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Fed Must Embark On New Stimulus Blitz, Urges Retiring Deputy Chairman Donald Kohn

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http://www.telegraph.co.uk/finance/economics/7984867/Fed-must-embark-on-new-stimulus-blitz-urges-retiring-deputy-chairman-Donald-Kohn.html

The Federal Reserve must embark on a new blitz of measures should the recovery continue to make little dent in unemployment, a leading light at the central bank for the last four decades has said.

Donald Kohn, who retired as chairman Ben Bernanke's deputy with little public fanfare last week, admitted that "it's going to be a slower recovery. But acceptance of that reality is not a reason for the central bank not to do everything it can to help the recovery along."

The Fed has kept interest rates at a record low of 0pc to 0.25pc since December 2008 and, like the Bank of England, has printed money in an effort to quicken the recovery.

Despite this unprecedented, and for some controversial, package of policies, the economy has lost momentum over the summer, with the politically explosive unemployment rate climbing to 9.6pc last month.

In an interview with the New York Times, Mr Kohn also signalled that it was the possibility of deflation, rather than inflation, that was more troubling.

"If those [inflation] expectations begin to drift down, we could get into a situation where real interest rates start to rise," he said.

Mr Kohn's decision to speak just days after ending 40 years in Washington, comes as the Fed's Open Market Committee (FOMC) - the group that decides on monetary policy - confronts an increasingly fraught policy challenge.

"There's going to be a much greater diversity of views than usual" on the FOMC, said Stephen Lewis, an analyst at Monument Securities.

The question for the Fed, according to Mr Lewis, is whether they are 'pushing on a piece of string' should they decide to print more money.

Some of the chiefs at the Fed's regional banks appear to think so.

Thomas Hoenig from the Kansas Fed doesn't believe the economy needs any more help, according to the minutes of the bank's last meeting; meanwhile, Narayana Kocherlakota, President of the Minneapolis Fed, said that there may be little that the central bank can do about unemployment because the boom left too many people with skills for industries, like construction, that are now struggling.

FIAT MONEY INFLATION IN FRANCE

And, first, in the economic department. From the early reluctant and careful issues of paper we saw, as an immediate result, improvement and activity in business. Then arose the clamor for more paper money. At first, new issues were made with great difficulty; but, the dyke once broken, the current of irredeemable currency poured through; and, the breach thus enlarging, this currency was soon swollen beyond control. It was urged on by speculators for a rise in values; by demagogues who persuaded the mob that a nation, by its simple fiat, could stamp real value to any amount upon valueless objects. As a natural consequence a great debtor class grew rapidly, and this class gave its influence to depreciate more and more the currency in which its debts were to be paid.[85]

The government now began, and continued by spasms to grind out still more paper; commerce was at first stimulated by the difference in exchange; but this cause soon ceased to operate, and commerce, having been stimulated unhealthfully, wasted away.

Manufactures at first received a great impulse; but, ere long, this overproduction and overstimulus proved as fatal to them as to commerce. From time to time there was a revival of hope caused by an apparent revival of business; but this revival of business was at last seen to be caused more and more by the desire of far-seeing and cunning men of affairs to exchange paper money for objects of permanent value. As to the people at large, the classes living on fixed incomes and small salaries felt the pressure first, as soon as the purchasing power of their fixed incomes was reduced. Soon the great class living on wages felt it even more sadly.

Prices of the necessities of life increased: merchants were obliged to increase them, not only to cover depreciation of their merchandise, but also to cover their risk of loss from fluctuation; and, while the prices of products thus rose, wages, which had at first gone up, under the general stimulus, lagged behind. Under the universal doubt and discouragement, commerce and manufactures were checked or destroyed. As a consequence the demand for labor was diminished; laboring men were thrown out of employment, and, under the operation of the simplest law of supply and demand, the price of labor—the daily wages of the laboring class—went down until, at a time when prices of food, clothing and various articles of consumption were enormous, wages were nearly as low as at the time preceding the first issue of irredeemable currency.

Remember it's all contained.

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http://www.nytimes.com/2010/09/06/business/economy/06fed.html?_r=1&ref=business

The former vice chairman of the Federal Reserve, who retired last week after 40 years at the central bank, says that the economy is in “a slow slog out of a very deep hole,” and that the Fed should consider additional stimulus unless the recovery shows signs of “decent progress.”

The departure of the official, Donald L. Kohn, who as the Fed’s No. 2 official played a pivotal role in its handling of the financial crisis, is something of an end of an era. A staff economist who worked his way up through the ranks, Mr. Kohn was one of the last direct links to Paul A. Volcker and Alan Greenspan, the chairmen who defined the modern Fed.

“Each day, he brought to the role of public servant enthusiasm, dedication, intelligence and a deep sense of purpose,” said Ben S. Bernanke, the Fed chairman since 2006, who had recommended that President George W. Bush nominate Mr. Kohn to be his top deputy.

