Yelling for Yellin

[Reub]

Well, it seems as if Ms. Yellin is about to testify to Congress and will endorse and possibly extend the QE policy. This could be good for all the components of the PP:

"Yellen Says Economy Performing ‘Far Short’ of Potential"

“I believe that supporting the recovery today is the surest path to returning to a more normal approach to monetary policy.”?

http://www.bloomberg.com/news/2013-11-1 ... ntial.html

[dualstow]

It's Yellen with two e's, no i's.

[dragoncar]

It's Yellen with two e's, no i's.

Yeelln

[Austen Heller]

Yellen = more of the same nonsense

[Libertarian666]

'Yellen noted there is “no set time”? for tapering, implicitly admitted the Fed lost control of the market during the summer so-called taper tantrum, and agreed that investors buy gold to protect from “catastrophe.”?

“It could be costly to fail to provide accommodation [to the market],”? Yellen told Senators on Thursday, making it clear that she is a staunch supporter of quantitative easing and ultra-loose monetary policy.'

http://www.forbes.com/sites/afontevecch ... ering-yet/

Sounds good to me!

[Kshartle]

'Yellen noted there is “no set time”? for tapering, implicitly admitted the Fed lost control of the market during the summer so-called taper tantrum, and agreed that investors buy gold to protect from “catastrophe.”?

“It could be costly to fail to provide accommodation [to the market],”? Yellen told Senators on Thursday, making it clear that she is a staunch supporter of quantitative easing and ultra-loose monetary policy.'

http://www.forbes.com/sites/afontevecch ... ering-yet/

Sounds good to me!

I think she also she and no one else has idea why gold goes up and she doesn't pay attention to it's movements. I listened to her dodge questions all day.

I suspect when it streaks through 2k she will not even think it's related to her printing more and more. As someone with now more than half my savings in gold, silver and the miners I say go right ahead and try to print a good economy Janet!

One of the funnier comments she made was something to the effect that the central bank must continue printing to help get the economy to a place where it no longer needs more printing.

This is like saying I just need to snort enough coke to get high enough for my high to be self-sustaining.....then I can finally quit snorting coke.

[Libertarian666]

'Yellen noted there is “no set time”? for tapering, implicitly admitted the Fed lost control of the market during the summer so-called taper tantrum, and agreed that investors buy gold to protect from “catastrophe.”?

“It could be costly to fail to provide accommodation [to the market],”? Yellen told Senators on Thursday, making it clear that she is a staunch supporter of quantitative easing and ultra-loose monetary policy.'

http://www.forbes.com/sites/afontevecch ... ering-yet/

Sounds good to me!

I think she also she and no one else has idea why gold goes up and she doesn't pay attention to it's movements. I listened to her dodge questions all day.

I suspect when it streaks through 2k she will not even think it's related to her printing more and more. As someone with now more than half my savings in gold, silver and the miners I say go right ahead and try to print a good economy Janet!

One of the funnier comments she made was something to the effect that the central bank must continue printing to help get the economy to a place where it no longer needs more printing.

This is like saying I just need to snort enough coke to get high enough for my high to be self-sustaining.....then I can finally quit snorting coke.

You mean that isn't a good plan? Now you tell us!

[Kshartle]

'Yellen noted there is “no set time”? for tapering, implicitly admitted the Fed lost control of the market during the summer so-called taper tantrum, and agreed that investors buy gold to protect from “catastrophe.”?

“It could be costly to fail to provide accommodation [to the market],”? Yellen told Senators on Thursday, making it clear that she is a staunch supporter of quantitative easing and ultra-loose monetary policy.'

http://www.forbes.com/sites/afontevecch ... ering-yet/

Sounds good to me!

I think she also she and no one else has idea why gold goes up and she doesn't pay attention to it's movements. I listened to her dodge questions all day.

