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Obamanomics Has Failed Dismally and Bernanke Can't Save It
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About 30 years ago, Paul Volcker launched a monumental monetary effort to bring down inflation. As Fed chairman, he sold bonds, removed cash from the economy, and cared not one whit about rising interest rates. And it worked. Gold plunged, King Dollar soared, and the drop-off in bank reserves and money extinguished high inflation — and actually launched a multi-decade period of very low inflation.
This week, current Fed Chairman Ben Bernanke embarked on an absolute reversal of Volcker’s policy. He is launching a monumental effort to buy bonds and inject new money into the economy in order to reignite economic growth and job creation. It’s like history is repeating itself, but in reverse. Gold is soaring, the dollar is falling. Something’s wrong with this picture.
Bernanke’s QE3 is an unlimited Fed effort to buy mortgage bonds with new cash. The plan — which starts immediately — envisions $40 billion of bond purchases and money-creation per month, coming to $480 billion over the next year. And there are no limits to these purchases. These operations are open-ended. This could last for years — maybe in perpetuity — until job creation shoots way up and unemployment comes way down.
Nothing like this has ever been used by our nation’s central bank. The Fed’s balance sheet, which has ballooned from around $800 billion to $2.5 trillion under Bernanke, will go to $3 trillion, or $4 trillion, or who knows how high.
But here’s the rub: More money doesn’t necessarily mean more growth. More Fed money won’t increase after-tax rewards for risk, entrepreneurship, business hiring, and hard work. Keeping more of what you earn after-tax is the true spark of economic growth. Not the Fed.
In the supply-side model, the combination of lower marginal tax rates, lighter regulation, and a downsized government in relation to the economy is the growth-igniter. Money, on the other hand, determines the value of the dollar exchange rate and subsequently the overall inflation rate. A falling dollar (1970s) generates higher inflation, a rising dollar (1980s and beyond) generates lower inflation.
This is the supply-side model as advanced by Nobelist Robert Mundell and his colleague Arthur Laffer. In summary, easier taxes and tighter money are the optimal growth solution. But what we have now are higher taxes and easier money. A bad combination.
The Fed has created all this money in the last couple of years. But it hasn’t worked: $1.6 trillion of excess bank reserves are still sitting idle at the Fed. No use. No risk. Virtually no loans. And the Fed is enabling massive deficit spending by the White House and Treasury.
Now, one key political point is that Bernanke’s desperate money-pumping plan to rescue the economy is a very blunt admission that Obamanomics has completely failed. The president is asking voters to give him more time, which is a very weak argument. But his Fed chairman is essentially saying we are running out of time and have to embark on this massive monetary action. Mitt Romney should use the Bernanke argument, but not the Fed solution.
Some argue that Bernanke so desperately wants a victorious Obama to reappoint him, that he’s printing money and driving up stock prices on the eve of the election. I prefer not to believe this cynical interpretation. As an old ex-Fed staffer, I would argue that it’s not a political agency. Although I have to admit, on the eve of the election, the question is going to be asked.
More to the point, the Achilles’ heel of the Bernanke plan is the collapse of King Dollar, the result of printing so many new ones for so long. That, in turn, will drive up commodity prices, especially energy and food, and will do great damage to the middle class, which is already suffering from income declines and rising living standards.
This is what happened in 2011, when QE2 did more harm than good to the economy. Middle-class savers and retirees will also get their heads handed to them because of rock-bottom interest rates. And bank lenders may withhold credit since the difference between short and longer rates is so narrow there’s no incentive to make loans.
So at the end of the day, Obama’s economic program of tax, spend, and regulate has been a dismal failure. And now his Fed chairman is acting dramatically to bail him out. Guess what? It won’t work.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.
This week, current Fed Chairman Ben Bernanke embarked on an absolute reversal of Volcker’s policy. He is launching a monumental effort to buy bonds and inject new money into the economy in order to reignite economic growth and job creation. It’s like history is repeating itself, but in reverse. Gold is soaring, the dollar is falling. Something’s wrong with this picture.
Bernanke’s QE3 is an unlimited Fed effort to buy mortgage bonds with new cash. The plan — which starts immediately — envisions $40 billion of bond purchases and money-creation per month, coming to $480 billion over the next year. And there are no limits to these purchases. These operations are open-ended. This could last for years — maybe in perpetuity — until job creation shoots way up and unemployment comes way down.
