importantly, ...
  • central banks will be able to stimulate the economy when necessary by setting real interest rates to zero or less. Even a nominal interest rate of zero may be too high in a deflationary environment.

I've heard the claim that 19th-century America enjoyed prosperity during deflationary periods. I even downloaded a long text by Milton Friedman but didn't get around to reading it. Is there a good on-line essay supporting or refuting the deflation-with-prosperity claim?
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Old 10-16-2018, 06:45 PM
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I've heard the claim that 19th-century America enjoyed prosperity during deflationary periods. I even downloaded a long text by Milton Friedman but didn't get around to reading it. Is there a good on-line essay supporting or refuting the deflation-with-prosperity claim?
Here's a quick take. The Economist magazine 1999:
Deflation is not necessarily bad. Indeed, productivity-driven deflation, in which costs and prices are pushed lower by technological advances or by deregulation, is beneficial, because lower prices lift real incomes and hence spending power. In the last 30 years of the 19th century, for example, consumer prices fell by almost half in America, as the expansion of railways and advances in industrial technology brought cheaper ways to make everything; yet annual real growth over the period averaged more than 4%.
That's aggregate growth over the era. But the era *also* had a lot of economic instability, leading to progressive reforms such as regulation of railroads and the Federal Reserve Act of 1913. Not to mention child labor laws, the Food and Drug Administration and other violations of gliberarianism.

Estimates of GDP of the era show pronounced volatility. But! Those estimates are probably biased towards volatility: the concept of GDP was invented until the 1930s (Kuznitz), and data wasn't collected systematically until after WWII. https://eml.berkeley.edu/~webfac/cro...1%20Slides.pdf
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Old 10-16-2018, 07:19 PM
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First off, Trump is smart. I know we don't like to think so and for a long time I didn't believe it myself, but it's true. Amoral and narcissistic, but smart. He recognizes that humanity is base and addicted to 'bread and circuses' and he exploits that like a freaking surgeon.
If you want to equate pandering to the lowest common denominator with "genius", that's a value judgment that I don't care to tangle with.

Political success has never been about genius in one particular skill, it's the genius of balancing conflicting interests. On the one hand Trump definitely wants to keep power, which entails keeping the stock market juiced with loose money. On the other hand, the ownership class (including Trump himself) definitely doesn't want to see their assets inflated away to nothing. So the question is less whether Trump is a genius at one thing or the other, but which flavor of genius he chooses to gamble his future on.

Personally i can't hazard a guess, otherwise I wouldn't call it a conflict. That's what makes it interesting.

I don't truck with the notion that "the Fed will blink", because really, have they ever blinked in recent history? And what's at stake for them if they cross Trump? If anything they usually act more cantankerous to prove their independence.
  #75  
Old 10-16-2018, 08:15 PM
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No that is not a good synopsis. A good synopsis would be what I have already said. Fed suppression of interest rates led to malinvestment which inflated a bubble that popped. Ideology caused the Fed to further suppress interest rates and subvert honest price discovery leading to another inflated bubble that popped. Ideology caused the Fed to further suppress interest rates and subvert honest price discovery leading to another inflated bubble that is poised to pop.

This is not a strange view of recent history to mainstream commentators. Larry Summers has said that this is what happened in so many words. He thinks this is the path to prosperity, endless malinvestment followed by interrupted corrections. And of course bailouts. Lots of bailouts.
I agree with your causes and outcomes but not necessarily with the notion that interest rates are driven by "ideology.". I think it's more simple than that. When choosing between causing a recession on their watch, vs inflation on the next guy's watch, Fed Chiefs typically choose the latter. When you have years upon years of inflation eroding wealth you get a guy like Volcker, but for the most part,youre gonna get easy money.
  #76  
Old 10-16-2018, 09:04 PM
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I agree with your causes and outcomes but not necessarily with the notion that interest rates are driven by "ideology.". I think it's more simple than that. When choosing between causing a recession on their watch, vs inflation on the next guy's watch, Fed Chiefs typically choose the latter. When you have years upon years of inflation eroding wealth you get a guy like Volcker, but for the most part,youre gonna get easy money.
That might be what you think should happen, but no. Inflation hasn't been a problem since the 1980s.

Here's a chart of core inflation since 1960. We had a problem during the 1970s. Inflation declined during the 1980s, both before and after Greenspan took over from Volker (though honestly Volker did the heavy lifting). Since around 1995, 2% inflation looks a lot like a soft ceiling, though it's suppose to be a target.

