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Fed's Evans: We Must Act Now With "Aggressive" Easing
So far the track record seems pretty mixed. We eased more than Europe, and are in relatively better shape at this point. Very hard to know, because due to the weird EU/Euro relationship it's an apples/oranges sort of thing. When this is all over we should have a pretty good idea whether Keynes was right or not.
Reply to @scott: The other side of the argument is that without the QE's, we might well have been in a depression at this time. Both sides can be argued by more knowlegable people then myself. I don't know the answer to getting out of this economic funk most efficiently or if it could have been handled better (most likely since every situation is handled better in hind-sight). And I agree with Joe's statement. It took decades of excess, politicians turning away from tough decisions, reducing checks and balances on financial institutions, ect, ect, ect... When you really think about it, why wouldn't it take decades to get out of this mess? Why would we think otherwise? Are we on the right track? Only time will tell. But I am possitive it won't be a steady comfortable ride.
Reply to @Old_Joe: "How many years did it take to get into this mess? More than three?"
Yes.
So, attempting to get out of a long-term mess by stringing short-term sugar highs together is probably not a sustainable solution for one of the worst financial crises in the nation's history. We didn't even really attempt to deal with the "mess", we effectively threw money at it.
It was always going to take years, but that requires difficult work and leadership, not throwing money at the problem - which is going to lead to other problems. Maybe if we ever get actual leadership in this country again they will be willing to actually make some difficult decisions and make some progress towards solving some of the country's problems. Until then, we have QE, which only kicks the can until we discuss QE IV next Summer.
"The other side of the argument is that without the QE's, we might well have been in a depression at this time."
You're still getting the middle class going away either way; QE has lifted asset prices (although you have the retail investor leaving en masse) but nothing has been solved with many of the economy's structural issues. As such, QE will continue to provide short-term fixes but until core problems are addressed, QE and other stimulus are just short-term sugar highs.
I don't think it's so black and white. We would have had some very difficult years, there would be some assistance from both monetary and fiscal policy and the rot would have worked out of the system. It would not be fun. However, we would have come out of fiscal rehab on the other side clean and sober and ready to go again. As is, all this is doing is kicking the can down the road and extending the situation over years (and adding to the tab.) Meanwhile, Washington accomplishes nothing and it starts to become apparent that more QE until it works - reflation at all costs - is probably the only answer that's going to be offered because actually dealing with core issues that got us to 2008 would be unpopular for the politicians.
Reply to @scott: Absolutely positively not to start anything unpleasant, but the Fed, despite a lot of pleading, is totally shackled by the lack of leadership over on the congressional side, and therefore can only use the limited tools remaining to them. I find it very difficult to criticize the Fed under these circumstances.
As for the congressional side, the polarization, pandering and institutional bribery there, aggravated by years of both parties gerrymandering voting districts, effectively prevents any reasonable compromise and evidently will continue to do so for the foreseeable future.
It's all very well to wish it were otherwise and many of us do, but again, the Fed is the Lone Ranger in this plotline and one of the very few "good guys" in this crummy play.
Reply to @scott: Hi Scott. Yeah, I don't disagree with what you are saying. Your points are good ones about not tackling the tough stuff that needs to be done. But if we actually "let it fail" (no QE's or bailouts) would we have been better off at a quicker pace? Maybe - I don't know if I agree on that and I guess we'll never know.
More then leadership, or maybe it is leadership, but I think politicians crossing the aisle and working together would be the the means to improving the economy. And in this day and age both parties fall short on even attempting to work together. It would be nice to get to the likes of when Clinton worked well with republicans or Reagan worked hand in hand with Tip O'neill. But there is so much red and blue rhetoric now, that I don't see that happening no matter who the leader is. - and that's bad for all of us. Just my 2cents.
"But if we actually "let it fail" (no QE's or bailouts) would we have been better off at a quicker pace?"
