Posted by Michael A. Kamperman on March 29, 2011
A debate has erupted between Paul Krugman and James Galbraith over whether or not deficits matter in the long run. The debate centers on the utility of Modern Monetary Theory, which in a nutshell is the usefulness of the federal government printing money to stimulate demand. While I agree with Galbraith, the specifics and nuances of the debate are not important (they can be found on Paul Krugman’s blog). What is important is that the debate is taking place. On the national level no one is talking about the federal governments ability to print money and end the current depression. All of the talk is about the debt and the deficit and the existential threat they make to the United States. Of course such thinking is hogwash since we can pay all of our debt by pushing a button on a computer, and we control the computer printing press. We still think and operate as though we are on the gold standard and bound by the physical laws of nature. We are no different than ancient people who would sacrfice a community member to apease the gods and try to make it rain during a drought. Basically, we are economically sacrificing so many people; students and teachers, construction workers, the disabled, the poor, and so many more. The reason for the sacrifice is because we are afraid our currency and economy will collapse into bankruptcy and hyperinflation when we reach the point where we are unable to pay back the debt caused by large deficits. It matters not whether the number entered into the computer to print is $1, or $10, or $10 million, or $10 trillion all that is required for the U.S. to pay back its debt is to enter any number and hit print. It’s not like gold, we cannot run out of the stuff. Yet we are willing to close nursing homes and school libraries and let college graduates move back home with Mom and Dad with nothing to do all day but play video games because we are afraid to use something that we have an unlimited supply of, which is dollars. If we would use those unlimited dollars, then whole country could go back to work in weeks.
Hopefully this debate will be joined by others giving it a chance to make it up the chain to the policy maker level, because no one at that level is talking about it. They need to start talking about something besides austerity. Imagine you are a young man with 5 minutes to get to your Valentine’s Day date at a fancy restaurant with a girl you’ve been dying to go out with. You realize you forgot your wallet and you ask me for help. I offer you a choice of my wedding ring made up of $500 worth of gold, or a $500 bill. If you want the date you have to grab the paper, because the ring can’t buy you dinner at the restaurant and the paper can. So why in the world are we worshipping the ring and obeying its rules rather than using the paper and following its different set of rules?
This country desperately needs this debate. For starters, we need QE3 and a big new stimulus plan. Home prices are still going down because it is too difficult to get a mortgage. I know of a young couple who applied for an FHA mortgage and were turned down on their own and needed a co-signor. They both graduated from college and had no debt. They both had full-time jobs in their field of study and they both had a good credit score. But because they had no debt they had very little credit history. Under the new rules you cannot get an FHA mortgage without two years history on three different credit lines. Your rent cannot be used as evidience you will pay your mortgage. What you really need are three credit cards. It is unfathomable that the federal government, which already back-stops 90% of the mortgages in America, would have policies keeping qualified borrowers out of the market over a fear of the taxpayer losing one more dime. Even though the federal government can mint the dimes. We need sanity to return and this debate may return it. As an aside Bob Herbert has left his position as a New York Time columnist. He got the problem. His last words were about how we need new leadership and new ideas. Ditto!
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 November 11, 2010
Well, it’s looking like 60% of the American population is wrong. Those that believe cuts in government spending will lead to more private sector jobs have to take a good look at Cisco. The giant networking company warned that sales will miss forecasts because of a dramtic drop in orders from austerity crazed European governments and U.S. states forced to balance revenue starved budgets. Simply put, when governments order technology products they are creating private sector jobs. When governments build roads, bridges, and buildings they are creating private sector jobs. When they increase healthcare spending they are creating private sector jobs. We have yet to see the real impact of the cuts in private sector jobs in the U.S. because we still have enhanced federal spending from the stimulus bill. The rubber will meet the road when that stops in 2011. In my own state of Texas the two year budget looks to be $25 billion short of revenue. Since Governor Perry dreams of a Presidential run tax increases are off the table. Yesterday, local school districts were told to brace for multi-million dollar cuts per district in state spending for K-12 education starting with the 2011-2012 school year. There are over 1,100 school districts in Texas. Everything is going to get cut. These cuts will fall hardest on capital expenditures like technology and construction projects.