The Fed tries to thread the needle between excessive inflation and recession. IMO, their inflation target is too low, but that's another discussion.

Chart: https://twitter.com/MeasureMeasure/s...63542328799233
Click the picture for a bigger view.
  #77  
Old 10-16-2018, 10:23 PM
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Here's a quick take. The Economist magazine 1999:[INDENT][INDENT] Deflation is not necessarily bad. Indeed, productivity-driven deflation, in which costs and prices are pushed lower by technological advances or by deregulation, is beneficial, because lower prices lift real incomes and hence spending power. In the last 30 years of the 19th century, for example, consumer prices fell by almost half in America, as the expansion of railways and advances in industrial technology brought cheaper ways to make everything; yet annual real growth over the period averaged more than 4%.
True, but remarkable to me this question would have been asked in the first place. Before fiat money price levels could vary but retraced the same levels over prolonged periods. But the 19th century was the time of the industrial revolution, and massive growth in the US due to not only technological improvements (higher productivity) but a large increase in the population. So of course the economy got bigger, a lot bigger.

This page gives the Fed's estimates of the price level (CPI-U 1967=100) in the US back to 1800
https://www.minneapolisfed.org/commu...ice-index-1800
It was 51 in 1800, 25 in 1900. It decreased in the pre Civil War period to 27 in 1860, increased to 47 in 1864 in the high inflation during the war, then back to 25 at the end of the century. The 2018 entry for CPI-U 1967=100 is 752.9.

Real GDP in the US expanded by a factor of 47 in the 19th century, 27 in the 20th century.
http://www.lagunabeachbikini.com/ind...-and-real-gdp/
But US population increased around 14.3x in the 19th century, only 3.7x in the 20th, so real per capita GDP growth was ~2% pa in the 20th century, only~1.2%pa in the 19th.

A debate could be had how much if at all monetary system changes in the 20th century (Fed, later complete abandonment of gold standard) were a factor in higher per capital GDP growth, but a lot of other things were going on: it's obviously not obvious. But it's definitely possible to have a gigantically larger economy with the price level falling over a whole century.
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Old 10-16-2018, 11:33 PM
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I sign off on Corry El's post, especially "It's obviously not obvious." Also, thanks for the links.

I'll reiterate that folks were unhappy with the business cycle during the 19th century, much more than the long run rate of per person economic growth (which was lower compared with the 20th century). Then again, farmers sure felt ripped off in the late 1800s, while those viewing long run trends sometimes wonder what they were complaining about. This matters, as the share of the population involved in farming exceeded 30% in 1900 (and was 64% in 1850). The 19th century economic structure was very different.
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Old 10-17-2018, 09:08 AM
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That might be what you think should happen, but no. Inflation hasn't been a problem since the 1980s.

Here's a chart of core inflation since 1960. We had a problem during the 1970s. Inflation declined during the 1980s, both before and after Greenspan took over from Volker (though honestly Volker did the heavy lifting). Since around 1995, 2% inflation looks a lot like a soft ceiling, though it's suppose to be a target.

The Fed tries to thread the needle between excessive inflation and recession. IMO, their inflation target is too low, but that's another discussion.

Chart: https://twitter.com/MeasureMeasure/s...63542328799233
Click the picture for a bigger view.
I'm not sure I follow your response. I never said inflation has been a problem since the 80's. Having said that, there have been problematic asset price inflations since the 80s(tech bubble, mortgage crisis) that have been the result of easy Fed money (among other things). I should probably have said that the only thing that scares a Fed Chair more than being blamed for a recession is being blamed for a market crash.
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Old 12-18-2018, 11:53 AM
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I'm not sure I follow your response. I never said inflation has been a problem since the 80's. Having said that, there have been problematic asset price inflations since the 80s(tech bubble, mortgage crisis) that have been the result of easy Fed money (among other things). I should probably have said that the only thing that scares a Fed Chair more than being blamed for a recession is being blamed for a market crash.
The last crash was blamed on “fraud” and deregulation. Powell is free to do as he wants. A crash will be blamed on Trump and his tariffs. This unsustainable boom is Bernanke’s doing and mainstream opinion won’t even lay a finger on him. I think Powell should just keep raising the rates and lance the boil. I fear he will yield and back off the hikes, though his signal last week doesn’t seem to have moved the needle.