I suppose the issue again isn't black and white; government is there to provide guidance and assistance, but not to consistently prop up organizations. Bailouts without any consequences (regulation, anyone in trouble for 2008, etc) have sent the country down a road where banks can call the "financial armageddon" card anytime things don't go their way because they know taxpayers will continue to foot the bill. Banks should effectively be utilities. No one can know with any great certainly what would have worked or not, but I will say the fact that we are discussing a third round of QE does not exactly lean towards its working or we wouldn't be talking about number three.
Fiscal rehab would not be pleasant and it wouldn't be popular with the populace (therefore, given how lucrative being a politician has become, a responsible solution probably was never in the works - and given that it would require leadership....again, probably wasn't going to happen), but the system would clear itself and we would be on better footing on the other side. People talk about how this problem didn't happen over three years and it's going to take a while. QE and other interventions don't show realization of that - it's attempts to reboot the system ASAP by throwing easy money at the problem, and then when it doesn't stick, the answer is never that it simply didn't work, but that it "wasn't enough." If QE1 worked, I wouldn't have to hear the Aussie chick on CNBC (who has become as f'ing annoying as Maria Bartiromo) ask about QE3 every day for months (when they aren't asking where the retail investor went.)
Take houses (not trying to make an apples-to-apples comparison) - rather than trying to prop up house prices by offering tax credits (and then having those people find themselves underwater when prices stopped being propped up and resumed going down - more underwater homeowners and a waste of tax dollars - both for those who got the tax credit and those who tried to game it, of which there were lots of reports of), the system is allowed to find its price level and clear organically on its own. It was going to anyways once the tax credit stopped.
"Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns claiming the credit for homes they had not yet purchased. George said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.
We also need a government that actually governs, and Romney changing that is not particularly likely. We also should have focused spending on infrastructure and other core projects that would have helped keep the country competitive and provide cost savings/efficiency (although that would actually require government officials working together. Again, unlikely.)
"Absolutely positively not to start anything unpleasant, but the Fed, despite a lot of pleading, is totally shackled by the lack of leadership over on the congressional side, and therefore can only use the limited tools remaining to them"
So, in other words, that would indicate to me that the system is broken. One cannot work without the other, but at the same time, there comes a point where one has to realize insanity is doing the same thing over and over again, expecting a different result. I would not be surprised if Bernanke tried to push inflation expectations harder before this is said and done - heck, he hasn't even done all the things the Bernanke Doctrine suggested (yet.)
----
ANYWAYS ... whatever one thinks about what's gone on, Grandma Janet Yellen also seems to be steering towards QE this evening.
Headlines for now: Fed's Yellen sees significant downside risks to the economy; says further accommodation needed. (story developing.)
Reply to @MikeM: There are not many of those politicians crossing the isles left. Anyone that is crossing the isle is branded as enemy within the party base and voted out of office or threatened so they do not dare to seek middle ground.
Reply to @Investor: Exactly! Politicians don't want to be branded as 'centrist' . That apparently is a bad word in this day and age. Yet I believe centrist governments are the definition of democracy. Far left or far right is not democracy (IM< HO) .
And I won't get on my soap box again about media outlets that stir the pot about the evils of politicians working together.
Reply to @scott: "Maybe if we ever get actual leadership in this country again they will be willing to actually make some difficult decisions and make some progress towards solving some of the country's problems."
Scott, I'm thinking that maybe the difference in our perspectives on this is due to the age difference between us. Evidently you're still young enough to believe that partisan politics can be suspended in the interests of the common good. I'm afraid that, with the perspective of my advanced years, I no longer believe that such a thing is possible. This may seem to make me appear complacent- I'm not, just exhausted and disillusioned by reality.
Reply to @Old_Joe: I'm actually saying, with enormous cynicism and skepticism, that not only will partisan politics NOT be suspended in attempt to work together for the common good, I can easily see the continuation of the current broken system resulting in exponentially worse problems (new/current problems that aren't fixed and are fed by a broken system) that could quite possibly be ruinous (or, at the very least, another serious crisis) down the road. Wouldn't surprise me one bit.