Thankfully the Federal Reserve has the foresight to realize we are up the creek without a fiscal paddle and they plan to print money to help shore-up the gap. They need to print 10 times more than the $600 billion they started with. My thinking is this is just the ante and the Fed will push all in before this is over. The unknown question is will liquidity trump falling demand in regards to asset prices. While the initial reaction was to bump assets prices up, the Cisco news clearly thumped it back.
Meanwhile, the inept Obama economic team continues to push mumbo jumbo proposals to restore the economy. The President’s new head of the Council of Economic Advisors Dr. Goolsbee believes the U.S. can grow exports from $1.5 billion to $3 billion by 2014. By 2014, is he out of his mind! Does he not see European austerity mania and Asian protectionism as insurmountable obstacles? Did he not see the Dream Liner fire from the Whitehouse cocoon plaguing our largest exporter Boeing? The President is in Asia telling everyone they cannot count on U.S. consumers borrowing money to spend. This means he believes in the same liquidationsist Austerian School of economics practiced by Herbert Hoover and others that led to abject failure in the past. Those that fail to learn from history are doomed to repeat the same mistakes. Sadly, a confused American populace believes the same thing because the case for Keynsean spending is being defended by an inept Whitehouse that doesn’t even believe it themselves. Somewhere in America a champion needs to rise up and preach a different economic gospel than the one the Whitehouse is force-feeding us.
Posted by Michael A. Kamperman on November 4, 2010
Honeymoon’s are meant to be fun, so enjoy this one. It won’t last and reality will bite in a few months. The Fed made the right call to print $600 billion more between now and next summer. Importantly, they left the door wide open to keep right on printing if circumstances warrant. Additionally, the President and the Republicans are playing nice in the same sand box for the time being with talk of extending the Bush tax cuts for all. But euphoria will soon give way to reality. Despite all the talk about giving everyone a tax cut, the truth is everyone’s tax rates will stay the same as they have been since 2003. And, the Making Work Pay payroll tax cuts under the stimulus plan will end in 2010 unless extended. There is an extension in the President’s proposed 2011 budget, but the House of Representatives failed to pass a budget and we are currently working under a continuing resolution. If the budget doesn’t clear the Lame Duck session, then the President will be negotiating the 2011 budget with the Republicans despite having huge majorities in both houses of Congress prior to the election. The Republicans want to roll non-defense discretionary spending back to 2008 levels. The true extent of the state and municipal budget holes will be on full display in early 2011, no longer masked by the stimulus aid to the states. The reality of austerity is about to bite hard.
Take Texas for example. The state is now projected to have a $21 billion two year budget deficit when the legislature meets in January. By law they must pass a balanced budget. Governor Rick Perry has Presidential aspirations and ran for re-election vowing not to raise taxes, so savage spending cuts are about to hit the state. Not exactly good for job creation. And you can forget about the mess in Illinois, California, Nevada, Arizona, Florida, etc., etc., etc.
Looking forward the key will be how the debate unfolds as the economy turns down. The unemployment report is already reflecting the heavy job losses in state and local governments. New homes sales set a multi-decade quarterly low in the third quarter and there is no reason to expect sales to turn-around soon with the foreclosure/mortgage mess. Will cutting spending be seen as a solution a year from now, or a tragic mistake? Here perception is what’s important, not reality. Because if reality were important the country wouldn’t be flirting with austerity in the first place. Hoover saw Republicans routed in mid-term elections in the early 1930′s taking severe heat for the depression. But by 1938 FDR saw Democrats routed taking blame for attemtpting to balance the budget too soon thereby sending the economy into another tail-spin. Most of the country is not with the Republicans, nor the Democrats, nor the Tea Party, nor Progressives. The election was about the most recent perceptions. What the country is with is turning around the economy and restoring jobs. They want to restore opportunities for the young and dignity for the retired. But most people simply don’t know how to get from here to there and don’t know whom to believe. Becasue the Democrats failed to deliver the populace assumes the Republican message of less spending must be right. Polls show over 60% believe cutting government spending increases private sector jobs. The economy will turn lower despite quantitative easing, because the boost Bernanke is providing is not large enough to offset the drag coming from austerity. How this is spun will go a long way in determining whether or not the country can get fiscal policy right to end the depression in 2012, or whether we will have to wait at least until 2016. The President has shown he is not up to the task of defending Keynesean stimulus, so others will have to step forward before the 2012 die is cast.