Trump may pop the bubble with these tariffs, but it was bound to happen at some point. He is continuing to target the Fed for the wrong reasons. I wonder if this will register with his followers as some sort of perverted Bryanism.

There is literally no play for sound money in Washington or New York.

Last edited by WillFarnaby; 12-18-2018 at 11:55 AM.
  #81  
Old 12-18-2018, 07:27 PM
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This unsustainable boom is Bernanke’s doing and mainstream opinion won’t even lay a finger on him.
Bernanke left the Fed 5 years ago this coming January. That's quite an economic theory you have there.
  #82  
Old 12-19-2018, 12:58 AM
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There is literally no play for sound money in Washington or New York.
No argument about the spendthrifts in Washington, but the Federal Reserve is very clearly trying to keep inflation stable and near 2.0% while letting the economy expand.

Or is your claim that 0.0% would be a smarter target for inflation?

The Moody's Seasoned Aaa Corporate Bond Yield is 4.14% — quite low: it was around 8% in the 1990's, though below 4% during most of the 1950's. I would feel happier about the economy if yields were higher while employment remained robust — and I suspect Fed economists would also — but let's not confuse cause and effect. A sharp interest rise now would plunge the economy back into recession.
  #83  
Old 12-19-2018, 09:05 AM
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Bernanke left the Fed 5 years ago this coming January. That's quite an economic theory you have there.
Yes he started the boom by his unprecedented intervention. Yellen continued, then started to wind down. Powell continued Yellen’s trajectory. You disagree that the current expansion started under Bernanke? Of course you called Powell a “hawk” which is significant context for your other opinions. I gotta hear this.

Last edited by WillFarnaby; 12-19-2018 at 09:07 AM.
  #84  
Old 12-19-2018, 09:11 AM
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No argument about the spendthrifts in Washington, but the Federal Reserve is very clearly trying to keep inflation stable and near 2.0% while letting the economy expand.

Or is your claim that 0.0% would be a smarter target for inflation?

The Moody's Seasoned Aaa Corporate Bond Yield is 4.14% — quite low: it was around 8% in the 1990's, though below 4% during most of the 1950's. I would feel happier about the economy if yields were higher while employment remained robust — and I suspect Fed economists would also — but let's not confuse cause and effect. A sharp interest rise now would plunge the economy back into recession.
Who said sharp? The Fed seems to be backing off even the modest trajectory it set over the past few years. I wouldn’t characterize the rate increases in the last few years as “sharp”. Rather they are paltry. So what could we call rate increases less than paltry? Anemic?

Powell seems to be buckling.

Even Volcker has questioned the 2% mantra. It is both a target and a limit? Sounds like BS to me.

https://www.google.com/amp/s/www.blo...flation-target

Last edited by WillFarnaby; 12-19-2018 at 09:15 AM.
  #85  
Old 12-19-2018, 09:25 AM
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Trump is a genius in his own respects, and that is true. But outside of his very narrow genius, he ain't smart. Compared to Trump Jr., yes, he's smart. But that's not a meaningful statement.
I think he's reasonably intelligent when he's not being led around by his dick, or being driven by one of his many personality/ego bugaboos, such as insecurity, narcissism, having to proclaim that his stuff is "the best", etc...

Problem is, those things seem to drag him this way and that without much real recognition on his part. A dispassionate thinker he most definitely is not.
  #86  
Old 12-19-2018, 03:04 PM
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Yes he started the boom by his unprecedented intervention. Yellen continued, then started to wind down. Powell continued Yellen’s trajectory. You disagree that the current expansion started under Bernanke? Of course you called Powell a “hawk” which is significant context for your other opinions. I gotta hear this.
"Started the boom by unprecedented intervention" == QE1, QE2 to fight the financial crisis. Economy recovery drags out over about 8 years.

Fed slows stimulus in 2013, leading to Taper tantrum.

Yellen: Took over Fed in Feb 2014. First rate increase in late 2015, followed by quarterly rate increases starting around early 2017.

Core PCE inflation is currently at 1.8% and falling, below the 2% target. Mortgage applications are in decline. This isn't tight enough for you.

Sure you could raise rates to nuke the stock market, destroying the economy in order to save some sort of psychological attachment to sound money, whatever that is.
  #87  
Old 12-21-2018, 05:46 AM
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"Started the boom by unprecedented intervention" == QE1, QE2 to fight the financial crisis. Economy recovery drags out over about 8 years.

