Howdy, Stranger!

It looks like you're new here. If you want to get involved, click one of these buttons!

In this Discussion

Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

    Support MFO

  • Donate through PayPal

No Fed Rate Hike Needed Until Second Half Of 2016

FYI: - The Federal Reserve should not raise interest rates until the second half of 2016 to allow the labor market to continue to strengthen, said Narayana Kocherlakota, the president of Minneapolis district branch of the U.S. central bank, on Tuesday.
Regards,
Ted
http://www.marketwatch.com/story/no-fed-rate-hike-needed-until-second-half-of-2016-kocherlakota-2015-04-07/print

(Last week someone offered to bet me on a rate increase this year. I offered a Chicago Hot Dog, or a slice of Chicago's Famous Deep Dish Pizza. Would the person who did this please step foward, I want to increase the bet.)

Comments

  • Even if rate hike comes th
  • i prefer those Italtian roost beef sandwiches. They are wonderful....
  • edited April 2015
    Hi @Ted

    I don't recall that bet; but I would not bet against you regarding a rate hike anytime soon. But, if I did; I would want to choose a restaurant on Milwaukee Ave.

    Hey, speaking of Chicago and food. Back in the late 70's through the early 80's I had the good fortune of being in the Chicago area numerous times related to week long business trips. A fellow company aquaintance I had known for several years had an apartment on N. Milwaukee Ave., which lead to the "food feast" for me. Having traveled a good deal in my younger years, including internationally, and wonderful home cooking as a child; my food palate was very diverse. I recall the wonderful discovery of the many restaurants along Milwaukee Ave.; a block at a time, being the Greek, Polish, Italian, middle eastern, etc. During my stays I would always venture around the entire area (except S. Chicago) to get to know the community in and around greater Chicago.
    Milwaukee Ave. always brought me into "food heaven".
    Do you know whether this area of restuarants still exists, as such?

    I found this listing, but I don't know if these are still some of the long standing, old restaurants; or new versions.

    https://www.google.com/?gws_rd=ssl#q=milwaukee+avenue+chicago+restaurants&rflfq=1&tbm=lcl

    Thanks, Ted.

    Catch
  • edited April 2015
    Minneapolis Fed Gov on QE4: "KOCHERLAKOTA: THERE IS EVEN A THEORETICAL ARGUMENT TO BE MADE FOR MAKING ASSET PURCHASES NOW IF ECONOMY FALTERED"

    (http://www.zerohedge.com/news/2015-04-07/kocherlakota-goes-bullard-retard-says-qe4-theoretically-warranted)

    HAHAHAHAHAHAHA. Getting ready for yet another spin into Einstein's theory of insanity. I love how quickly this was uttered - market hasn't even gone down 10-15% and already one of the Fed governors is talking asset purchases.

  • Who needs soap operas or comedy? We get the best of both with the Fed.

    @scott, That would surely be the cart before the horse.
  • It appears that the key words were "IF ECONOMY FALTERED". With respect to "theories of insanity", the word "theories" is at least correct, as we are still seeing where this particular theory will take us. We do know, though, where the Austrian/University of Chicago Business School theories took us in 1929.
  • I just wonder if anything that is done will stave off what seems to be inevitable? A lot of this is hindsight.
  • edited April 2015
    Old_Joe said:

    It appears that the key words were "IF ECONOMY FALTERED". With respect to "theories of insanity", the word "theories" is at least correct, as we are still seeing where this particular theory will take us. We do know, though, where the Austrian/University of Chicago Business School theories took us in 1929.

    "is at least correct, as we are still seeing where this particular theory will take us."

    I tend to wonder if devotees of current economic theory would ever admit that the results are lackluster considering the sheer size and duration of easy monetary policy this time.

    The fact that there is even the mere discussion of another round of asset purchases after three rounds and several years of easy monetary policy - is laughable, although particularly laughable if we get QE 4 is the notion that "we are still seeing where this is going." I tend to think that something has "worked" when you don't need another and another and another of it.

