Posted by Michael A. Kamperman on December 5, 2010
We are witnessing the last throes of the idolatry of hard money. The era of hard money officially ended when the Federal Reserve correctly decided we needed to print our way back to prosperity. Yet few have noted the end of the era, and fewer still understand its implications, because of the wailing and knashing of teeth from the ardent disciples of hard money. They scream hyperinflation and want to back the currency with gold. They are confused with the concept that the federal government’s dollar resources are not finite, but infinite. Hence, they fear deficit spending and federal debt despite the impossibility of the federal government ever defaulting on debts it owes in dollars. Many mistakenly believe if the federal government prints money it increases rather than decreases the national debt. Hard money religion is our historical heritage, but it is not our future, and is no longer even our present. The sooner we can come to terms with the end of the hard money era, then the sooner we will be able to heal our self-inflicited fiscal wounds with the new tools of the soft money era. The hard money idolatrists are taking us down the austerity path that will break our society apart. Society will come to its senses and exile the idolatrist to the scrap heap of history. Ireland is about to do so because they have been asked to absorb too much pain for someone else’s gain. It is only a matter of when we do the same here. Since our current political leadership is comprised mostly of hard money idolatrists, including multiple priests of the religion, it will take time for change to come.
Hawaii has cut 17 school days to save money. Yet the state has the buildings and the books, the parents want the kids to go, and the teachers want to come and teach. How can we be sitting in the twenty first century and everyone agree we need something we already have the resources for and yet we throw up our hands and say we can’t do it? The reason is the idolatry of hard money and the mistaken belief that dollars are a finite resource for the federal government. All Congress has to do is pass another stimulus bill to send aid to the states, and these problems will be solved. Yet hard money idolatry has us staring at the print button and saying we dare not touch it. Now we are staring at the state of Arizona cutting Medicaid patients out of transplant programs to save money. A 32 year-old father in need of a liver transplant has been removed from the waiting list because he is poor and couldn’t show up at the hospital with $200,000 in cash. The hospital and the doctors are there, yet access is denied. Again, federalising Medicaid would end this nonsensical atrocity.
Fortunately for us many of the priests of hard money who are railing against debts and deficits and runaway spending, such as our President and most of our Republican and Democrat Senators and Congressman, are actually false prophets and charlatans. As politicians, they are willing to tell us anything to maintain their own base of power and the perks that come with it. Otherwise, we would not be looking at an all-but-certain extension of all the tax cuts enacted by both President Bush and President Obama along with an extension of unpaid for unemployment benefits in the midst of trillion dollar deficits. Most of these so-called deficit hawks are not true believers. They simply manipulate the beliefs of others to gain votes. When the polls change, they will change with the polls. This is actually our saving grace. All it will take to bring about true change is to change public opinion. And as President Obama has found out, the public can change opinion fast.
Posted by Michael A. Kamperman on March 13, 2010
President Obama and his economic team have finally stumbled upon the absolutely best economic decision they could make by nominating Janet Yellen, President of the San Francisco Federal Reserve Bank, to the position of Vice-Chair of the Fed. Ms. Yellen would go from currently being a non-voting member of the Fed to a permanent voting member of the Fed’s Open Market Committee that sets interest rate and other Fed policies, like quantitative easing. Ms. Yellen is considered a Dove on monetary policy because she believes the Fed has a dual and equally compelling mandate to target both inflation and unemployment, as in current law. Many though would probably prefer a Hawk who would represent someone who tilts toward inflation as being the ever more pressing concern of the Fed, and therefore considers unemployment conditions as secondary to Fed policy. While unemployment is currently our nation’s number one problem, the best reason to nominate Ms. Yellen is not because she is a Dove. It is because she is not an anachronistic ideologue trapped in a 19th century understanding of the role of money in our society. She is the antithesis to Ron Paul and his “get back on gold and get rid of the Fed” religion.
Importantly, Ms Yellen doesn’t believe that monetary policy should be limited to the zero barrier of interest rate policy. Not many people are willing to loan someone some of their money and then pay them to boot. But Ms Yellen understands that in a deflationary environment the Fed needs to seek ways to use monetary policy to stimulate demand even when interest rates are already set at the barrier of zero. Hence, under the right conditions Ms. Yellen is an advocate of quantitative easing. Well, anyone who doesn’t understand that we are in the midst of the right conditions is either dumb, blind, or lying. If not now, when? The Kansas City School District is on the verge of shuttering almost half of their schools due to a severe lack of funds. Washington can simply send the school districts more money and pay for it by having the Fed buy the Treasuries issued to finance the policy. I don’t know anyone who doesn’t want America’s kids to have the best education in the world. So why is Washington twiddling its thumbs while thousand of Teachers continue to get pink slipped?