The can can be kicked FAR longer than anyone can imagine, but again, that only makes the end result worse. This period in time will end badly, because again, the political system in this country is completely broken. Until then, we have "groundhog day" economics - yet another Summer and another threat of a credit downgrade for the US.
Additionally, while Europe has its fair share of problems, that doesn't mean we can ignore ours by pointing at theirs, which continues to happen. We are getting some time to fix some of our problems and we're not taking it.
So, while far younger than anyone on this board, I'm quite a bit more bitter and cynical than the lot of you.
Comments
So far the track record seems pretty mixed. We eased more than Europe, and are in relatively better shape at this point. Very hard to know, because due to the weird EU/Euro relationship it's an apples/oranges sort of thing. When this is all over we should have a pretty good idea whether Keynes was right or not.
It does? This is the third Summer in a row we're talking about this.
"So far the track record seems pretty mixed."
Calling it "mixed" is being generous.
Ain't sayin' it's great. Simply observing that at least it seems to be working better than the "austerity mode". What's left as an alternative?
Yes.
So, attempting to get out of a long-term mess by stringing short-term sugar highs together is probably not a sustainable solution for one of the worst financial crises in the nation's history. We didn't even really attempt to deal with the "mess", we effectively threw money at it.
It was always going to take years, but that requires difficult work and leadership, not throwing money at the problem - which is going to lead to other problems. Maybe if we ever get actual leadership in this country again they will be willing to actually make some difficult decisions and make some progress towards solving some of the country's problems. Until then, we have QE, which only kicks the can until we discuss QE IV next Summer.
"The other side of the argument is that without the QE's, we might well have been in a depression at this time."
You're still getting the middle class going away either way; QE has lifted asset prices (although you have the retail investor leaving en masse) but nothing has been solved with many of the economy's structural issues. As such, QE will continue to provide short-term fixes but until core problems are addressed, QE and other stimulus are just short-term sugar highs.
I don't think it's so black and white. We would have had some very difficult years, there would be some assistance from both monetary and fiscal policy and the rot would have worked out of the system. It would not be fun. However, we would have come out of fiscal rehab on the other side clean and sober and ready to go again. As is, all this is doing is kicking the can down the road and extending the situation over years (and adding to the tab.) Meanwhile, Washington accomplishes nothing and it starts to become apparent that more QE until it works - reflation at all costs - is probably the only answer that's going to be offered because actually dealing with core issues that got us to 2008 would be unpopular for the politicians.
As for the congressional side, the polarization, pandering and institutional bribery there, aggravated by years of both parties gerrymandering voting districts, effectively prevents any reasonable compromise and evidently will continue to do so for the foreseeable future.
It's all very well to wish it were otherwise and many of us do, but again, the Fed is the Lone Ranger in this plotline and one of the very few "good guys" in this crummy play.
More then leadership, or maybe it is leadership, but I think politicians crossing the aisle and working together would be the the means to improving the economy. And in this day and age both parties fall short on even attempting to work together. It would be nice to get to the likes of when Clinton worked well with republicans or Reagan worked hand in hand with Tip O'neill. But there is so much red and blue rhetoric now, that I don't see that happening no matter who the leader is. - and that's bad for all of us. Just my 2cents.
I suppose the issue again isn't black and white; government is there to provide guidance and assistance, but not to consistently prop up organizations. Bailouts without any consequences (regulation, anyone in trouble for 2008, etc) have sent the country down a road where banks can call the "financial armageddon" card anytime things don't go their way because they know taxpayers will continue to foot the bill. Banks should effectively be utilities. No one can know with any great certainly what would have worked or not, but I will say the fact that we are discussing a third round of QE does not exactly lean towards its working or we wouldn't be talking about number three.