Fed slows stimulus in 2013, leading to Taper tantrum.

Yellen: Took over Fed in Feb 2014. First rate increase in late 2015, followed by quarterly rate increases starting around early 2017.

Core PCE inflation is currently at 1.8% and falling, below the 2% target. Mortgage applications are in decline. This isn't tight enough for you.

Sure you could raise rates to nuke the stock market, destroying the economy in order to save some sort of psychological attachment to sound money, whatever that is.
Your indicators for how tight the policy was are the consequences of the intervention.

My indicator is the policies pursued. They were simply unprecedented by a very large margin. A huge money-printing spree.

There will never be policy that is loose enough by your indicator because the realities of the economic situation in a downturn. Credit is slow to be extended not because we didn’t go into negative rates, but because there are no identified profitable investments to be pursued. The malinvestment liquidation is trying to proceed, but confusing signals are being sent by suppressed interest rates.
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Old 12-21-2018, 05:49 AM
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The Fed did not yield. Yet.

That is some egg I welcome upon my face for now.

I have to hand it to Powell for that. Of course the national anti-Trump tone has given him some shelter. Who knew it would be beneficial to have a president so reviled? Besides every libertarian who ever lived...

Last edited by WillFarnaby; 12-21-2018 at 05:50 AM.
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Old 12-21-2018, 05:54 AM
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Measure for Measure, do you have an example where there was loose policy that led to a quick turn around.

There is simply no good story for the inflationists to tell. Their preferred policy has never been pulled off. Huge attempts at credit expansions have always delayed the recovery, while liquidations hasten it.

Japan- failure. Great Depression-failure. Great Recession-failure.
  #90  
Old 12-21-2018, 05:55 AM
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At this point, you may as well just recognize the Fed as a fourth branch of government, though one not concerned with legislation or commanding the military or interpreting the constitution, but in stabilizing the national economy. So it's not democratic or whatever, big deal. None of the members of SCOTUS were voted in by the public, either.

Last edited by Bryan Ekers; 12-21-2018 at 05:56 AM.
  #91  
Old 12-21-2018, 06:46 AM
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The Fed did not yield. Yet.

That is some egg I welcome upon my face for now.

I have to hand it to Powell for that. Of course the national anti-Trump tone has given him some shelter. Who knew it would be beneficial to have a president so reviled? Besides every libertarian who ever lived...
Still not clear on the premise of why you think the fed would have "yielded", as you phrased it. They are an independent institution who is more usually known to push back when a nervous President gets too demanding about rates.

If anything, the Fed 'yields' to the stock market trends. But having said that, I'm surprised they raised rates this week since all the indices are down for the month, week, quarter, and year.
  #92  
Old 12-21-2018, 08:30 AM
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If anything, the Fed 'yields' to the stock market trends. But having said that, I'm surprised they raised rates this week since all the indices are down for the month, week, quarter, and year.
I suspect that they are (optimistically) hoping that the current mess will inspire a few Congressional Republicans to grow a pair and start restraining the Yam That Walks Like A Man, enabling the market to get back on its normal course.
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  #93  
Old 12-21-2018, 08:53 AM
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Measure for Measure, do you have an example where there was loose policy that led to a quick turn around.

There is simply no good story for the inflationists to tell. Their preferred policy has never been pulled off. Huge attempts at credit expansions have always delayed the recovery, while liquidations hasten it.

Japan- failure. Great Depression-failure. Great Recession-failure.
I can't speak to Japan's economy, but if I'm interpreting your post correctly, you seem to be misidentifying causation of the Great Depression and Recession.

The Great Depression had several root causes, but it wasn't caused by cheap credit. As I've pointed out on at least one other thread, cycles inevitably bust. That's just the way economics works. What matters is how financial institutions respond, and the Fed and the United States government simply didn't respond before 1933 as it has learned to since that time. Money supply actually choked starting in 1928 or 1929, which came before the worst of the Depression. It needs to be pointed out that the Depression wasn't the market crash of 1929 - for one thing the market actually went lower in 1931-32, but for another there was time for policy makers to intervene and stop the bleeding. Instead they made the problem worse, but it wasn't by expanding money supply; the exact opposite happened.