Posted by Michael A. Kamperman on October 30, 2010
The way to solve problems is to come up with creative solutions. Since Keynesean economics is off the table in Washington in 2011, then other ideas for federal economic aid will need to be implemented. The best form is not tax rate cuts, but flat tax refunds. The Treasury should spend one trillion dollars and mail every American who files a tax return a $3,000 check. For example a family of four would receive $12,000. Some will save the money and many will pay down debt, but many will also spend all or a portion of the money they receive. Current consumer spending will create jobs. Plus, those that save or pay down debt create the opportunity for greater spending levels in the future. It would be inflationary, but we need a little inflation right now. The core inflation rate in the preliminary third quarter GDP report is down to .6%. Deflation is less than 1% away. Since the Fed is about to print one trillion dollars anyway the tax-refund wouldn’t add directly to the debt. Lowering tax rates places most of the money in the hands of the wealthiest who are the least likely to spend it because they already earn more than they spend now. This form of stimulus would continue automatically every 6 months until the unemployment rate drops below an average of 8% for the trailing six months. Then it would be written into the statute that it automatically ends.
The idea can be sold as a bi-partisan compromise whereby everyone is a winner. It takes conservative principals and achieves liberal goals. It is certainly pro-business. Imagine being from a conservative district voting against a tax-cut refund, or from a liberal district voting against passing out checks to the poor and unemployed. While there might be more effective ways to spend one trillion dollars to boost the economy, none of them have a snowballs chance in hell of passing. This idea does. Considering we are in a debt-induced deflationary depression, then we can let those who fuss about heading down a moral slippery slope voluntarily return their checks to the Treasury. Those that think they don’t need the money and it should have been directed more wisely can donate the $3,000 to the charity of their choice.
The last thing the country needs after the pending 2010 mid-term wipeout of the should have focusing on jobs, jobs, jobs Democrats is for the President and Congress to engage in a two year war of grid-lock. That would be irresponsible and may a plague fall on both their houses. It would almost certainly ensure a third-party candidate emerges for the 2012 Presidential election. Such a candidate would be greeted by a voting public very much in a third party mood. Despite all the punditry the mood of the public is simple to diagnos. The official unemployment rate has remained in the 10% range and the true unemployment rate has remained in the 17% range for nearly two years. Five years ago any political analyst for the Republican or Democratic party given a hypothetical of one party control of Washington coupled with the highest unemployment rate since the Great Depression would have predicted the party in power would get wiped out in the next election. Hoover and the Republicans learned this lesson the hard way in 1932. As the saying goes, those that fail to learn from history are doomed to repeat it. Let’s pray everyone remembers history in 2011.
Posted by Michael A. Kamperman on October 19, 2010
The Fed will begin printing money large amounts of money come November 3. At first they will print hundreds of billions, eventually trillions. The reason they will need to print much more than they realize is a combination of the size of the deleveraging taking place in the economy, the political paralysis in Washington, and the Zombie Banks failure to lend. While the coming political paralysis is being well chronicaled, the failure of the Zombie Banks to lend to small buisinesses continues to slide under the radar. That may be about to end. The Zombie Banks have insisted over and over again that they have plenty of money to lend to small businesses and the reason small business loan totals have fallen is that demand for those loans simply isn’t there. This lie has now been exposed by a recent survey conducted by the New York Federal Reserve. In the survey 3 out of 4 small businesses that requested credit in 2010 were turned down for some, or in most cases all, of the money they requested. While there is no doubt some of these potential borrowers are not credit worthy, it is highly unlikely the banks are justified in turning away 3 out of 4 small business borrowers. Bottom line, the unjustifiably tight credit conditions are costing the U.S. economic growth and jobs. Now we learn the banks don’t even know how to properly document and foreclose on a mortgage igniting yet another crisis. The Fed need the banks to lend, otherwise they are simply pushing on a string.