Nothing like this has ever been used by our nation’s central bank. The Fed’s balance sheet, which has ballooned from around $800 billion to $2.5 trillion under Bernanke, will go to $3 trillion, or $4 trillion, or who knows how high.
But here’s the rub: More money doesn’t necessarily mean more growth. More Fed money won’t increase after-tax rewards for risk, entrepreneurship, business hiring, and hard work. Keeping more of what you earn after-tax is the true spark of economic growth. Not the Fed.
In the supply-side model, the combination of lower marginal tax rates, lighter regulation, and a downsized government in relation to the economy is the growth-igniter. Money, on the other hand, determines the value of the dollar exchange rate and subsequently the overall inflation rate. A falling dollar (1970s) generates higher inflation, a rising dollar (1980s and beyond) generates lower inflation.
This is the supply-side model as advanced by Nobelist Robert Mundell and his colleague Arthur Laffer. In summary, easier taxes and tighter money are the optimal growth solution. But what we have now are higher taxes and easier money. A bad combination.
The Fed has created all this money in the last couple of years. But it hasn’t worked: $1.6 trillion of excess bank reserves are still sitting idle at the Fed. No use. No risk. Virtually no loans. And the Fed is enabling massive deficit spending by the White House and Treasury.
Now, one key political point is that Bernanke’s desperate money-pumping plan to rescue the economy is a very blunt admission that Obamanomics has completely failed. The president is asking voters to give him more time, which is a very weak argument. But his Fed chairman is essentially saying we are running out of time and have to embark on this massive monetary action. Mitt Romney should use the Bernanke argument, but not the Fed solution.
Some argue that Bernanke so desperately wants a victorious Obama to reappoint him, that he’s printing money and driving up stock prices on the eve of the election. I prefer not to believe this cynical interpretation. As an old ex-Fed staffer, I would argue that it’s not a political agency. Although I have to admit, on the eve of the election, the question is going to be asked.
More to the point, the Achilles’ heel of the Bernanke plan is the collapse of King Dollar, the result of printing so many new ones for so long. That, in turn, will drive up commodity prices, especially energy and food, and will do great damage to the middle class, which is already suffering from income declines and rising living standards.
This is what happened in 2011, when QE2 did more harm than good to the economy. Middle-class savers and retirees will also get their heads handed to them because of rock-bottom interest rates. And bank lenders may withhold credit since the difference between short and longer rates is so narrow there’s no incentive to make loans.
So at the end of the day, Obama’s economic program of tax, spend, and regulate has been a dismal failure. And now his Fed chairman is acting dramatically to bail him out. Guess what? It won’t work.
To find out more about Lawrence Kudlow and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.
© Creators Syndicate Inc.
Read more on Newsmax.com: Obamanomics Has Failed Dismally and Bernanke Can’t Save It Important: Do You Support Pres. Obama's Re-Election? Vote Here Now!
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Published: Friday, 14 Sep 2012 | 3:43 PM ET Text Size By: CNBC.com With Reuters Twitter
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Ratings firm Egan-Jones cut its credit rating on the U.S. government to "AA-" from "AA," citing its opinion that quantitative easing from the Federal Reserve would hurt the U.S. economy and the country's credit quality.
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The Fed on Thursday said it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the weak jobs market. (Read more: Fed's 'QE Infinity' — Four Things That Could Go Wrong)
In its downgrade, the firm said that issuing more currency and depressing interest rates through purchasing mortgage-backed securities does little to raise the U.S.'s real gross domestic product, but reduces the value of the dollar.
In turn, this increases the cost of commodities, which will pressure the profitability of businesses and increase the costs of consumers thereby reducing consumer purchasing power, the firm said.
In April, Egan-Jones cuts the U.S. credit rating to "AA" from "AA+" with a negative watch, citing a lack of progress in cutting the mounting federal debt.
Moody's Investors Service [MCO 43.82 0.07 (+0.16%) ] currently rates the United States Aaa, Fitch rates the country AAA, and Standard & Poor's rates the country AA-plus. All three of those ratings have a negative outlook
The Fed's Balance At The End Of 2013: $4 Trillion
September 14, 2012
Print Version
Source: ZeroHedge
What happens next:
•Imminently, the Fed's Open Markets Operations desk will commence buying $40 billion in MBS per month, or about $10 billion each week. Concurrently, the Fed which is continuing Operation Twist, will still purchase $45 billion in "longer-term" Treasurys, sterilized by the $45 billion or so in 1-3 years Bonds it will sell until the end of the year at which point it runs out of short-term paper to sell.