The Great Recession was probably caused, at least in some part, by greater money supply, though better legislative and regulatory mechanisms might have prevented the worst of the fallout from that crisis. But just to be clear, inflation was never a major threat before 2007. The Fed wasn't printing money so quickly that there was an inflation threat; the problem was that it was essentially underwriting speculative investment practices.

What we've learned from both crises is that putting more and more money into the hands of fewer and fewer people...is a baaaaad way to run an economy. It's bad because you give plutocrats more economic power, and by virtue of that, more political power as well. The rest of the economy depends more and more on their decisions on how to spend their money. Actually, I'd argue it's our money, but in any event, when wealth is concentrated, when policies encourage the concentration of wealth, government tends to move away from sound macroeconomic policy and instead tends to be more concerned with addressing the rich man's problem: how do people who already have money use that money to make even more than they already have? Since more of the population has less money, the population as a whole tends to borrow more to live the middle class lifestyle, which means lower interest rates. If interest rates are lower, the rich man's problem is that he can't make money on lending the way he used to. So he needs to get a little creative. He needs to balance the political optics of giving the bourgeoisie access to capital while getting creative, and thus, taking on more risk to make money from the money he already has. That's a recipe for a financial disaster.

And here's the fun part. Wealth inequality is probably as bad as it has been since around 1913. So we know what's coming next: the mother of all financial meltdowns that even the FDIC and Congress won't be able to save us from. It's not a matter of if, but when.

Last edited by asahi; 12-21-2018 at 08:57 AM.
  #94  
Old 12-21-2018, 12:01 PM
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The Great Depression had several root causes, but it wasn't caused by cheap credit.
Oh? I'd gathered the practice of easy margin investing had been a significant element. It's not "credit" in the sense of taking out a bank loan to buy a business, house or car, but it did let low-collateral investors get really dug in on overpriced securities.
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Old 12-21-2018, 12:32 PM
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The Board of Governors will blow him off and keep on doing whatever they want to do. They don't work for him. He can't fire them. They don't need his approval to execute monetary policy. Congress doesn't even provide their budget so there's no Executive Branch ability to screw around with the money allocated by Congress.

Trump is the hungry tiger. The Board of Governors are visitors at the zoo on the other side of the bars.
I would have to disagree with your comfort level about the ability of not being fired to safeguard us from this presidents influence on the fed. Trump seems to know how to apply pressure; he sets someone in his sights and examines them until he finds a weak spot he can exploit. I would never underestimate anyone so unabashedly unscrupulous as Trump.

Remember they are all heads of banks and as such will have vulnerabilities stemming from that. I believe these vulnerabilities alone will cause them to cave.
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Old 12-21-2018, 12:47 PM
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Well the Fed did raise rates.
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Old 12-21-2018, 12:55 PM
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Oh? I'd gathered the practice of easy margin investing had been a significant element. It's not "credit" in the sense of taking out a bank loan to buy a business, house or car, but it did let low-collateral investors get really dug in on overpriced securities.
I wasn't clear -- my error.

Obviously, there was risky lending that occurred in the market, which is a common occurrence during periods of economic expansion. In a capitalist market operating on largely l'aissez faire principles, people who miss a market's early expansion want to join the party. It's a market demand. The investment institutions respond to this demand, but not by offering value investing; rather, they do this by trying to capitalize on that short-term demand, the here and now. They do this in various ways, such as by offering creative, unclear, often deceptive financial instruments which add to the financial institution's bottom line, but ultimately increase the quantity of risk in the aggregate, and decrease the value of the investment. Economic policy is doing its job when it prefers stability and low to moderate growth over instability and wild, speculative growth.

By referring to cheap credit, I was addressing economic policies of the time. WillFarnaby seems to be arguing (I could be wrong) that money supply is a) always bad and further, that money supply expansion played a role in three financial crises, including the Great Depression. As far as I know, there's no evidence of that. In fact, some right-leaning economists such as Milton Friedman and economists at the CATO Institute have argued that it was Fed contraction that hurt the economy. Ben Bernanke, who has studied the Depression extensively, agreed.
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Old 12-21-2018, 01:59 PM
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And here's the fun part. Wealth inequality is probably as bad as it has been since around 1913. So we know what's coming next: the mother of all financial meltdowns that even the FDIC and Congress won't be able to save us from. It's not a matter of if, but when.
Wait do we really know that? I don't want to know that.
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Old 12-21-2018, 02:22 PM
HMS Irruncible HMS Irruncible is offline
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As far as I know, there's no evidence of that. In fact, some right-leaning economists such as Milton Friedman and economists at the CATO Institute have argued that it was Fed contraction that hurt the economy. Ben Bernanke, who has studied the Depression extensively, agreed.
This is also my understanding, and AFAIK it's the well-accepted narrative. Business cycles need not be followed by a crisis of the financial system. The contributing factors are (a) to what extent has investment risk infiltrated the balance sheets of the banking system, and (b) is there sufficient political will to loosen the money supply to create stimulus.

