Monday, November 15, 2010

Time to move to high ground

There must be some real possibility that the new round of Quantitative Easing by the Federal Reserve will in fact achieve a resounding success. The proof of this is the open letter to Ben Bernanke from Republican luminaries demanding that he cease and desist immediately. Signers include such scholars of economics like Bill Krystal and Sarah Palin, Krystal has never been right on any question of importance in his entire career and Palin has never met a question of importance that she understood.

They also trotted out a few conservatives with real economics degrees to sign the letter as well. The small problem there is that until the minute they signed this manifesto they had built there entire professional careers on premise that the Fed should print money and give it to rich people.  My opinion of regulating an economy by using monetary policy alone is like steering your ship by firing broadsides. It can make things happen but the neighbors don’t like it.

The Obama Administration wasn’t happy with former Fed Chairman Alan Greenspan announcing to the press during the G-20 meeting that the US was devaluing its currency by printing money. Greenspan did during his career regularly fire all guns at once but only when they were aimed at the middle class and the poor. He bragged that the most important aspect of his job was to “maintain a high enough level of worker insecurity to discourage employees from demanding pay raises and benefit increases." He saw this as controlling “wage inflation”.

What he really accomplished was to create a new normal where the middle class holds no wealth but have become corporate serfs with ever increasing debt burdens. The bottom eighty percent holds only 7% of US wealth. Of course a big slice of US wealth isn’t even held by anyone in the US anymore as selling off American assets has been a cash cow for Republican luminaries like Mitt Romney. This gutting of American infrastructure also created trillions in worthless corporate junk bonds that will start coming due in a big way in 2012. (there’s a glyph for this in the Mayan language)

So the problem is that despite what Alan Greenspan and most of the conservative economists have been saying for the last thirty years, you simply can’t have a healthy economy while declining wages reduce the demand for goods to less than the supply of goods. Their solution for this was to replace low wages with debt to increase demand and use up the surplus supply that way.

It’s impossible to continue to do this of course and now consumer debt is shrinking rapidly. If the demand is not replaced by the injection of money into circulation than the whole system collapses. But the way the Fed is putting money into circulation is by giving it to the people at the top. These people do provide a disproportionate percentage of demand, but they don’t really need the money. They aren’t as likely to spend it as say the four million people about to lose unemployment benefits or the 44 million people who could lose food stamps under Speaker Boner. Nor are they going to expand given more money as supply side economics would predict since they are already operating at less than 80% of capacity and are increasing profits by cutting wages (and hence demand so there is even less need to expand).

So why are the Republicans opposing the Fed action? Because all Government is bad and trying to fix problems is bad, let the natural rule. Of course Republicans have never lived by the natural order, they always make sure there are rules that favor them over us common folk, (that’s just the natural order of Republicans).  Here comes new monetary policy, time to move inland. Always store your canned goods on high ground.


prairie2 said...

Apparently I have a new reader who doesn't get the admonishment to save the Rightwing talking points or what moderated means. Or maybe he doesn't get that articles from the WSJ (owned by Fox) about the dangers of Swedish socialism aren't really truth.

SanMigMike said...

It is a funny way talking a certain kind of conservative, ones that still believe the old "liberal media" stuff and are quite happy to blab the latest talking point from the wingnut right and don't get the mental dissonance of saying one thing one week and a week or a month or a year later saying the exact deficts (of course I think it was Dick Cheney among other that said that Ronnie proved that deficits don't matter...unless they are NOT Republican deficits!). But of course they will never get the idea that their fearless (except when it actually meant joining the military and going to war) leaders and their followers only need to look in the mirror to see just what got them where they are today...up S--- Creek with no paddle...and the canoe is about to sink.

I've felt for years that the American business plan of late is...Pay Third World Pay...Charge First World Prices. Don't think that is going to work too much longer.

I am looking forward to the Tea Baggers actually cutting Medicare and Social is that going to go over with their angry older white fan base? They can just live on their 401-K that "better deal" that those silly old defined benefit retirements...when they passed the laws for that crap we should have told them...GREAT...NOW YOU GET THE SAME DEAL!

Anonymous said...

A little off topic but the clip on the right "QE2, not to be confused with HMS Titanic" is hilarious. Best one yet and apparently the bears share my confusion over the great evil of deflation.

Andrea Friedell said...

I really don't understand why they need to print more money. It make no sense to me, although I am no economist.

bushtheidiot said...

If they print more money then the money becomes worth less because there is more of it. Think of it like diamonds. If diamonds were everywhere, they would be worth nothing because anyone could just pick one off the ground, but since they are rare, they are worth more. It's the same principle with dollar bills.

If money value starts going down after they print a bunch of it, the hope is the corporate stooges will stop sitting on their money like a goose egg and go spend it before it becomes worth a whole lot less due to the printing.

The fear is, if we do not print money, money will become worth more because there is less of it in circulation, thus the prices go down, and the corporate stooges go in and buy up stuff on the cheap with all the money they were sitting on. The impact on us common folk would be it would be a lot harder to earn a buck, and therefore spend a buck, you can see where the economy goes from there.

It is all targeted at helping/provoking the corporations and banks, and has little to do with helping average Americans. That's probably why nobody cares and/or cares to get it.

It's more trickle down failed Reaganomics, but it's all they "leaders" are offering us at this point in time, it's the least stinky of the two dog piles they are offering . . .

SanMigMike said...

Isn't it nice to know that...that 99% of us mean nothing to "America". this country is run for that 1% and we don't mean a darn.

SanMigMike said...

I'm kinda unclear on this printing money thing. How much money do they print and if they have printed only so many dollars and the stock market goes they print more? Where does that money come from? Then when the market goes down does someone collect that money and run it through a shredder?

One company with lots of assets that could be turned into cash is worth less than a company with few assets and not making money...just because of the stock price. I mean when the stock price goes up a company that does not own any of its on stock...gets what...nothing right.? This mysterious hand doesn't add and subtract money from a company's accounts as the stock market goes up and does affect how much money they can borrow.

Anyway isn't money created and destroyed every day on the stock market and money is really only worth what people think it is worth and right now the only "people" that have an opinion that matters is that 1% that the country is run by and for...the rest of us don't matter at all.

SanMigMike said...

Actually I understand diamonds are not all that rare...but DeBeers works hard to make us think they are valuable and control the market. I wonder if some of the "blood diamonds" stuff comes from DeBeers trying to stop someone else becoming a power in the diamond trade.