I suspect when it streaks through 2k she will not even think it's related to her printing more and more. As someone with now more than half my savings in gold, silver and the miners I say go right ahead and try to print a good economy Janet!

One of the funnier comments she made was something to the effect that the central bank must continue printing to help get the economy to a place where it no longer needs more printing.

This is like saying I just need to snort enough coke to get high enough for my high to be self-sustaining.....then I can finally quit snorting coke.

You mean that isn't a good plan? Now you tell us!

It's a good idea if you just do more and if it doesn't work it means you haven't done enough. You can never be wrong. It's actually brilliant.

[moda0306]

I think she also she and no one else has idea why gold goes up and she doesn't pay attention to it's movements. I listened to her dodge questions all day.

I suspect when it streaks through 2k she will not even think it's related to her printing more and more. As someone with now more than half my savings in gold, silver and the miners I say go right ahead and try to print a good economy Janet!

One of the funnier comments she made was something to the effect that the central bank must continue printing to help get the economy to a place where it no longer needs more printing.

This is like saying I just need to snort enough coke to get high enough for my high to be self-sustaining.....then I can finally quit snorting coke.

You mean that isn't a good plan? Now you tell us!

It's a good idea if you just do more and if it doesn't work it means you haven't done enough. You can never be wrong. It's actually brilliant.

Not as brilliant as always being wrong and still acting like you had it right all along.  Still waiting for Austrians to get ANYTHING right (well, the inflationist ones, anyway... there are some that realize how credit works in the modern economy).

It's quite simple.  Inflation is very low, unemployment/underemployment is high.  We are also in a balance-sheet recession where lowering rates from .2% to .1% isn't going to do anything.  Higher inflation targets might, though.  We know how the fed would behave in this economic environment because they've told us 100 times.  We know why QE's not working to either generate full employment or meaningful inflation.

One would think, if we truly are "snorting cocaine," that our price level wouldn't be acting more like a junkie passed out on heroine.

[ns2]

We know why QE's not working to either generate full employment or meaningful inflation.

We do?

Why don't you tell us?

[AdamA]

We know why QE's not working to either generate full employment or meaningful inflation.

We do?

Why don't you tell us?

I think he means that QE doesn't do much when banks aren't willing to loan out money.

[Gumby]

We know why QE's not working to either generate full employment or meaningful inflation.

We do?

Why don't you tell us?

I think he means that QE doesn't do much when banks aren't willing to loan out money.

Well, that's not exactly what he's saying — since banks never loan out reserves to customers.

2013 Nobel prize winner, Eugene Fama, recently explained to Rick Santelli why QE doesn't really do anything:

http://video.cnbc.com/gallery/?video=3000211021

It's basically a neutral event...It's no big deal.

Source: http://video.cnbc.com/gallery/?video=3000211021

I don't think we need to discuss QE ad nauseam again. You can either agree with Fama or not. (I do).

[Kshartle]

It's quite simple.  Inflation is very low, unemployment/underemployment is high.  We are also in a balance-sheet recession where lowering rates from .2% to .1% isn't going to do anything.  Higher inflation targets might, though.  We know how the fed would behave in this economic environment because they've told us 100 times.  We know why QE's not working to either generate full employment or meaningful inflation.

One would think, if we truly are "snorting cocaine," that our price level wouldn't be acting more like a junkie passed out on heroine.

Why is it not working in your opinion? Why are prices not rising despite the printing? Would they actually fall if the printing stopped?

How will making things more expensive by devaluing the currency improve the economy?

Incidently this is my point.......I've explained 100 times why QE hurts the economy and doesn't help it, but the "other side" clings to the idea that it just hasn't been large enough.

How much do prices need to rise for the economy to improve and why would rising prices make things better?

[Gumby]

Why is it not working in your opinion?

Because it doesn't really do anything. See Fama's explanation.

Why are prices not rising despite the printing?

Again, see Fama's explanation. It's mostly a non event.

Would they actually fall if the printing stopped?

