Category: Federal Reserve

Pete, Don’t Let the Door Hit You in the Butt

By , January 2, 2013 1:45 pm

I have never cared for Congressman Pete Stark (Dem.-Calif.). He was a demagogue of the worst sort, illustrated here by his parting comments on Morning Edition today. (I can give you more evidence if you want, but this will do.)

And what will Stark miss most when he leaves Congress?

“It’s one of the areas in which you get up … in the morning and look at the mirror … and say, ‘Hey, I’m going to do something today that’s going to make life better for somebody.’ And that’s pretty neat,” Stark says. “When I was a banker I’d get up and say, ‘Whose car am I going to repossess?’ or ‘Whose house am I going to foreclose?’ and that didn’t start you out on a very nice approach for the rest of the day.”

Because that’s all bankers do, you know, repossess and foreclose. Nothing else. And no mention that much of what Stark did to make “life better for somebody” almost certainly made life worse for somebody else.

Given that he (as a former banker, no less) reduces banking to repossession and foreclosure, it’s no surprise that he doesn’t understand the law of unintended consequences. For example, we have a stock market that has climbed to great heights under Mr. Obama–who gets lots of credit for that. But why is the market climbing? Well, it’s due in no small part to the almost-free money policies of the Fed. And who does that hurt, who does that “make life” worse for? Well, among others, people on fixed income, especially retirees who find themselves with nest eggs unable to generate enough interest income to sustain them in their golden years.

How low are the rates? Here’s a chart from the Treasury showing short-term and long-term rates on Treasuries over the last year. The second chart shows those same rates, starting back in January 2008.

Treasury Rates_2013-01-02_1305

Treasuries_Longer Period_2013-01-02_1309

Note the steady decline in rates since 2008, until 10-year rates hover around 1.5% and 1-year rates are around 0.25%–that’s 1/4 of 1%, for the decimally challenged. Now imagine that you’re living on a fixed income at those rates. Yes, Pete, when you help someone to a better life, you often impact the life of another for the worse. How many of those on fixed income have lost their homes or cars to the bank.

Baghdad Bobbette

By , April 18, 2011 10:19 am

Standard & Poor’s just shot a big gun across the bow of our ship of state, warning of

a “material risk” the nation’s leaders will fail to deal with rising budget deficits and debt.

At least one player in the government bond market agrees:

“It’s truly a shot across the bow and a message to Washington, which has been clowning around on this and playing politics when they should toss ideology aside and focus on achievement,” said David Ader, head of government bond strategy at CRT Capital Group LLC in Stamford, Connecticut. “The bond market is still trying to find out what to make of it. People don’t know what to do. If you sell Treasuries, what do you go in to? No one knows.”

So what’s Treasury’s response?

Treasury Assistant Secretary Mary Miller said today that S&P’s outlook on the U.S. credit rating “underestimates” U.S. leadership.

We believe S&P’s negative outlook underestimates the ability of America’s leaders to come together to address the difficult fiscal challenges facing the nation,” Miller [NKA Baghdad Bobbette] said in a statement. (emphasis supplied)

Our debt may becoming more expensive, but this response is priceless.

UPDATE: As Barry Ritholtz’s post at The Big Picture reminded me, the S&P is very late with its take on this party, a party Bill Gross walked out of over a month ago.

The Big Short’s Debt to the Prize-Winning Honors Thesis

By , April 6, 2011 10:19 pm

I’ve been listening to Michael Lewis’s book, The Big Short, the first book I’ve read on the financial crisis of 2007-2008 (and who’s kidding whom, the crisis we’re still in). The cast of characters is beyond interesting: Steve Eisman, Greg Lippman, Dr. Michael Burry, and many others.

I went online today in search of some information on the three people I just mentioned, found a little at Wikipedia, and then found this, which lead to this, which lead me to a copy machine.

Among other pursuits, I teach Honors Thesis Writing at BYU. The projects my students are involved in are quite impressive. Can’t wait to read Barnett-Hart’s thesis to see how it stacks up.

Fed Watch – FOMC Statement

By , March 27, 2011 2:22 pm

Due to malware problems, I didn’t post on the Fed’s most recent FOMC statement. Here it is. Nothing changed; that is, the federal funds target rate will remain in the 0 to 1/4 percent range, and the Fed will continue to purchase Treasuries pursuant to QEII. That said, there was this interesting snippet (emphasis mine):

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. Currently, the unemployment rate remains elevated, and measures of underlying inflation continue to be somewhat low, relative to levels that the Committee judges to be consistent, over the longer run, with its dual mandate. The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations. The Committee continues to anticipate a gradual return to higher levels of resource utilization in a context of price stability.

What they’re talking about here is the Phillips Curve, which says that with low inflation comes high unemployment. Conversely, higher inflation brings lower unemployment.

In the present case, the FOMC doesn’t think the upward pressure on inflation will be lasting; thus, the committee anticipates that the employment picture will improve, but only gradually. And, it appears, that improvement will will not come because of an increase in the federal funds target rate–not anytime soon anyway.

Fed Watch – FOMC Statement

By , January 26, 2011 2:50 pm

Here it is

The two key statments:

To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to continue expanding its holdings of securities as announced in November. In particular, the Committee is maintaining its existing policy of reinvesting principal payments from its securities holdings and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011.

and

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels for the federal funds rate for an extended period.

All emphasis mine.

Fed Watch – FOMC

By , January 26, 2011 11:55 am

Today, I begin watching the Fed. The FOMC began its January meeting yesterday and ends today. According to Bloomberg,

The FOMC announcement for the January 25-26 FOMC policy meeting is expected to leave the fed funds target rate unchanged at a range of 0 to 0.25 percent. Market focus will be on any update on the current round of quantitative easing and if there are any upgrades on the economy.

The announcement should come later today. Then we’ll see how the consensus holds up.

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