Fiscal rehab would not be pleasant and it wouldn't be popular with the populace (therefore, given how lucrative being a politician has become, a responsible solution probably was never in the works - and given that it would require leadership....again, probably wasn't going to happen), but the system would clear itself and we would be on better footing on the other side. People talk about how this problem didn't happen over three years and it's going to take a while. QE and other interventions don't show realization of that - it's attempts to reboot the system ASAP by throwing easy money at the problem, and then when it doesn't stick, the answer is never that it simply didn't work, but that it "wasn't enough." If QE1 worked, I wouldn't have to hear the Aussie chick on CNBC (who has become as f'ing annoying as Maria Bartiromo) ask about QE3 every day for months (when they aren't asking where the retail investor went.)
Take houses (not trying to make an apples-to-apples comparison) - rather than trying to prop up house prices by offering tax credits (and then having those people find themselves underwater when prices stopped being propped up and resumed going down - more underwater homeowners and a waste of tax dollars - both for those who got the tax credit and those who tried to game it, of which there were lots of reports of), the system is allowed to find its price level and clear organically on its own. It was going to anyways once the tax credit stopped.
"Treasury Inspector General for Tax Administration J. Russell George told a House panel that more than 19,000 people filed 2008 tax returns claiming the credit for homes they had not yet purchased. George said his office had identified another $500 million in claims, by some 74,000 taxpayers, where there were indications of prior home ownership.
He told a House Ways and Means oversight subcommittee that they also found 580 taxpayers under the age of 18 who claimed $4 million in first-time home buyer credit. One was 4 years old." (http://www.usatoday.com/money/economy/housing/2009-10-22-homebuyer-tax-credit-fraud_N.htm)
We also need a government that actually governs, and Romney changing that is not particularly likely. We also should have focused spending on infrastructure and other core projects that would have helped keep the country competitive and provide cost savings/efficiency (although that would actually require government officials working together. Again, unlikely.)
"Absolutely positively not to start anything unpleasant, but the Fed, despite a lot of pleading, is totally shackled by the lack of leadership over on the congressional side, and therefore can only use the limited tools remaining to them"
So, in other words, that would indicate to me that the system is broken. One cannot work without the other, but at the same time, there comes a point where one has to realize insanity is doing the same thing over and over again, expecting a different result. I would not be surprised if Bernanke tried to push inflation expectations harder before this is said and done - heck, he hasn't even done all the things the Bernanke Doctrine suggested (yet.)
----
ANYWAYS ... whatever one thinks about what's gone on, Grandma Janet Yellen also seems to be steering towards QE this evening.
Headlines for now: Fed's Yellen sees significant downside risks to the economy; says further accommodation needed. (story developing.)
Edited to add: "...convinced that scope remains for the FOMC to provide further policy accommodation either through its forward guidance or through additional balance-sheet actions", (http://www.zerohedge.com/news/fed-vice-chair-yellen-says-scope-remains-further-policy-accommodation-through-additional-balanc)
Sad state of affairs in this country politically.
And I won't get on my soap box again about media outlets that stir the pot about the evils of politicians working together.
Scott, I'm thinking that maybe the difference in our perspectives on this is due to the age difference between us. Evidently you're still young enough to believe that partisan politics can be suspended in the interests of the common good. I'm afraid that, with the perspective of my advanced years, I no longer believe that such a thing is possible. This may seem to make me appear complacent- I'm not, just exhausted and disillusioned by reality.
Regards- OJ
The can can be kicked FAR longer than anyone can imagine, but again, that only makes the end result worse. This period in time will end badly, because again, the political system in this country is completely broken. Until then, we have "groundhog day" economics - yet another Summer and another threat of a credit downgrade for the US.
Additionally, while Europe has its fair share of problems, that doesn't mean we can ignore ours by pointing at theirs, which continues to happen. We are getting some time to fix some of our problems and we're not taking it.
So, while far younger than anyone on this board, I'm quite a bit more bitter and cynical than the lot of you.