While President Obama has made a wise choice, I will with-hold rendering judgement on whether the Whitehouse finally gets it, or whether the Whitehous is simply playing politics and throwing a bone to the Progressive wing of the Democratic Party. You see there are two other vacancies on the Federal Reserve’s Open Market Committee that President Obama and his economic advisers have irresponsibly ignored for the last 14 months. If this is stumbling economic luck for us because of politics, then we will know it when President Obama fails to fill the other two Fed seats soon with people who hold similar views to Ms. Yellen. But if the Whitehouse isn’t buying their own snow job on jobs, then they know they need to find Fed Governor’s that will continue quantitative easing rather than those that prefer to end it like the current voting members of the FOMC. After March the Fed will no longer be in the bond market buying up mortgages primarily backed by U.S. agencies. Someone will step in and buy those mortgages. But will someone else be available to step in and buy whatever those people were buying, like junk bonds or Greek Sovereign debt? The Fed and the Bank of England purchased almost $2 trillion worth of U.S. and U.K. debt in the last year. Where does that money come from when they step aside? They have purchased almost as much as China has in foreign reserves. They have purchased more than twice as much as exists in the world’s largest sovereign wealth funds. The only way to replace all of the money is to use leverage, or to resume quantitative easing. Otherwise the world will spend the next year robbing Peter to pay Paul. Please President Obama, show us you get it and put two more Yellen’s on the Fed.
Posted by Michael A. Kamperman on December 9, 2009
President Obama has decided to use the $200 billion in unspent TARP funds to fund his jobs initiative and to reduce the deficit. The TARP fund is growing as the Treasury has allowed Bank of America, and will soon allow Citigroup and Wells Fargo, to repay the TARP funds they received. The President wants to focus on capital gains tax cuts, jobs tax credits, home insulation tax credits, increased SBA funding for small businesses, and some further aid to the states for shovel ready infrastructure projects as his main thrust on improving the unemployment picture. The Administration continues to argue the stimulus plan has been successful and has generated 1.6 million jobs, which is true as long as one closes their eyes and ignores the 7 million jobs lost and the failure to create the additional 3 million needed jobs to keep up with population growth. Another major stimulus plan is not in the cards. The President’s jobs plan is focused on politics and not on economics. The President wants to argue the stimulus plan was a success, that he is concerned for the unemployed and willing to provide some additional aid, and that the deficit will be reduced by returning some unspent TARP funds. The problem is the Treasury is allowing the banks to repay TARP by delevering their balance sheets by shrinking their loan portfolios. Hence hundreds of billions of dollars are not being lent to small businesses and consumers so these banks can repay their TARP funds. This is just one more example of coddling Wall Street at the expense of Main Street. It would be much better for the economy to force the banks to keep the TARP funds and lend them rather than to have them returned and to put forth wasteful job creation ideas like an employers tax credit and a cut in the capital gains tax. The vast majority of these tax benefits will go to successful companies that were going to hire people anyway.
Meanwhile, the Administration needs to understand the federal government’s economic actions are not occurring in a vacuum. The states are projected to run budget shortfalls of over $350 billion in 2010 and 2011. The size of the additional inefficient federal spending for jobs is only a fraction of the size of the cuts coming from state and city governments. The loss of bank credit for small businesses combined with job cuts from state and local governments dwarf the size of the additional help President Obama is offering with his minimalist new initiatives.
It is past time for President Obama to fire Summers, Geithner, and the rest of his economic team and to bring in people who understand we are still in the midst of a global economic meltdown. We need the federal government to spend a lot more money and we need the Federal Reserve to print a lot more money or we will see a massive double dip in the global economy similar to the second big dip in late 1931 that eventually drove the unemployment rate to 25% in 1933. The collapse of Dubai is not happening in a vacuum. All of a sudden Greece has been downgraded and Spain has been put on notice by the rating agencies. The credit markets are tightening up again as reality sets in and the bear market bounce ends. We need reality to reach the Whitehouse so they recognize their shrewd TARP moves are taking away more than they are giving.
