Jump to content
House Price Crash Forum
Sign in to follow this  
interestrateripoff

Alan Blinder Fires First Shot Across Qe3 Bow: Says We Need More Stimulus To Boost Employment

Recommended Posts

Zerohedge

A little under a year ago Moody's Mark Zandi and Princeton economist and former Fed vice chairman Alan Blinder penned a paper titled "How we Ended the Great Recession" which did nothing but extoll the virtues of spending trillions in both fiscal and monetary stimuli and preventing U3 from hitting 16% (of course how one proves a counterfactual is irrelevant: just remember - if the Fed disclosed its top secret bailout plans the world would end. Same thing here - accept it - after all the guy is a professor at Princeton). In a nutshell Blinder is nothing but Paul Krugman on steroids: a man who believes that there is nothing worse in this world than establishing fiscal (and monetary) discipline now. Well, in an interview with Tom Keene earlier, Blinder fired the first shot across the QE3 bow, telling his Bloomberg host that the US needs "somewhat more" fiscal stimulus once again in order to boost employment (hold on: didn't we end the Great Recession, and certainly the normal one in the summer of 2009 according to the NBER?). How this would be accomplished in the current climate is not explained. Instead what Blinder says makes one wonder just who is on the tenure committee at Princeton - when asked how we bring the deficit in without austerity, the Princetonian responds: "Unfortunately I think it is very subtle for most political processes especially for the political process in the US. What we should be doing is somewhat more fiscal expansion but at the same time legislating into law fiscal consolidation for the future. Starting 2 years from now, 3 years from now, 18 months from now. But not now." Of course never now: why bite the bullet now when it can be kicked to some other administration in the indefinite future? Especially when tenure money and/or Wall Street bribes are at stake...

Basically, let's just incur as much debt as possible now, and eventually it will get better. And this is happening now almost 2 years after the recession supposedly ended. Naturally, there will be no fiscal expansion: not with the current political set up. Which leaves just one option - monetary stimulus. And since Blinder is very close to the Fed, we are confident that the two-way dialog between academia and Federal Reserve is already under way, making it clear that if no fiscal stimulus will be forthcoming, then QE3 certainly will have to take its place. Especially now that the Economy has once again taken a turn for the worse.

That said, we have to thank Mr. Blinder for providing the first direct evidence that the prevailing throught among the Princetonian circle is one of further stimulus. The only question is whether it will be fiscal or monetary.

What do I know about anything I'm not a prof at Princeton, although one would have thought an economist would have read about what happened in France, Weimar etc.... Instead we get it's different this time, the last time we printed money it worked, so if we do it again this time the results will be even better and we'll boost employment...

Video at the link.

Share this post


Link to post
Share on other sites

Remember economic history doesn't repeat, any similarities are coincidental and this time it's different.

http://lynncoins.com/fiat-money-france5.htm

I have now presented this history in its chronological order—the order of events: let me, in conclusion, sum it up, briefly, in its logical order,--the order of cause and effect.

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.

The mercantile classes at first thought themselves exempt from the general misfortune. They were delighted at the apparent advance in the value of the goods upon their shelves. But they soon found that, as they increased prices to cover the inflation of currency and the risk from fluctuation and uncertainty, purchases became less in amount and payments less sure; a feeling of insecurity spread throughout the country; enterprise was deadened and stagnation followed.

New issues of paper were then clamored for as more drams are demanded by a drunkard. New issues only increased the evil; capitalists were all the more reluctant to embark their money on such a sea of doubt. Workmen of all sorts were more and more thrown out of employment. Issue after issue of currency came; but no relief resulted save a momentary stimulus, which aggravated the disease. The most ingenious evasions of natural laws in finance which the most subtle theorists could contrive were tried—all in vain; the most brilliant substitutes for those laws were tried; “self-regulating” schemes, “interconverting” schemes—all equally vain.[86] All thoughtful men had lost confidence. All men were waiting; stagnation became worse and worse. At last came the collapse and then a return, by a fearful shock, to a state of things which presented something like certainty of remuneration to capital and labor. Then, and not till then, came the beginning of a new era of prosperity.

Just as dependent on the law of cause and effect was the moral development. Out of the inflation of prices grew a speculating class; and, in the complete uncertainty as to the future, all business became a game of chance, and all business men, gamblers. In city centers came a quick growth of stock-jobbers and speculators; and these set a debasing fashion in business which spread to the remotest parts of the country. Instead of satisfaction with legitimate profits, came a passion for inordinate gains. Then, too, as values became more and more uncertain, there was no longer any motive for care or economy, but every motive for immediate expenditure and present enjoyment. So came upon the nation the obliteration of thrift. In this mania for yielding to present enjoyment rather than providing for future comfort were the seeds of new growths of wretchedness: luxury, senseless and extravagant, set in: this, too, spread as a fashion. To feed it, there came cheatery in the nation at large and corruption among officials and persons holding trusts. While men set such fashions in private and official business, women set fashions of extravagance in dress and living that added to the incentives to corruption. Faith in moral considerations, or even in good impulses, yielded to general distrust. National honor was thought a fiction cherished only by hypocrites. Patriotism was eaten out by cynicism.