The reason for the tight credit conditions is the banks are sitting on hundreds of billions of unrecognized loan losses. The Whitehouse may have saved the bank bond holders and many of the bank stock holders, but they have done this at the expense of consumers, small businesses, and job seekers. They never established a ‘bad bank’ to handle the problem loans because they perceived it was too risky politically. But their attempts to sweep real problems under the rug have exasperated the depression and by playing it safe they are about to pay an extreme price at the polls. Unfortunately, it doesn’t seem as those the Whitehouse is getting the real messagge….”it’s the economy-stupid.”
There is a simple solution to the problem. Have Fannie and Freddie refinance every above-water mortgage in America for 30 years at 4% and refinance every below-water mortgage in America for 2%. Do not appraise properties. Do not run credit checks. If someone is behind on the mortgage, then simply roll it into the principal of the new mortgage. If the mortgage had a valid title policy, then accept it as proof of title and do not require a new one. While this sound radical to many consider the benefits. First, it will put tens of billions of dollars of savings back in the pockets of consumers, who can then spend, save, or pay down other debts and repair their balance sheets. Second, by lowering the payments on all mortgages,especially under-water ones, it increases the chance the existing borrowers will be able to pay their mortgages. Third, it will quickly remove a vast number of potential foreclosures from the market stabilizing home prices. Fourth, it will instantly pay-off many problem loans at the Zombie Banks freeing them up to start lending again to consumers and small businesses. Finally, offering a concrete long term solution to the busted real estate market will restore confidence in the economy. There are of course dozens of objections based on moral hazard…but we can’t afford to stand by and watch a house burn to the ground because the owner didn’t pay his $75 fire dues. There is no reason to worry about the tax-payer, they are already on the hook for bailing out over 90% of the current mortgage mess between Fannie, Freddie, the banks, and the pensions the federal government guarantees. Why not try something where everyone is a winner and there are no losers?
Posted by Michael A. Kamperman on October 1, 2010
The Federal Government is our spender-of-last-resort. Because of the sour mood of a confused public we will soon send to Congress memebers who are not spenders. And a clear message has been sent to Republicans that if they spend they will be taken out by Tea Party types in the primaries. Senators and Congressman whose seats were presumed to be safe have discovered they were only safe for the Republican Party and not for them. So you can bank it that there will be no Keynesean style fiscal rescue of the economy for at least the next two years, and possibly for a generation. Sadly, the fault rests not with the public but with the economists. Chief amongst the guilty is the Whitehouse economic team. They totally lost the debate and to this day have not put forward a coherent argument the public can understand for why we need more stimulus. Instead they mistakenly have backed the President into a corner by having him launch a Deficit Cutting Commission. Much pain is coming. Perhaps the best thing that could happen would be for a preacher of the Austrian Economic Gospel to win in 2012. When the people discover the devil they don’t know, namely austerity, is much worse than the devil they do know they will perhaps come their senses and we can then end the depression.
To this day no one on the Obama economic team is explaining to the public that the economic rules that apply to everyone else simply do not apply to the federal government. They do not have to balance the budget and they don’t even need China’s money. The federal government not only has the power to print money, they are printing a little now. Come November 3 the Fed will initially start to print a few hundred billion dollars over the next year. Before this depression is over they will print many trillions. Yet this money will not bring the greatest bang for the buck because politics have paralyzed the federal government from effectively spending it. The 99′ers are getting cut off now. Next year the States will be cut off too. Plus the payroll tax cuts in the stimulus bill will soon end as well. It’s going to get ugly before its all over.
