Randall Wray: The World’s Worst Central Banker

10.5.2012 Leave a comment

L. Randall Wray, a heterodox economist and proponent of Modern Monetary Theory who teaches economics at the University of Missouri at Kansas City, wrote an amusing account of a central banker get together in Argentina.  I have reprinted in full to motivate those who read it to travel to Wray’s blog, where the original can be found and which contains much else of political and social interest. The full text can be found below the break.

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Michael Hudson discusses QE3

9.24.2012 Leave a comment

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President Obama wants to respect Constitutional limits

7.7.2011 Leave a comment

After Barack Obama’s meeting today with Republican leaders — during which they discussed the pain they would spread around the country and when they also agreed that they could live with the pain they will cause if they go through with their plans — it was left to Treasury Secretary Geithner to whip up Congressional support for the latest austerity budget. In this, the New York Times reports:

Mr. Geithner appeared to be playing a role not unlike that of Ben Bernanke, the chairman of the Federal Reserve, who warned lawmakers in the fall of 2008 that unless Congress voted to bail out the banking system, the credit crisis threatened to plunge the United States into a depression. Stunned by Mr. Bernanke’s dire depiction, the lawmakers undertook measures that were until then unthinkable.

Lest his warnings go unheeded,

…Mr. Geithner told the lawmakers the White House did not believe it had the authority, under the Constitution, to continue issuing debt if it reached the debt ceiling. Nobody in the room disputed Mr. Geithner’s bleak assessment, the officials said.

Naturally, this President, a man of principle and a Constitutional scholar, would not want to exceed the authority given to his office by the Constitution. Never would he choose a path marked by excess and legal impropriety. He would not act unconstitutionally even though his doing so would spare so many they pain this austerity budget will inflict upon them. It is just not in his nature. He will not flinch when forced by circumstances to look deeply into the abyss; nor would he refuse to throw the “lesser people” into this nothingness when duty demands that he do so. He, like Kennedy, would ask them what they can do for their country.

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Complacency triumphs over catastrophe

6.22.2011 1 Comment

The New York Times provides this report on the Fed and its plans:

And at the end of June, the Federal Reserve finished its work and rested.

The nation’s central bank said Wednesday that it would complete the planned purchase of $600 billion in Treasury securities next week as scheduled, and then suspend its three-year-old economic rescue campaign, leaving in place the aid it already is providing but doing nothing more, for now, to bolster growth.

“The economic recovery is continuing at a moderate pace, though somewhat more slowly than the committee had expected,” the Fed said in a statement. “The committee expects the pace of recovery to pick up over coming quarters and the unemployment rate to resume its gradual decline.”

Shadow States compares the official U3 and U6 unemployment rates to its adjusted rate:

Shadow Stats and Official Unemployment Rates

I think it is rather clear that the Federal Reserve Bank, the Obama administration and the current Congress have not done enough to address the employment problem in the United States. Nor, it seems, do they intend to do much about this human disaster.

Complacent and vicious — that’s the American way of government when it comes to providing for common folk.

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A concise picture of our current bubble economy

5.7.2011 Leave a comment

Mike Whitney painted this one:

Assets bubbles require massive amounts of leverage. But too much leverage can destabilize the system, so it needs to be regulated. But Wall Street doesn’t like restrictions on leverage because it can make more money by borrowing like crazy, inflating a ginormous bubble, skimming off the profits, and cashing in before the crash. So, the Fed ignores Wall Street’s “gearing” operations and pretends not to see what’s going on. It becomes a bubble “enabler” by lowering interest rates, easing credit and waving-off tighter regulations. It’s all part of the game. The Fed works to help its core constituents while everyone else is put at risk.

But there’s another reason for bubbles, too. Stagnation is a chronic problem in mature capitalist economies. As businesses become more efficient in their various widget-making operations, demand for their products drops off making it harder for owners to find profitable outlets for investment. And when investment starts to flag, then grip of economic inertia begins to tighten. As author Robert Skidelsky says, “investment fills the gap between production and consumption”, so when investment hits a speed-bump, spending starts to wither and the economy slows to a crawl.

The Fed’s remedy: Zero rates, easy money and more bubbles; Professor Bernanke’s one-size-fits-all, magic elixir for sclerotic economies. In other words, the emerging stock and commodities bubbles are not a sign that the Fed is flubbing the policy. Bubbles are the policy, and have been for a very long time. Bernanke is no fool. He knows that each business cycle is weaker than the last, creating fewer jobs, more slack in the economy, and more anemic growth. His job is to endlessly tweak the process in order to maintain profitability for the people at the top of the economic foodchain, his real bosses.

What sound does this financial dinosaur make when it dies?

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And the coaster plunges down, down, down….

5.5.2011 Leave a comment

Mike Whitney reports that:

A bleak jobs report sent stocks and commodities tumbling on Wednesday, while new signs of distress gripped the service industries index. An updated report from the ADP showed that private sector hiring slowed more than expected from March to April as companies struggled to meet rising raw material costs and flagging consumer demand. The service industry index (ISM) –which “ranges from utilities and retailing to health care, finance and transportation”–slumped to its lowest level since August signaling widespread deceleration and a progressive deterioration in the fundamentals. The turnaround has forced economists to rethink their projections for 2nd Quarter GDP and to watch more vigilantly for signs of contraction.

The problem, of course, is a demand-constrained economy. There is simply not enough money in the hands of consumers for them to purchase goods in such a quantity that the firms who supply those goods will increase their productive capacity to meet the demand. Whitney continues:

The dollar strengthened for the third straight session, in spite of the Fed‘s zero rates and $600 billion bond buying program. Trillions of dollars in monetary and fiscal stimulus have jolted stocks back to life, but debt-deflation dynamics in the broader economy are as strong as ever. Unemployment remains stubbornly high, consumer retrenchment has reduced discretionary spending, and housing continues its inexorable nosedive. The stock market continues to inch higher buoyed by central bank liquidity and margin debt, but investors are increasingly skittish and searching for direction.

High unemployment (well above 20% according to SGS), a comparatively anemic real wage, massive consumer debt and rising energy costs (an effect produced by peak-oil, the Fed’s loose money policies and commodity speculation) make consumers hesitant to spend on goods they might truly need (food, shelter, clothing, health and transportation) and certainly hesitant to spend on goods they may want. Generally speaking, America’s standard of living is declining, and economic techniques intended to promote asset inflation are useless tools to rely on when the real economy is in such a state.

Left critics of the Bush and Obama’s economic policies can always crow that they warned the Presidents of what would happen if they followed their inclinations and their advisors. But such words amount to a pyrrhic victory given the current trend that ends with another deep recession.

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