Share this post


Link to post
Share on other sites

Zerohedge - shot 2 for more printing - this time it's the giant squid

Yesterday, when we presented the Bloomberg interview of Princeton economist and former Fed vice chairman Alan Blinder, we speculated that his statement that "more easing is necessary" was the first shot across the QE3 bow. Today, Goldman's Sven Jari Stehn has fired the second one in a paper just released titled: "Fiscal Adjustment without Fed Easing: A Tall Order" in which he basically takes our conclusion from the Blinder interview to the next level. As Blinder said previously, in order to improve the once again deteriorating labor picture, more fiscal stimulus would be necessary. That, however, is impossible, especially in a Congress where everyone is now promising $4 trillion of deficit cuts over the next few years. The only difference is how this cutting will be achieved: republicans want spending cuts, while democrats are demanding tax hikes for the richest. While neither approach will work in the US without the shock of a bond-crash induced austerity, Goldman conducts an thought experiment in which it evaluates the effectiveness of a tax-based and a spending-based fiscal consolidation. While finding that on average spending based deficit reduction is more effective, it only truly works in parallel with assistance from monetary policy: be it an interest rate decrease (impossible due to ZIRP) or further Large Scale Asset Purchase (QE) program. In other words, the only thing that can prevent an economic contraction in the next 2 years of semi-austerity, will be more monetary easing.

Furthermore, Goldman also openly admits that in either fiscal case, the drag on economic growth will be substantial. "A number of studies have shown that adjustments focused primarily on spending cuts (“spending-based consolidations”) tend to be notably more successful at delivering such large consolidations than revenue-based ones. Building on work done by the IMF, we identify two reasons for this difference. First, spending-based consolidations are usually more persistent, as they are often combined with structural reforms. Second, spending cuts tend to be less damaging for growth than tax increases...A key factor behind this difference in success, however, is the response of monetary policy. While spending-based adjustments are typically accompanied by monetary easing, tax-based ones often see monetary tightening. Using a counterfactual experiment which “shuts down” the interest rate response, we show that the difference in growth damage between spending and tax-based adjustments narrows sharply..With the funds rate close to zero, our analysis implies that both spending and tax-based consolidations are likely to act as a significant drag on growth. Nonetheless, spending-based adjustments might still be the lesser of two evils, particularly if combined with entitlement reform and fiscal rules that come with a strong enforcement mechanism." Translation: the economy will slow materially regardless, but without monetary easing it will crash. Next up: cue an enjoinder by the New Jersey installment of the Ivy League, and the balance of Wall Street, all of whom realize that their bonuses are suddenly at steak.

We said yesterday that "we believe that with this the opening salvo for more cash demands, which will be met with staunch opposition in D.C., thereby kicking the ball back to the Fed (which already is doing everything in its power to deflate all commodities as rapidly as possible - a trend which will sooner or alter engulf risk assets as well) the only alternative is monetary. Aka more quantitative easing. And when that becomes apparent, and when Goldman's Jan Hatzius is firmly on board, the full court press for another round of easing can begin." Well, Goldman just got on board. Look for the cries for more monetary intervention courtesy of a Congress which can't make up its mind about a debt ceiling hike for 4 months to escalate over the next 2-3 months as the economic reality turns aggressively south. At that point the Chairman will be faced with a daily barrage of "experts" who are screaming "deflation... or printing." We have a guess which one Ben will chose.

From Sven Jari Stehn of Goldman Sachs

I. Fiscal Adjustment without Fed Easing: A Tall Order

The US needs a very large fiscal consolidation as we expect a primary (ex-interest) deficit of 7.7% of GDP this year. Stabilizing the debt stock eventually requires the primary budget to be close to balance. Although some of this deficit is cyclical, the structural deficit (defined here as the primary deficit adjusted for the cycle and one-off accounting changes) currently stands at 6% of GDP. Moreover, this is the very minimum adjustment needed as stabilizing the debt stock at current levels—or even returning the debt ratio to pre-crisis ratios—would require a much larger fiscal consolidation.

Long article much more at the link.

So Goldman finds spending cuts work better than taxing the rich, providing you cut spending and increase free money for the rich.

Shocker.

Share this post


Link to post
Share on other sites

Zerohedge

What do I know about anything I'm not a prof at Princeton, although one would have thought an economist would have read about what happened in France, Weimar etc.... Instead we get it's different this time, the last time we printed money it worked, so if we do it again this time the results will be even better and we'll boost employment...

Video at the link.