    If "we are still seeing where this is going" after QE4, then those saying that I think do not care to truly admit where this is all going. At what point do we all get to see where this is going, QE5? QE10?

    Additionally, at some point "we are still seeing" becomes "have seen" unless you believe that, much like many devotees of current monetary policy, it "wasn't enough" - "wasn't enough money", "wasn't enough time", etc. Can something ever be wrong if you just keep giving it more and more time to be right? Can something be wrong if every time the problem was that "there just wasn't enough" of it? Theoretically we can be at this forever if the problem every time was that "it needs more time" and there "wasn't enough" and the people behind it never admit that it isn't creating a sustainable result.

    Problems are transitory, goalposts (it's not wrong because we're still seeing where it's going after several years..., we need another QE because the last one just "wasn't enough" AGAIN....) moved when they don't fit the desired result, etc.

  • Yes, "the results are lackluster considering the sheer size and duration of easy monetary policy this time." No argument.

    How many years did it take to escape the Great Depression?

    I'll happily accept "lackluster" in lieu of another World War to revive an economy.
  • Time is probably the key here, as it has been in previous times including the Great Depression. But time is not what people want. They want things fixed in a hurry.

    As any doctor would say; give that cold 72 hours to go away, however I can give you a prescription and with that it will be gone in just 3 days.

    We are now in the 8th year of this mess. Compare that time frame to the Great Depression or the Carter Malaise of the 70's- early 80's.
  • edited April 2015

    Time is probably the key here

    A functioning government would be rather helpful. The idea of spewing money at any problem that comes along isn't really fixing anything - it's spending money to delay problems in the hopes that they will eventually be someone else's problem rather than fixing them. In this case, it's also to bail out left and right and ramp asset markets, which has lead to record amounts of stock buybacks, but not a whole lot in the way of factories built and other such economic activity.

    Shareholders are happy until they're not, just as homeowners were happy until they weren't. Of course this is more popular than forcing rot from the system until the rot spreads and isn't.

    It's not that I think things should be fixed in a hurry in the slightest, my mere request is that underlying problems actually be fixed and addressed in an attempt to create a recovery that is sustainable rather than in need of one QE drug after another.

    QE and financial engineering is the definition of "wanting things fixed in a hurry" (no one wanted to address any issues in 2008, it was "how much money will it take to reboot us to a few years prior" - people wanted it fixed yesterday. Actually clearing the system of rot is not wanting things fixed in a hurry, it's wanting things fixed in a manner that is right and ultimately leads to a sustainable path.

    The first one is taking a long time because it's not really fixing any underlying problems as much as creating another asset bubble. Only this time we're at the zero bound and the economy is faltering again, so we find ourselves in the new "QE" normal.

    I said a couple of days ago, if the market gets rocky, just stay calm and continue to own assets because the Fed will inevitably start talking up something else. A couple of days later, you already have a Fed governor trial ballooning QE4 - and hey, the market didn't even have to go down 10-15% first.

    I'll refer again to Scott Minerd's excellent "The Monetary Illusion". http://guggenheimpartners.com/perspectives/media/the-monetary-illusion
  • "A functioning government would be rather helpful." Again, no argument. Unfortunately, central banks don't get to choose their governments.
  • Old_Joe said:

    It appears that the key words were "IF ECONOMY FALTERED". With respect to "theories of insanity", the word "theories" is at least correct, as we are still seeing where this particular theory will take us. We do know, though, where the Austrian/University of Chicago Business School theories took us in 1929.


    It ought to be mentioned that the Austrians and the Chicago School are completely distinct theories of economic thought, differing most radically in methodology but also in monetary theory. For example, the major figures in the Austrian School (Mises and Hayek) spent the late 1920s criticizing the monetary policies of central banks and predicting that they would end in a bust. The main figure in the Chicago School (Irving Fisher), on the other hand, considered the Federal Reserve policies of the time to be peachy keen and became famous (in the notorious sense) by predicting that stocks had reached a permanently higher plateau (I believe that's the way he phrased it) almost precisely at the moment that they collapsed in 1929.