No. It's mostly a non-event, so it just doesn't do that much. Though, I suppose the price of some financial assets might fall.

How will making things more expensive by devaluing the currency improve the economy?

It won't. Luckily QE doesn't really accomplish that anyway (other than inflating a few financial assets).

Incidently this is my point.......I've explained 100 times why QE hurts the economy and doesn't help it, but the "other side" clings to the idea that it just hasn't been large enough.

Who us? We never said that. We are agreeing with Fama in that it is mostly a non-event. Doing more of a non-event wouldn't accomplish much of anything — it would still mostly just be a non-event.

How much do prices need to rise for the economy to improve and why would rising prices make things better?

Again, it's not about rising prices. It's really about repairing private sector balance sheets. QE really has little to do with it.

[Kshartle]

Moda has said many times he thinks prices need to rise faster to help the economy. I would like to hear why he thinks that will help.

I can't see the video on my work computer. I will try later. I will not let the fact that Fama won a Nobel prize bias me against him. I think the criteria for winning such an award is that you don't understand economics and are an apologist for the government and Fed. Krugman won it and I think he championed the trillion dollar coin and a fake alien invasion to get out of this depression.

Regardless, do you think if the FED was not printing 1 trillion a year prices would be falling?

For Moda.....the goverment has averaged a trillion dollar deficit or so for 5 years......there have been trillions and trillions spent by the feds redistributing wealth on a massive scale.....trillions have been printed......why has this not caused the economy to recover? What would happen if they stopped? Can they ever stop? Is the problem that it just hasn't been big enough?

Not trying to argue guys and if we start to then I have to stop....just curious how the printing, inflation, redistribution etc. is supposed to help.

[Gumby]

I will not let the fact that Fama won a Nobel prize bias me against him. I think the criteria for winning such an award is that you don't understand economics and are an apologist for the government and Fed. Krugman won it and I think he championed the trillion dollar coin and a fake alien invasion to get out of this depression.

Well, then please do not call Fama names and slander him just because you don't agree with or understand his point of view. If you aren't familiar with Fama, he's recognized as the "father of modern finance" and the father of the efficient-market hypothesis, and has made tremendous contributions in portfolio theory and asset pricing. Whether we know it or not, we all use his work whenever we create a portfolio of index funds. He's not really a pundit like Krugman is.

Santelli is definitely a political pundit (he basically started the Tea Party), and you can see his frustration with Fama in the video despite the fact that he clearly has a lot of respect for Fama.

So, I don't expect you to instantly believe Fama, but if you can accept that MR folk simply agree with Fama's explanation, in that QE doesn't do all that much, then we can just agree to disagree.

Regardless, do you think if the FED was not printing 1 trillion a year prices would be falling?

If the Fed stopped QE, I believe stock prices and gold prices would fall — but I think that the price of toilet paper and homes and most goods and services would remain fairly stable. QE inflates financial assets, but that's mostly it. Again, mostly a non-event.

For Moda.....the goverment has averaged a trillion dollar deficit or so for 5 years......there have been trillions and trillions spent by the feds redistributing wealth on a massive scale.....trillions have been printed......why has this not caused the economy to recover? What would happen if they stopped? Can they ever stop? Is the problem that it just hasn't been big enough?

I know this is for moda, but just so we're clear... There is Fed purchases/sales (i.e. Monetary Policy) and Treasury spending (i.e. Fiscal Policy). You can't use one as an example of the other because they accomplish very different things. So, in the question above you are talking about Treasury (Fiscal) spending — which has little to do with QE. And Fiscal spending is about repairing private sector balance sheets and reflation.

I'll let moda finish, but I thought it was best to clarify that.

[Kshartle]

If the Fed stopped QE, I believe stock prices and gold prices would fall — but I think that the price of toilet paper and homes and most goods and services would remain fairly stable. QE inflates financial assets, but that's mostly it. Again, mostly a non-event.