Posted by Michael A. Kamperman on September 28, 2009
Sheila Beard and the governing board of the FDIC will probably require banks to pre-pay their FDIC deposit insurance premiums for the next 3 years in advance. The reason is the FDIC has run out of money and there are still many troubled banks that need to be closed. Closing a bank costs money and the FDIC is required to have the cash available to fund the closing costs. The FDIC is not technically broke. Deposit insurance is backed by the federal government and the FDIC has a $500 billion line of credit from the U.S. Treasury that they can tap at anytime. But the mood in Washington is to do as little as possible for the economy and to kick the can down the road in the hope and prayer that an economic rebound will materialize to solve the economic problems. The last thing Washington is interested in doing is spending political capital to fix the economy. Hence, the FDIC is borrowing a page from the Treasury’s stress tests of the banks and prefers using smoke and mirrors to pretend everything is not really so dire as opposed to formulating real concrete solutions to fix the real problems. The FDIC has at least ruled out the sham scenario of borrowing money from the large banks that it backs to assure us our deposits are safe in those banks. The reason the FDIC has chosen an advance premium payment over the other options is because the accounting for the advance from the banks will not hurt the earnings of the banks. Basically, a bank will be allowed to expense over 3 years its premiums even though it is required to pay them up front, hence the smoke and mirrors.
What is truly troubling about the choice the FDIC is about to make is it confirms that no substantial additional help is coming from the Whitehouse to restore credit and create jobs. The board of the FDIC should stand up and be counted. It should tap its line of credit at the Treasury and declare that it will ensure that banks that are too weak to lend will be closed and their deposits will be transferred to institutions that will extend credit to consumers and small businesses. Of course, that would require fixing most of the large banks that the Treasury has turned into Zombies that keep cutting back on their lending to preserve capital. It would require creating a true “bad bank” that will absorb the toxic assets and free up the flow of credit once again. But that would require a lot more money and would use up political capital that is being saved for healthcare reform and then energy reform.
Accounting gimmickry gave us Enron. Accounting gimmickry gave us large banks with off-balance sheet SIV’s stuffed with AAA rated no money down, no job, bad credit mortgage-backed securities. Enough with giving us gimmicks. President Obama, please get yourself a new economic team that will tell you that you need to make hard choices. The same type of hard choices your generals are telling you need to make in Afghanistan. At least the military is laying it out on the line and giving you a clear picture of the truth and the ramifications of your decision. You need someone on your economic team that will tell you the truth about the suffering of the American people. You need someone, anyone, that will tell you more time and the stimulus plan will not heal the potentially mortal economic wounds our nation has been struck with. The last person who wants to see you go down as the re-incarnation of Herbert Hoover is me. The economic team you have now is giving you the same quality of advice that Hebert Hoover’s economic team gave him. For starters the FDIC is going to need a lot more money than just 3 years of upfront premiums.
Posted by Michael A. Kamperman on August 13, 2009
Don’t ask me because I don’t know the answer. For many years now the U.S. consumer has been the source of final demand and has driven the global economy forward. Because of the collapse of available consumer credit, the U.S. consumer has reigned in their spending as evidenced by today’s disappointing retail sales report. Why some were surprised that rising unemployment and restricted access to credit led to lower retail sales is the real mystery. They explain the aberration in their mind away by guessing that since 200,000 people purchased a clunker in the last week of July that caused 300,000,000 people to close their wallets for the whole month. Who are these people that get passed off to us as experts? Today it was also reported that the Euro-zone economy contracted less than expected and that France and Germany actually had a small amount of positive economic growth in the second quarter. But this growth came from the calculations of modern alchemists known as economists. Because imports dropped faster than exports fell in both countries, the alchemists claim they are now growing. Countries with declining imports are buying less from others because they have weak economies. In no way are they positioned to drive global growth going forward. Many will claim China is prepared to drive global growth forward. China’s has a production oriented economy that is dependent on selling goods to the West. The West is buying less and less. China calculates its economic growth based on production and not based on final demand. So if China builds something nobody wants and sticks it in a warehouse they claim positive growth. If China has such a strong economy why are their imports falling too?
My concerted opinion remains that the key to restoring global economic growth relies heavily on reviving the spendthrift U.S. consumer. With excess debt levels and deflation prevalent in the U.S. and the rest of the world, the only way to restore the U.S. consumer is for the Fed to pursue a much more aggressive policy of quantitative easing. A step they failed to take at yesterday’s meeting. According to the economic data the U.S. economy was still declining in July. The predictions that the recession has ended by some alchemists and the consensus of the alchemists that the U.S. will see positive economic growth in the second half of 2009 looks to be in jeopardy right now. The problem is these alchemists continue to talk about how long past post World War II recessions lasted and base their forecasts on the false assumption that we remain in the inflationary growth economy that defined the first 62 years of the post-war period. Those days ended in August of 2007 and we have returned to a debt-induced deflationary depression.
Fortunately, the Fed with at least three blind mice as voting members did not signal an end to further shots of quantitative easing despite wide spread media reports to the contrary. What the timid Fed did was they punted the ball to the next meeting to make a final decision. Hopefully they can open their eyes and see the economic truth between now and then.