In a telephone interview from Seattle, where he was vacationing before starting work as a senior fellow at the Brookings Institution, Mr. Kohn, 67, said he believed the Fed should take additional measures — like resuming purchases of government securities to keep long-term interest rates low — if the recovery continued to slow.

“To not trigger something, I would want to see that there was the prospect of progress in the forecast toward achieving both much higher levels of employment and, eventually, higher inflation, closer to my 2 percent target,” he said.

More of this at the link.

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It's China stupid!

Pumping more money into a broken system doesn't mend the system, it just goes straight out to more jobs/surplus in China and a bigger US deficit.

You'd have thought someone might have figured this out by now.

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Our betters look at the 1930's and say.......

the mistake they made was not printing money.

They have a point.

But doing as they are will ultimately destroy the value of everything which is not either habitable of profitable.

Buy land and housing?

Buy food production and supply

Buy medical

Sell art, classic cars, nice to have not need to have assets?

The more we see of this the smarter I think the buy to let brigade are. So there's a temporary collapse of prices but long term? And pass the extra houses IHT free to next of kin?

Maybe we on this forum have got it wrong?

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The more we see of this the smarter I think the buy to let brigade are. So there's a temporary collapse of prices but long term? And pass the extra houses IHT free to next of kin?

Maybe we on this forum have got it wrong?

It depends on what happens, in a hyper-inflationary environment you may have to sell the house to buy food.

Until it's all over we have no idea what the smart move was, those that have survived with wealth will have been lucky rather than having had good judgement.

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The more we see of this the smarter I think the buy to let brigade are. So there's a temporary collapse of prices but long term? And pass the extra houses IHT free to next of kin?

Maybe we on this forum have got it wrong?

I don't think they're necessarily smart as such. Happily for them, they have found themselves part of the 'too big to fail' system.

Edited by pandora's box

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What would happen to house prices, mortgages and wages in a hyperinflationary environment?

They mostly stay flat.

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What would happen to house prices, mortgages and wages in a hyperinflationary environment?

Those with mortgages get to pay them off quite easily, just think if you have £1m notes in circulation paying off your mortgage is rather easy.

However in When Money Dies......

In Germany a few of the victims of inflation actually obtained a minimal restitution. By 1922 the unfairness with which wealth and incomes were being redistributed had become extremely noticeable, the more so as the rights of creditors were being so outrageously usurped by the absurdly wide distinction between nominal and market values: the real value of a mortgaged property, for example, was no comfort to a creditor who had to accept paper rather than gold while the property itself remained securely in the debtor’s hands.

As the clamour grew, with support from the Courts,* (Most notably by a judgment given by the Supreme Tribunal at Leipzig on November 23, 1923.) against the iniquities which inflation had caused, the government attempted to redress what grievances it could. By the decree of February 14, 1924, known as the Third Taxation Ordinance (one of more than 70 ordinances issued during the period of the Enabling Act), industrial debentures and mortgages were revalued at 15 per cent of their original gold price. Mortgage bonds, savings bank deposits and other obligations were revalued at slightly higher rates. Meagre as these terms may have been, they meant nothing to people who had been obliged to part with their securities or whose credits had been paid off in paper earlier on. A further law of July 1925 therefore introduced a retrospective element to cover extinct mortgages and debentures which had been held in good faith since at least five years before, and raised the rate of mortgage revaluation to 25 per cent.

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What would happen to house prices, mortgages and wages in a hyperinflationary environment?

They would all inflate, but house prices would inflate less than the other two.

Interest rates would go up, ahead of inflation, as otherwise the banks make a loss. Then jobs start to go, as economic activity slows, due to the uncertainty that hyperinflation brings. This causes defaults on both rents and mortgage payments, as people forgo payment of these, to buy food instead, so Mr BTL defaults too. By the end of it, no one wants or is able to buy a house, rents aren't being paid, many people squatting etc.

If hyperinflation comes, the best things to have are easily to trade items. Small bottles of whiskey, tinned food, bottled water etc. Gold/silver are not good during this crisis (although may still have some value), as people want food/heat/shelter instead. However, post hyper-inflationary period (or at least when it seems to be past the worst), you would be able to buy a house in gold/silver for a fraction of today's values.

Edited by Traktion

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In hyperinflation though the aim is not to win, the aim is to lose less than everybody else which is where all the elites are positioning themselves.

So while wealthy people like say Buffet will lose 90% of purchasing power everybody else will lose close to 100%. At which all of the hedges Buffet has bought precrash are used when the hyperinflation stops. Which means relatively compared to before and after he is even richer than before. The numbers on his bank account maybe smaller once the hyperinflation is killed but the purchasing power of it will be phenominal.

At which everything is stamped property of the US government or The Fed/Bank of England, and we reboot the system again whereby the banks own everything and rent seek us all bleeding us dry....

Oh wait this already happened!

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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