The coming cut spending tsunami is a direct result of the incompetency of the Whitehouse economic team. Summers and Romer are gone and Geithner needs to go. The blame lands squarely at their feet. When it was obvious the stimulus bill was not creating jobs and bringing the unemployment rate down they foolishly argued it was saving jobs rather than that we needed another one. Now 60% of the American public believe if the federal government would cut spending it would create jobs. They have gone around claiming they avoided another depression when we are clearly in the middle of one and the unemployed public knows this. And they have sat on their hands for 18 months without putting forward a single serious job creating idea considering the magnitued of the crisis. In reality what has the Obama Administration actually done? The TARP, the Fannie/Freddie bailout, the auto bailout all happened under the Bush Administration. The Pelosi and Reid led Congress were sending a stimulus bill to the President’s desk no matter who won the 2008 election. The Bernanke led Fed were going to do quantitative easing no matter who won the election. The single biggest contribution from the Obama team was the smoke and mirrors Bank Stress Test which has left us with Zombie Banks that don’t lend, some contribution. After the election the President has an opportunity to clean house and bring in some heavy weights. Instead, the signal he is sending is he plans to stay insular and stick with those he knows. Those who have failed to bring down the unemployment rate and have allowed Keynesean concepts of economics to get trashed in the public’s mind. The reality is we would be in much worse economic shape without the bail-outs and the stimulus. President Obama is a trained lawyer, yet he has failed lawyer 101. When you have the law on your side argue the law, when you have the facts argue the facts, and when the law and the facts are against you just argue like hell. With the laws of economics and the facts on their side they have failed to win the argument. Worse, they are not even out there arguing like hell.
Posted by Michael A. Kamperman on September 16, 2010
The people of Delaware have spoken and the country listened intently. A candidate once considered a gnat knocked off a 35 year state-wide office holder thought to be a shoo-in for nomination. Christine O’Donnell’s Delaware coup has ended any chance Republicans in the next Congress will agree to another round of significant stimulus, almost no matter how bad the economy gets. It doesn’t matter if a Republican thinks they can win the general election, they’re petrifried they won’t survive their own primary if they compromise on more federal spending. Gridlock in an economic depression is not a good thing, but that’s what we’ve got now. The Obama Administration has done such a poor job of managing the economy, and explaining how federal spending helps fill a lack of demand from the private sector, that the general populous has come to believe that federal spending is hurting the economy. In the Middle Ages people believed in Trial by Drowning. They would throw an accused Witch into a lake with rocks and ropes tied around her. If she sank she was innocent, but if she floated she was guilty. Naturally almost everyone sank and most were not pulled out in time to live once their innocence was ‘verified.’ Just because a majority of people believe something doesn’t make it true. And economically speaking austerity in a depression for a country that can print its own money and owes all its debts in its own currency is economic alchemy.
Fortunatley we still have monetary policy to bail us out. It is not perfect and it cannot do the complete job by itself. But a concerted effort by the Fed to boost employment is not only a possibility, it is a probability. Wall Street is coming around to this reality and several major firms now predict the Fed will move to a second round of signficant quantitative easing within months. The open ended question is will the Fed move aggressively enough to head off what now seems like an almost certain double-dip in the economy.
For those like the Obama Administration, thinking we can lower the value of the dollar and export our way out of our problems, think again. The Bank of Japan has gotten the message and is determined the yen will not fall below 82 to the dollar come hell or high-water. At least some people in Japan understand the global predicament. Not only did they intervene in the currency markets this week, they printed the money they used to do it. Welcome to the world of competitive printing. It’s O.K. because there really is no other way out of this debt-induced depression. Yet the Summers/Geithner led Whitehouse economic team still has the Presidident walking to the podum saying the secret is to double our exports in the next five years. They still haven’t answered the question export to whom? It seems the only person in the country who still has confidence in them is the President. Like it or not this is the hand we are dealt. In 2011 most of the stimulus will end. In 2011 no one is getting a tax cut despite the rhetoric. The battle is over leaving the current tax rates in place rather than sun-setting them. We won’t be getting tax cuts or stimulus spending from Washington to aid the economy in 2011. We will be getting the President’s long-term Austerity Commission suggesting how to make things worse, not better.