I think if they stop we'll have a deflationary crash and the dollar will gain big time as the supply is rapidly reduced. We'll see....they have to stop first.

[Kshartle]

I know this is for moda, but just so we're clear... There is Fed purchases/sales (i.e. Monetary Policy) and Treasury spending (i.e. Fiscal Policy). You can't use one as an example of the other because they accomplish very different things. So, in the question above you are talking about Treasury (Fiscal) spending — which has little to do with QE. And Fiscal spending is about repairing private sector balance sheets and reflation.

I'll let moda finish, but I thought it was best to clarify that.

Well....they might not be the same thing but......I hope you'd agree that QE raises bond prices which lowers interest rates....you've said as much here. That in and of itself assists the government in spending more on things other than interest payments. If they had to pay higher interest they would have to borrow even more to cover the interest or not spend as much on redistribution efforts (welfare, military etc.)

For all the talk af QE supposedly being done to help the economy (this is the FED folks talking), to me it just looks like they are enabling the government and enriching the already wealthy.

How is increasing it so the CPI gets to 3% or 4% going to improve the economy (Moda question but anyone can tackle if they want to educate me)?

[Gumby]

Well....they might not be the same thing but......I hope you'd agree that QE raises bond prices which lowers interest rates....you've said as much here.

It's complicated because the Fed isn't just doing QE. As Fama correctly points out, the Fed is also paying Interest on Reserves in an attempt to push the short term market rate higher — and they can't do both (i.e. they can't both raise and lower short term interest rates).

That in and of itself assists the government in spending more on things other than interest payments. If they had to pay higher interest they would have to borrow even more to cover the interest or not spend as much on redistribution efforts (welfare, military etc.)

If the Fed is trying to push the short-rate higher and the long rate lower (as Fama and Cullen point out) I can certainly see how QE lowers long term rates (again, inflating financial assets), but that doesn't really matter because A) most of the national debt is short term, not long term... and B) the government has no problem servicing debt when the banks are mandated to buy the bonds that finance a larger debt (the banks actually wrote those laws because they want the commissions and interest). Anyway, we can agree to disagree, but that's just how we see it. I admit that it's complicated and I'm still learning nuances on it when it comes to Interest on Reserves (which is uncharted territory for the Fed).

For all the talk af QE supposedly being done to help the economy (this is the FED folks talking), to me it just looks like they are enabling the government and enriching the already wealthy.

What they are really doing is enriching owners of financial assets (i.e. bankers) and padding them with extra commissions as volume increases. I don't like that.

How is increasing it so the CPI gets to 3% or 4% going to improve the economy (Moda question but anyone can tackle if they want to educate me)?

I'll let moda (or others) answer.

[Gumby]

I can't see the video on my work computer. I will try later.

I have the transcript here, for you. I do recommend watching the video, if only to see Santelli get really agitated and emotional while Fama stays cool, calm and collected.

(bold emphasis is mine)

Santelli: As a noted economist, as you look at the QE programs as we embark on a Fed meeting, can you tell me your observations about the current program and what you see as potential issues when we get to a point when we have to reverse the interest rate subsidies now imbedded in our markets?

Fama: Sure. Actually, I've been doing research on that very question for the last six months. I think that what they are doing is — the effects of it are greatly inflated by the accounts. So what has the fed been doing? Well, in 2008, they changed the game they were playing and they started paying interest on reserves. And they're paying interest on reserves currently, at slightly above market rates. Now, what that means is reserves are now basically just short-term debt. So what they've been doing is issuing a lot of short-term debt, $85 billion a month, and using it to buy back long-term debt — with the goal of lowering the interest rate on long-term debt. Now, they take credit for the low interest rates on short-term debt, but, in fact, what they've been doing should have raised the interest rate on short-term debt, not lower it. Because you can't do both. If you're issuing interest-bearing securities to buy other interest-bearing securities, you're pushing up one rate and pushing down the other rate. But, what happened? Actually, the short rate fell during that whole period. So...

