Almost four years ago in August of 2015, I wrote the below blog entitled Humpty Dumpty Monetary Policy. No insult to Humpty but those clowns at the Fed were wrong in 2015 and they are even "wronger" today.
https://larrydavidsonspoutsoff.blogspot.com/2015/08/humpty-dumpty-monetary-policy.html
It is amazing how persistent stupidity can be. We have a new head of the Fed and we have a much stronger economic situation, yet the people at the Fed have decided that the only way to do their business is to run interest rates lower than a limbo dancer in Nassau.
Sure, the Fed spent a little time letting interest rates rise above zero, but that's not exactly what I would call normalcy. Any of you who have seen me after downing my usual nightly supply of JDs might question my ability to know normalcy when I see it -- but any of you who are trying to save for retirement or even for a new back yard trampoline know that zero interest rates are not your friend.
You argue -- Larry the Fed raised rates a jillion times in the last couple of years. Larry retorts. Friends, look at the markets today. The rate on a 10 year government bond is about 2% as I write. 2%! Really! You call that high? Factor in an inflation rate of prices of 2% and you get what? Yes math genius. You get a ZERO return. Factor in an inflation rate of 3% and well I don't want to say anything negative. Hmmm -- so much for that trampoline.
Read the articles in the newspapers lately -- this Fed board member and that board member are sooooo worried about the economy they must consider lowering rates. If zero real rates won't solve the problem, will minus 2%? I think not. Like pushing the blood back into a hole in your arm won't fix your medical problem, -2% interest rates won't do a thing for our problems today. What is wrong with those educated bimbos running the Fed?
And if that isn't bad enough, Pelosi and Trump have finally decided to agree about something. Apparently they both love nude hot tub parties. No just kidding. Yikes, please gouge my eyes out. To what are they agreeing? A government with trillion dollar deficits each year and a national debt soon to exceed the size of the entire economy is better than a Bob Dylan 8-track to them. That is truly sad and dangerous. No insult to Bob Dylan or 8-tracks intended.
Do I sound like I am yelling? I hope not. But come on dudes -- have we ever had a worse Fed and government? Ever?
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Yeah this seems completely insane to me, was kind of shocked to see so much mainstream support for it, or at least a lack of pushback. What's the tie between the Fed and politicians/elections? That's the only motivation that makes any sense to me
ReplyDeleteThe motivation is the temptation of policymakers to do what seems the most obvious and will get them the most power and glory. It sounds so nice to stimulate the economy and help people. Sadly, the help does not always work. But by the time the negative effects roll in they can blame them on someone else and get on to helping a another time. More sadly, the people do not catch on to the game.
DeleteI am struck by the increasing number of times that I read that "many economists" ( whoever they are) are wondering whether ballooning debt, either short or long term, matters anymore as long as we borrow to invest in growth. Not questioning unfettered and boundless borrowing strikes me as about as sensible as questioning whether recent beliefs as to the fact that the earth is round should be revisited. Are there no sacred principles left?? Have we no stakes in the ground?
ReplyDeleteThanks Ed. What's this rumor about the world being round? Seems crazy to me. Anyway, boundless debt makes sense only in a world where politicos and journalists become snake oil salesmen. Fooling the public is a historic pastime. As long as the regular people keep buying the oil, the pols will give it to us. And the pols will continue to gain power and wealth.
DeleteDear LSD. I’m nonplused listening to “allegedly fiscal conservative” Congressman and Senators rationalize the “goodness” of the budget deal, why they voted for it or are going to vote for it, and that it’s a wunnerful example of bi-partisanship. Senators also said they collaborated with DJT last week to work out details that all could agree on. The only thing I can imagine is they’re ‘fraid of shutt’n down the govomit going into ’20 elections. If true, the only justifiable outcome of ’20 is that by not shutt’n down the govomit Rs regain the House majority and at least keep the Senate majority—gaining a few seats there won’t mean much. Yet that would likely be a flaccid success ‘cause the last time Rs had the trifecta they shut down the govomit in ’19 and failed to put a stake in Obummercare. Limp-wristed rationales and a bunch of “kick-the-can-down-the-roaders” and gutless wonders.
ReplyDeleteI can’t see far enough over the ocean horizon to a day when entitlements are cut to at least balance the budget—much less start to reduce the deficit. Likely though it might occur when my fins come to rest deep in the tuna bone yard and the kicked can rolls to a stop.
Things are pretty rough when even the Great Tuna loses his optimism. It is hard to even imagine a happy ending to all this stupidity. Maybe at least it will be an exciting ride to Hades. Maybe we should get t-shirts that say something like, "Make America Venezuela Again"?
DeleteNo estas loco en la cabeza!
DeleteNo?
DeleteSi.
DeleteTwo things, Doober. The argument against low interest rates should not be that my real rate of return is zero. There are far too many more cogent arguments. Your arguments that you stated earlier were better. But too many powerful people want to juice the economy.
ReplyDeleteAlso as a ginormous Dylan fan, it would be nice to have a Dylan 8-track even though I have never had an 8-track player.
Hi J.
DeleteI had an 8 track player in 1969. I wish I had kept it.
Would you rather use an unreal rate? :-)
The low real rate tells you a few things. First, savers are getting screwed. Second, it induces too much risk to savers who want to try to get a higher return. Third, it creates an unrealistic incentive to borrowers and causes them to take too much risk. The low real rate should say all that. I think it needs to be said. The Fed really sickens me right now. I expect Trump to be wrong but the Fed should know better. They send the very worst signals that they think they can really finetune the economy. They can't. Finetune your radio. Not the US economy.