In 1930, loose money wasn't really a concept yet, in fact the gold standard was still in effect. So the knock-on effects were much worse than they needed to be.

In 2008, the banking system was shot through with systemic risk from exotic securities that turned out to be really hard to quantify. I speculate that had McCain been elected, the stimulus spice would have flowed freely and curtailed the recession. But instead, Obama got elected and half the country suddenly got fanatical about government spending at exactly the worst possible time.

I doubt there's much conversation to be had with tight-money people. They point out (I think rightly) that the tighter money is, the sooner asset prices can return to signaling productive investments. But personally I side with flexible money because I agree that the collateral damage to productivity and systemic stability easily wipes out the informational benefit of realizing losses.
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Old 12-21-2018, 03:29 PM
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This is also my understanding, and AFAIK it's the well-accepted narrative. Business cycles need not be followed by a crisis of the financial system. The contributing factors are (a) to what extent has investment risk infiltrated the balance sheets of the banking system, and (b) is there sufficient political will to loosen the money supply to create stimulus..
Agreed, and I don't see how the market avoids excessive investment or taking on risk, which is what people want to delude themsleves into doing from time to time. People, be they CEOs of multi-billion dollar hedge funds or some car salesman turned day trader, want to believe that they're smarter than the market. And they don't want to miss an economic wave. Maybe the financial system could one day integrate AI and weave it into the economy so that it be even better at predicting risky financial activity and which sectors of the economy its coming from, and how to avoid having smaller amounts of risk snowball into something else.


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I speculate that had McCain been elected, the stimulus spice would have flowed freely and curtailed the recession. But instead, Obama got elected and half the country suddenly got fanatical about government spending at exactly the worst possible time.
First of all, McCain literally had no idea what his plan was - he had no comprehensive plan. George W Bush, as negligent and out to lunch as he had been for much of that decade, actually had more of an economic plan than John McCain, and he helped implement the first wave of a coordinated response between the Executive and Legislative branches. Ben Bernanke turned out to be a genius hire, and unlike the moron we have now, the president let the Fed Chair do his job. And what needs to be remembered is that one bad move, one mistake, one perceived error by Bernanke's Fed - even had it not actually been his fault - could have crushed confidence in him. And yet bitter irony is that as low as confidence in government was at that point, we needed a minimal amount of confidence in the institutions who were in the best position to act. Bush succeeded. Obama continued to succeed by recognizing the need to implement TARP 2, and thank fuck he had Democrats to work with. If he'd had to get the consent of the Freedom Caucus, we could have well gone from deep recession to possible financial collapse.

John McCain would have been a disaster as president, and he would have been so almost from the beginning. He would under pressure from his increasingly angry base on the right to make very bad decisions, like not supporting the automotive industry. I don't think we can assume that there would have been a fiscal stimulus. I basically like McCain and he had his moments as a senator, but he never demonstrated he had the capacity to be president in any form other than his military background. Remember: this is the guy who winked and nudged the right wing nuts in his party by picking Sarah Palin. He advocated troop surges, and with it, increased military spending at a time when Lehman was melting down. We were very, very lucky that people elected Obama and the Democrats in 2008.

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I doubt there's much conversation to be had with tight-money people. They point out (I think rightly) that the tighter money is, the sooner asset prices can return to signaling productive investments. But personally I side with flexible money because I agree that the collateral damage to productivity and systemic stability easily wipes out the informational benefit of realizing losses.
Flexible money, insofar as monetary policy occasionally cools down speculative behavior and with a strong regulatory apparatus in place (the latter is badly missing I'm afraid, though it's admittedly hard to argue that the US economy is unregulated). But I think the real underlying problem we have is wealth inequality, and the only solution that makes sense is fairer taxation and then using the revenue on things that the public can use like low-cost (not necessarily free) education and training programs, affordable housing, access to quality healthcare and food.
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