When no two economists can ever agree

and when no economist saw this crash coming despite it being obvious to many 'ordinary' people

Then IMO your opinion is just as valid as his opinion.

:blink:

Share this post


Link to post
Share on other sites

The debate goes on. I saw a good blog post a week ago which warned of the dangers of more Quantitative Easing by the US Federal Reserve.

Why does this matter so much?

If we look at what we have been told by the US Federal Reserve we have in my opinion been told time and time again that the US employment/unemployment situation is their priority. For example in my article on the 28th of April I wrote this about Chairman Bernanke’s press conference.

He re-emphasised the problems with high unemployment several times during his speech.

Now if we go back to yesterdays initial claims figures I hope that you can see the problem. After the shock effect of the headline figure it is sensible to look at the four-week average for some perspective. If you do that you see a number which is not only rising but is back to the levels of last autumn. This is a real problem because the policy of QE2 which was supposed to help deal with this problem was instituted on November 3rd and will end in June. By then some US $600 billion will have been spent on buying US government debt.

So it is possible that QE2 may be failing at what is its main objective which is to reduce US unemployment and that even worse trends may now be heading in the opposite direction. If so then the door to QE3 starts to look rather ajar. If Ben Bernanke does become a fan of the Average White Band’s “Let’s go round again” or Gerry Rafferty’s “Get it right next time” then we face a problem I have written about since virtually the beginning of this blog. As a re-start of QE means that the previous efforts have been a failure why can we reasonably expect that a new effort will work? Continuing the musical theme will the economy and financial markets quote the theme from CSI? “Wont get fooled again?” by the Who.

The fundamental problem with this cycle is that it is in danger of becoming self-fulfiling as the need for QE3 implies that there will be a need for QE4 and QE5 and so on….. So it implies that there may be no exit strategy at all.

http://t.co/gnWcI1E

I notice that US jobless claims figures were high again this week.

Share this post


Link to post
Share on other sites

and when no economist saw this crash coming despite it being obvious to many 'ordinary' people

Not true. Nouriel Roubini. was very vocal about it in 2005 predicting a catastrophic housing bust. He very publicly warned the IMF in 2006.

Share this post


Link to post
Share on other sites

Not true. Nouriel Roubini. was very vocal about it in 2005 predicting a catastrophic housing bust. He very publicly warned the IMF in 2006.

Then everyone had a stiff drink and forgot about it. Plus he had no fancy computer model and therefore was talking crap, why think when you can get a computer to do it for you.

Share this post


Link to post
Share on other sites

Then everyone had a stiff drink and forgot about it. Plus he had no fancy computer model and therefore was talking crap, why think when you can get a computer to do it for you.

Absolutely right.

Share this post


Link to post
Share on other sites
Not true. Nouriel Roubini. was very vocal about it in 2005 predicting a catastrophic housing bust. He very publicly warned the IMF in 2006.

Imagine if, in 2006, a prominent engineer had gone around warning that most of our domestic infrastructure was unsound and in danger of collapsing- then, two years later, bridges began to collapse all over the world- what kind of a bust up would this have created in the world of engineering? How many would have been simply sacked as totally incompetent ?

Yet in the fantasy world of economics the very same people who failed to even notice their entire universe was about to implode are to be found writing in the economist, attending conferences and being asked for their 'wisdom' as if nothing had changed- even the theoretical framework they employ has barely altered- a complete joke of a profession.

Share this post


Link to post
Share on other sites

Rich banksters think spending cuts and monetary easing are better than paying more taxes shocker.

:lol::lol::lol::lol:

Americans are so stupid it hurts.

Share this post


Link to post
Share on other sites

Imagine if, in 2006, a prominent engineer had gone around warning that most of our domestic infrastructure was unsound and in danger of collapsing- then, two years later, bridges began to collapse all over the world- what kind of a bust up would this have created in the world of engineering? How many would have been simply sacked as totally incompetent ?

Yet in the fantasy world of economics the very same people who failed to even notice their entire universe was about to implode are to be found writing in the economist, attending conferences and being asked for their 'wisdom' as if nothing had changed- even the theoretical framework they employ has barely altered- a complete joke of a profession.

Its called Cassandra Oracle i.e. you can pretty much tell the future except that you are cursed because nobody believes you. Unfortunately they come back and blame you for it because rthey chouise not to listen.

Best one is this:

In 1992, Sinead O'Connor tore up a picture of Pope John Paul II during a performance on Saturday Night Live to protest sexual abuse of children within the Roman Catholic church. At the time it was enormously controversial, but less than 20 years later, multiple incidents of the church's abuse of children, and coverup of the abuse, became an international scandal.

Share this post


Link to post
Share on other sites

Rich banksters think spending cuts and monetary easing are better than paying more taxes shocker.

:lol::lol::lol::lol:

Americans are so stupid it hurts.

Amazing the uber rich think it's better to cut services than tax them more.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 284 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.