End result: every month through the end of 2012, the Fed's balance sheet expands by $40 billion in MBS.
•Beginning January 1, 2013 the Fed will continue monetizing $40 billion in MBS each month, and will continue Operation Twist, however it will adjust the program so that it continues to increase its long-term holdings at $85 billion per month, without sterilization as it will no longer have short-term bonds to sell. It will also need to extend its ZIRP language "through the end of 2016" so all bonds 1-3 years are essentially risk free, as they are now, in effect eliminating the need to sell them.
End result: every month in 2013 the Fed will increase its balance sheet by $85 billion, consisting of $40 billion in MBS, and $45 billion in 10-30 year Treasurys, or the natural monthly supply of longer-dated issuance. The Fed will therefore monetize roughly half of the US budget deficit in 2013.
Putting it all together, the Fed's balance sheet will increase from just over $2.8 trillion currently, to $4 trillion on December 25, 2013. A total increase of $1.17 trillion.
This is what the Fed's balance sheet will looks like:
Another way of visualizing this is how many assets as a percentage of US GDP the Fed will hold on its books. Currently, this number is 18%. By the end of 2013, the Fed's historical flow operations will be accountable for 24% of US GDP.
Why is this important? Simple: when the time comes for the Fed to unwind its balance sheet, if ever, the reverse Flow process will be responsible for deducting at least 24% of US GDP at the time when said tightening happens. If ever.
What is scariest, is that as of this moment, all of this is priced in. Any incremental gains in the stock market will have to come from additional easing over and above what Bernanke just announced.
And finally: Fed's DV01 at December 31, 2013: ~$4 billion
The big crash – America plunges into Depression
Alexander burn: Young Americans have given up watching the news. It’s too depressing
ColumnLAST UPDATED AT 16:31 ON Thu 8 Jul 2010
It's the worst of times. America is plunging back into Depression. Only one out of every two Americans of working age has a job. Forty years ago that would have been okay. Dad went to the factory. Mom stayed at home to mind the kids. These days, just to keep the show on the road, mom and pop both work and the kids go to daycare.
Start looking for work now and on average it will take till next April for you to find something. Across the last two months, more than a million Americans simply gave up seeking employment, even as benefits are running out. Ironically, if you quit looking for work you count as officially "discouraged", and don't figure in the official unemployment stats, which is the only reason that number hasn't shot up to record highs.
Somewhere near 10 million Americans without work aren't getting any kind of cheque. One in every five children is living below the poverty line, sometimes by as much as 50 per cent – classed as "extreme poverty". Across America, in state after state the till is empty. Barack Obama's home state of Illinois is effectively bankrupt. So is California. Forty-six of the 50 states are buried under huge deficits.
The stimulus has failed. The housing market is in free fall. A couple of months ago market analysts predicted there will be five million more foreclosures between now and 2011 and it looks like they're on target. Forty per cent of delinquent homeowners have already loaded up the SUV, thrown the plastic chairs in the swimming pool and tossed the house keys back at the bank. Worse still, only 30 per cent of foreclosures have been re-listed for sale. The banks have been keeping them back to avoid flooding the market.
For tens of millions of Americans the house is as central and crucial a financial asset as a pig was for an Irish peasant family in the 19th century. The pig, as the old Irish saying went, was "the man beside the fire". It had the place of honour. The pig died, the family starved. Knock 20 per cent off the aggregate value of housing in America today and that means sunset years of penny pinching and, of course, yet one more knife in the belly for the overall economy.
And yet... if not the best of times, you can hardly say that America is broke. It's not. As the economic columnist Carl Ginsburg remarks, "America is awash in cash. This is a very, very rich country with piles and piles of cash. Private US accounts today contain approximately $10 trillion in cash and liquid assets.
"On the corporate side, non-financial US corporations are holding more than $1.8 trillion, constituting a 26 per cent increase as of March from one year earlier - the largest increase on record going back to 1952."
The problem is that the banks don't want to put money out, because they think ordinary Americans are too broke to pay it back. Ordinary Americans agree. They've carried America forward through the past decade on the backs of their credit cards and they can't totter another step. They're out of juice.
In the measured argot of the IMF, "Financial crises typically follow periods of rapid expansion in lending and strong increases in asset prices. Recoveries from these recessions are often held back by weak private demand and credit reflecting, in part, households' attempts to increase saving rates to restore balance sheets. Globally synchronised recessions are longer and deeper than others."