Santelli: Well, when I — you know, professor — when I talk to people that are buying cars, when I talk to financing — financing homes — and, of course, we saw the run-up that started in May in interest rates, all of that was called in to question. I guess a simple question at this point would be — what we've seen in terms of interest rate volatility, and then the Fed pulling back on tapering, is Janet Yellen going to ever find the right time, sir? You know, I know your market-efficient work has many issues with it, like "irrational exuberance." Are we going to have an irrational interest rate market dur to the inputs of the Fed?

Fama: No. Because I think they are basically neutral events. I don't think they do very much. They just...

Santelli: So, Www WW wWWW WW When the balance sheet reaches $4 trillion, professor, I guess my question is, in the economy down the road, both globally and domestically starts to pick up, they want to start to control the velocity. Wouldn't it be the normal course of action that they would sell securities to pull some of that capital back in, isn't that normal operating procedure for a central bank?

Fama: Sure. But this...

Santelli: So, what happens $4 trillion of those securities, that you start putting back out there to take the money, isn't that going to poison the well in terms of interest rates moving up dramatically!?!

Fama: Ok. So can I answer?

Santelli: Yeah.

Fama: Ok. So they have $4 trillion on one side of the balance sheet, they have $4 trillion on the other. So, all they’ll do is get rid of one side, retire the reserves, and that will lower the balance of the securities that they hold. It’s basically a neutral event. It maybe has a little effect on the shape of the term structure, but it’s no big deal. It’s not like it was in the old days…

Santelli: So, Professor… Professor, let me interrupt again. So, if it’s no big deal, then why don’t all central banks just do this to the nth degree and make it a constant, day-to-day, week-to-week event, where they purchase what’s issued, keep interest rates low, and just target a low rate forever? Why won’t that work there? Why don’t we embark on that as a neocentral banking policy?

Fama: Well… There’s so much confusion in what you said, it’s difficult to answer. Ha! They haven’t been lowering the short rate. They’ve been putting upward pressure and it’s gone down despite them. So, they don’t have that much effect on these rates. That’s my whole point. And what they’re doing now in just issuing short debt to buy long debt…That’s kind of a nothing activity.

Source: http://video.cnbc.com/gallery/?video=3000211021

[moda0306]

Well, there are a few things that are important to note...

- We are currently under capacity, so low interest rates and lots of government spending is simply going to go unloaned and use up idol capacity, respectively.

- Our big deficits didn't improve the economy or result in inflation because it wasn't enough to both 1) use up said idol capacity, and 2) meet foreign demand for our currency (trade deficits of about $500 Billion).

- We've said many times why QE is a near-non-event.  It doesn't give us inflationary fuel on our balance sheets.  In fact, combined with Interest on Reserves, and no real reserve constraint (elements of the banking system), it is probably even more of a non-event than we previously thought.  A bank can literally earn more interest with reserves than they can with a t-bill!!!

- While I'd prefer the actual quantity of financial assets on people's balance sheets to rise rather than have the real burden of their debts fall, raising the inflation target raises inflation expectations, and therefore spurs on demand and therefore investment.  It also allows interest rates to function on a much more natural level.  Interest rates can't go negative, in nominal terms, so savers can get REAL yield by just hoarding currency.

The underlying concept that I think Austrian's aren't grasping is that a "recession" and "unemployment" (above some natural rate) is a result of a monetized economy.  Linking all our economic transactions, and more importantly our liabilities to one another, to a fixed currency is unnatural, and if you look historically is actually a function of the state.

If we're going to have a monetized economy, we need enough base and credit-based money or financial assets in the system to service our debts and grow our real economy.  Simply put, we need more "base" financial assets (NFA's printed by gov't... either t-bills or cash/reserves) to more healthily both service or debts and engage our economy at full capacity, as well as service foreign demand for our currency.