Posted by Michael A. Kamperman on August 31, 2010
The minutes from the Fed meeting show that no one on the Fed is worried that deflation is a significant near-term risk. No one. Some see disinflation while others still see inflation as the mostly likely outcome, but no one is forecasting deflation. In fact they are forecasting moderate growth for 2011, despite the fact the stimulus will run off in 2011 and there doesn’t appear to be a replacement stimulus bill on the horizon. The Fed is way way way behind the curve again, ala summer 2007. Deflation has already taken hold in the U.S. Deflation is a function of either over-supply or declining demand. Demand has withered for most items, most notably housing. With the expiration of the homebuyers tax credits sales of homes have plunged. How hard is it to foresee housing will remain a drag on the economy? Wages are falling substantially for those fortunate enough to replace lost jobs. What has held up the incomes of many households up until now are unemployment benefits and 401(k) plan withdrawls. Congress is not likely to extend unemployment benefits for individuals beyond 99 weeks. The large scale shedding of workers began roughly 99 weeks ago right after Lehman Brothers was turned away by the Treasury and forced to file for an unprepared bankruptcy. How hard is it to foresee household personal incomes are in trouble going forward?
The question the Fed should be concerned with is not whether the economy will fall into deflation, the question they should be debating is how soon and how forcefully do they need to act to prevent it. Like cancer, it may be too late to cure it if you wait for it to be obvious to see. Look at how Japan has struggled to shake off deflation despite near zero interest rates. Look at how the U.S. failed to shake off deflation prior to the onset of World War II. Frankly, the Fed simply doesn’t know how soon they should act, nor how forcefully. Shocking considering Bernanke is supposed to be the world’s deflation expert.
The Fed knows its only remaining weopon is printing money, which puts a bad taste in the mouths of most avowed inflation hawks. But as inflation hawk St. Louis Fed President Bullard has said, the data is coming in on the low side for inflation, not the high side. And, while he doesn’t see deflation as a probability he wants an orderly framework for how the Fed will decide when to print and how much to print. Shouldn’t this conversation have occurred under Greenspan or Volcker and shouldn’t the Fed have a manual on just what to do in this situation? The reason they don’t is the concept of deflation has seemed inconceivable to smug modern day economists who grew up in the post World War II era. This is the reason all of our econometric models only contain post World War II data. With fiscal policy frozen in Washington the only operational weopon left is monetary policy. I’m know we have waited too long to pull the trigger. So do all the 99ers. There is no doubt the Fed will print more money. The open question is do they have the guts necessary to print the trillions needed?
Posted by Michael A. Kamperman on August 10, 2010
Well that was quick. The Fed looked for an exit strategy in April and returned to printing money by August. Make no mistake the Fed just adopted St. Louis Fed President James Bullard’s strategy of targeting the balance sheet and rasing or lowering the quantity of quantitative easing based on the forthcoming data. Bullard is an economic hero. He provided a plan. Like a lion willing to lay down with a lamb he walked to the other side of the aisle and and said I am a self-avowed inflation hawk , but I see deflation as the risk and I am willing to do the un-thinkable and monetize the debt. Now, the ball is in the politicians court. How many Democrats are willing to step up and say we should not only not raise taxes, but during a major economic downturn we should lower them. How many Republicans are willing to stand up and say we should not only not cut spending, but during a major economic downturn we should raise spending to create jobs. It is time for President Obama to step forward and lead. We need another stimulus plan and the progressive liberals need to back off letting the Bush tax cuts expire.
The Fed effectively has said the TARP wasn’t enough. The Stimulus Plan wasn’t enough. Our previous quantitative easing program of $1.5 trillion wasn’t enough. The tax credit for homes and clunkers wasn’t enough. The economy remains in the ditch and it will take heavy lifting to get it out. The Fed has signalled they have the will. But the Fed cannot do it alone. We must have permanent fiscal stimulus to create an environment of confidence. The best ideas are to lower the eligibility for Social Security and Medicare to 60 and to have the Federal Government take over all Medicaid spending from the states.
What the Fed has done is they have said don’t worry about the deficit or the debt, because we can monetize it and control it. That is the advantage of owing all of your debt in your own currency. Japan owes its debt in yen. Will the Bank of Japan follow the Fed? Probably not until the policy proves successful. Great Britain owes its debt in pounds. Will the Bank of England follow the Fed. Yes, in a heart beat. The countries in the euro owe all of their debts in euros. Will the ECB follow the Fed. Eventually, once there is a massive mutiny against the austerity crowd and they run Trichet out of town on a rail. We have a global problem and we need a global solution. The Bullard led Fed is showing the way.