(Political footnote to the foregoing: the recession of 1980 finished off President Jimmy Carter: the recession of 1992 did for George Bush Sr and put Bill Clinton into the White House.)
Of course America is wildly rich. How else could it find room in its heart for the legal tax write-offs that allow Americans to deduct contributions to Israelis establishing illegal settlements on the West Bank? How could it pay the $2 million in direct and indirect bribes to the Taliban a week - or is it a day? - in Afghanistan to allow its supply convoys down roads so that the counter-insurgency against the Taliban can continue, if not prosper?
Counter-insurgency means drones that kill civilians and do the Taliban no end of good. But drones mean jobs in jobless America. The Wisconsin National Guard is planning to build a new $8m base for unmanned drones. Whiteman Air Force Base in Missouri is to be a drone base control. In South Dakota, Rapid City's nearby Ellsworth Force Base also recently won a drone contract.
In none of these places was there much of anything but joy at the news. "There was great news for Ellsworth Force Base and for the Rapid City community," declared the local Black Hills Fox Channel. Missouri Congressman Ike Skelton said he'd worked for a year to win the Predator. The Rapid City Journal editorial page was ecstatic: "Ellsworth and its many supporters have done Rapid City and South Dakota proud."
It's the best of times for Republicans who have scant sympathy for out-of-work people anyway and who have every political incentive to ensure that by mid-term election day, November 2, they'll be able to hang America's latest "worst of times" around the necks of Obama and the Democrats.
Dean Baker, who co-directs the Center for Economic and Policy Research in Washington DC, explains the Republicans' heartless maths: "State and local governments have cut their workforce by an average of 65,000 a month over the last three months [as they have to do, because they are legally bound to balance their budgets]. Without substantial aid from the federal government this pace is likely to accelerate. The Republican agenda in blocking aid to the states may add another 300,000 people to the unemployment roles by early November."
The Republicans' blockage of extended unemployment benefits promises similar dividends. Unemployment benefits are not just about providing income support to those who are out of work, they also provide a boost to the economy, which is why the Republicans have been especially keen to cut them off.
It's the worst of times. People are down. I meet young people every day who say they've simply given up watching the news. It's all too depressing.
The Washington Post ran a story on July 6 by Kimberly Kindy that established that "in the 77 days since oil from the ruptured Deepwater Horizon began to gush into the Gulf of Mexico, BP has skimmed or burned about 60 per cent of the amount it promised regulators it could remove in a single day."
As of Monday July 5, with about two million barrels released into the gulf, the skimming operations that were touted as key to preventing environmental disaster have averaged less than 900 barrels a day.
As William Empson wrote in his poem Missing Dates:
Slowly the poison the whole blood stream fills…The waste remains, the waste remains and kills.
.
Read more: http://www.theweek.co.uk/politics/13407/big-crash-%E2%80%93-america-plunges-depression#ixzz26WTHaLS9
Posted By: Seawitch [Send E-Mail]
Date: Saturday, 15-Sep-2012 03:52:13
FROM A READER
DISHONORABLE DISCLOSURES
The single most ing video you will ever see.
This video, made by the U.S. Navy Seals and others armed forces officers and intelligence agents, will hopefully cost Obama his second term in office.
It’s just incredible how effective this video is in convincing TRUE Americans that Obama is seriously harming this country. History will judge him negatively for his terrible treasonous acts.
Just an incredibly powerful video!
Senior CIA, FBI, military and many other U.S. government intelligence officials describe for the viewer how Obama has compromised U.S. national secrets and the very serious consequence of those actions.
And, what’s worse, he did it all for political gain so he could win a second and undoubtedly disastrous term in office!
PLEASE, view this and stop this traitor from spending one more single second as president of this/our great country!!!
Click below.
http://www.youtube.com/v/X-Xfti7qtT0?version=3&hl=en_US&rel=0
The single most ing video you will ever see.
This realization of the dreams from his father is destroying our nation.
Which is EXACTLY what he wants.
4 MORE YEARS! 4 MORE YEARS! 4 MORE YEARS! 4 MORE YEARS! 4 MORE YEARS! 4 MORE YEARS!
Bam and Bern one time wonders...!
Guess what? It won’t work.
Guess what? It won’t work.
Guess what? It won’t work.
Guess what? It won’t work.
Guess what? It won’t work.
Guess what? It won’t work.
Guess what? It won’t work.
Guess what? It won’t work.
Guess what? It won’t work.......!!!
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