    And it seems there are some who still forget that the Federal Reserve was around and in control of the nation's monetary policy both before and during the Great Depression.

    Today we have a FED theory that producing a "wealth effect" (Bernanke's phrase), i.e. asset bubbles as the less charitable/gullible of us might put it, is the way to prosperity. That it's the way to temporary prosperity for the top 20% or so at the expense of the other 80% is pretty much proven by now. Unfortunately, this policy of bailing them out lest they go bankrupt and a recession occurs has the effect of concentrating more and more of the resources of the society in the hands of those who have proven that they are incapable of handling them wisely. The incessant malinvestment hollows out the economy rather than heals it and therefore we never get to a point where monetary policy can be 'normalized', whatever the FED's rhetoric and promises may be. Should QE ever end, something else would have to take its place. The end result is not pretty to contemplate.

    And to forestall the inevitable: "So what's your alternative?", I'd leave my alternative as the application of normal business law to banking (this means that they wouldn't be able to make promises that they can't keep and that they wouldn't have a lender of last resort around to bail them out when reality set in) and the establishment of a medium of exchange as a choice made by the market itself. Markets are best at determining whether steel or aluminum or plastic or whatever are the best materials for some building project, and markets are fully capable of deciding whether gold or silver or commodities or fiat currency or bitcoins or whatever would be the best medium of exchange. The Market, of course, is no mystical concept but simply the concatenation of all non-coercive exchanges made by people.

    To those who complain that this might be nice in theory but is utterly impractical, I suggest that 'wealth effects' and QE are both utterly impractical and rotten in theory.
  • edited April 2015
    Vert said:


    Unfortunately, this policy of bailing them out lest they go bankrupt and a recession occurs has the effect of concentrating more and more of the resources of the society in the hands of those who have proven that they are incapable of handling them wisely. The incessant malinvestment hollows out the economy rather than heals it and therefore we never get to a point where monetary policy can be 'normalized', whatever the FED's rhetoric and promises may be. Should QE ever end, something else would have to take its place. The end result is not pretty to contemplate.

    Good lord, finally. Exactly Couldn't have said it better. Agree wholeheartedly with all of what you said, but wanted to highlight the above portion. The bolded portion IS the new normal and it will not end well.
  • Yes, it would be wonderful if we could somehow single out "those who have proven that they are incapable of handling them wisely." I'm all for it.

    Now, if someone can just explain to me how that can be cleanly done without totally destroying the remaining 90% of inter-related/interlocked financial institutions, and pretty much all of "Main Street" along with it, you've certainly got my vote.

    It's all very well to theorize in a vacuum under laboratory conditions, but as a point of fact that's not the way the world is constructed. As I mentioned elsewhere, the Fed doesn't get to choose the government. Neither does it get to choose the architecture of the financial world. It is constrained to work within what some call "reality".
  • scott said:

    ...market hasn't even gone down 10-15% and already one of the Fed governors is talking asset purchases.

    Scott, you do understand that the stock market isn't what the Fed is primarily concerned with, yes? ---- AJ
  • AndyJ said:

    scott said:

    ...market hasn't even gone down 10-15% and already one of the Fed governors is talking asset purchases.

    Scott, you do understand that the stock market isn't what the Fed is primarily concerned with, yes? ---- AJ
    I'm not @scott but while you are correct AndyJ in your statement, I'm not sure the Fed knows this. We have seen the Fed react to poor performing stock markets during this whole debacle. The markets are not what they once were.
  • edited April 2015
    AndyJ said:

    scott said:

    ...market hasn't even gone down 10-15% and already one of the Fed governors is talking asset purchases.

    Scott, you do understand that the stock market isn't what the Fed is primarily concerned with, yes? ---- AJ
    Fed governors appear whenever the market is down a few % to calm participants. If the market is not a primary concern, could have fooled me with how fast they pop out of the woodwork to assure markets that easy monetary policy continues.

    Additionally, as Vert noted above: "Today we have a FED theory that producing a "wealth effect" (Bernanke's phrase), i.e. asset bubbles as the less charitable/gullible of us might put it, is the way to prosperity".

    I'll suggest that the stock market is of enormous concern to the Fed, whether they say that outright or not.

  • "Correlation is not Causation".

    How many times have we heard that? Taking a quick look at Wickipedia on this, I found:

    "While it is not the case that correlation is causation, simply stating their nonequivalence omits information about their relationship."

    It's been suggested that maybe it would be better to say something like "Correlation is not causation but it sure is a hint."

    I surely won't say that the Fed doesn't pay some attention to the stock market, but I'm pretty certain that they factor in a whole lot of variables other than that. It may just be that in response to their actions to generally shore up the US financial scene the stock market usually reacts approvingly.

    Wickipedia again: "In other words, there can be no conclusion made regarding the existence or the direction of a cause-and-effect relationship only from the fact that A and B are correlated. Determining whether there is an actual cause-and-effect relationship requires further investigation,"

    Not saying that you're wrong- but I'm not certain that you're completely right, either.

    Regards- OJ
  • edited April 2015
    "How we react after liftoff will depend on how the market reacts."
    - FOMC vice chairman and president of Fed Bank of NY Bill Dudley

    http://www.zerohedge.com/news/2015-04-08/feds-bill-dudley-ignore-march-jobs-its-weather-live-feed

    Market clearly not a priority in their decision making.

    "but I'm pretty certain that they factor in a whole lot of variables other than that"

    When your priority is to ramp asset prices in the hopes that that leads to a sustainable recovery and not another bubble/bust, wouldn't markets likely be a large focus?

    Beyond that, whenever the market has gone down a few % in the last few years, a Fed governor inevitably pops up to soothe the markets. They're entirely reactionary to even smaller tantrums by the market.
  • Fed's Concerns
    A nostalgic time before the DotCom crash and of course 9/11 and "the great recession".They called him the maestro for a while,didn't they? Are current conditions a "favorable economic environment".
    Testimony of Chairman Alan Greenspan
    The Federal Reserve's semiannual monetary policy report
    Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate
    February 26, 1997
    "Why should the central bank be concerned about the possibility that financial markets may be overestimating returns or mispricing risk? It is not that we have a firm view that equity prices are necessarily excessive right now or risk spreads patently too low. Our goal is to contribute as best we can to the highest possible growth of income and wealth over time, and we would be pleased if the favorable economic environment projected in markets actually comes to pass. Rather, the FOMC has to be sensitive to indications of even slowly building imbalances, whatever their source, that, by fostering the emergence of inflation pressures, would ultimately threaten healthy economic expansion.
    "I will conclude on the same upbeat note about the U.S. economy with which I began. Although a central banker's occupational responsibility is to stay on the lookout for trouble, even I must admit that our economic prospects in general are quite favorable. The flexibility of our market system and the vibrancy of our private sector remain examples for the whole world to emulate. The Federal Reserve will endeavor to do its part by continuing to foster a monetary framework under which our citizens can prosper to the fullest possible extent."
    http://www.federalreserve.gov/boarddocs/hh/1997/february/testimony.htm

    Global Economy's Manufacturing Sector Struggles
    by Robert Brusca April 6, 2015
    "Against this background, it is hard to understand the Fed's compulsion to hike rates. There are no capacity constraints in the U.S. or even in the global economy. Manufacturing everywhere is extremely weak. There has been a lot of monetary stimulus and the countries that did that early have fared better (the U.S. and the U.K.). But now that stimulus is wearing off and the stimulus launched in Europe is playing a part by driving the euro lower and the dollar higher.
    There is also a legacy of excessive debt and a plan by central banks to control leverage and risk. This program restricts bank lending by using capital/asset ratios that bind and a stress test to enforce disciple. This approach doesn't just control; it also restricts lending and growth."
    http://www.haver.com/comment/comment.html?c=150406A.html
Sign In or Register to comment.