Tragic Risks of Doing Too Little
Please consider Fed’s Powell Says U.S. Faces ‘Tragic’ Risks From Doing Too Little to Support Economy.
“The expansion is still far from complete,” Mr. Powell said in remarks to be delivered at a virtual economics conference Tuesday. “At this early stage, I would argue that the risks of policy intervention are still asymmetric. Too little support would lead to a weak recovery, creating unnecessary hardship.”
By contrast, the risks of providing too generous relief are smaller, he said. “Even if policy actions ultimately prove to be greater than needed, they will not go to waste,” he said.
Two Risks of Doing Too Little
- The rapid initial gains from reopening the economy this summer could turn to a “longer than expected slog back to full recovery” as hard-hit service-sector firms struggle with soft demand.
- A prolonged slowdown in the pace of improvement could trigger “typical recessionary dynamics, as weakness feeds on weakness.” Such a slowdown could exacerbate existing racial and wealth disparities in the economy, which “would be tragic, especially in light of our country’s progress on these issues in the years leading up to the pandemic.”
Wealth Disparities
The #1 cause of wealth disparities is the Fed itself.
The Fed has blown three magnificent bubbles in 20 years, each bigger than the last.
Along the way the Fed bailed out the banks by paying interest on excess reserves of Fed’s own making.
The stock market and those with first access to money loved it but those late to the party and foreclosed upon didn’t.
We are in the midsts of another housing boom now, with millennials chasing home prices that have soared out of sight.
Mish
Anecdotal sample size of one data point FWIW … neighbors two doors down just listed home for sale. Saw agent sign in yard Saturday. They listed it for about 12% over what Zillow says it is worth, which has tracked well to real value for this home. Sale pending is up three days later, you know they got their price or very close with such a quick sale.
I feel bad for those who are the last in to home ownership on this fancy leg up. They might not see home value rise for 10 years.
In which market do you live?
In which market do you live?
Powell’s banker buddies blew the bubble. Main Street should not be handed the bill.
“The #1 cause of wealth disparities is the Fed itself.”
You think if your average BLM/ANTIFA rioter was going home to their own home or at least to a home they knew they would be comfortably paying off in their lifetime, they would be rioting? I highly doubt it.
Please add widespread public discontent to the Fed’s list.
“You think if your average BLM/ANTIFA rioter was going home to their own home or at least to a home they knew they would be comfortably paying off in their lifetime, they would be rioting? I highly doubt it.”
A couple of the rioters in New York City were professional lawyers. They probably did live comfortably.
You can blame the wealth disparity on the Fed, but you have to remember that the Fed does not operate in a vacuum.
The Congress put the Fed in charge of the creating the money supply and controlling interest rates. In return, the Fed gave Congress a checkbook that never has to be balanced.
And since 1945, the burgeoning military/industrial complex has held the Congress hostage, as we have gone from one unnecessary war to the next, incurring ever more debt and wasting ever more of our collective wealth on what passes for national security…..but which also conveniently gives great returns to certain players in the system.
In this instance, at least, there does seem to be some collusion.
It never would have lasted this long without currency debasement…i.e. “inflation”. Inflation is the hidden tax that can, over time, paper over a multitude of fiscal sins.
The other part of wealth inequality is even more insidious…..in a world without unlimited energy and natural resources, growth has limits. In a low growth world, everything gets harder.
In my father’s day it was very possible for stable, hardworking ordinary people to bootstrap themselves tremendously, no matter what class they were born into.
Now, not so much. I see my own children, all grown up now and all really hardworking good people……having to struggle….. more than I did, not that I had it easy….and they will never even reach my level of wealth, most likely.
Conclusion? It won’t get better. And as long as the Fed can do what they’re doing now, you won’t probably improve your lot by investing contrarian to Fed policies.
They would have been rioting no matter what since their social science degrees are completely worthless, and student debt must be paid.
They have nothing to loose, but debt forgiveness.
Trumpenfuhurer proclaims no stimulus till after election. Black Friday is imperiled.
Sounds like the freakin’ Grinch that stole Christmas. What? Is he holding the voters hostage now?
No stimulus UNLESS you vote for me…then I might let a little something trickle down on you losers.
The whole thing about the democrats is that they will assuredly Make It Rain. Is he promising to be stingy after the election? What am I missing here? Is he actively trying to destroy the republican party?
I think he’s deduced the Republican’s won’t budge, and neither will he, so his only option is to blame them.
“Sounds like the freakin’ Grinch that stole Christmas. What? Is he holding the voters hostage now?”
Democrats have been holding voters hostage.
When Jay Powell, who is most assuredly NOT a Democrat says repeatedly for some months in a row that more stimulus is need to avoid throwing the country into a serious recession, the Congress ought to listen. Instead, the Republicans in the Senate are pinching pennies…
Frankly this is not the time for pinching pennies. After the shit hits the fan is too late.
We need bipartisan effort like we had last spring.
He’s effectively said “vote for me & I’ll give you the stimulus you need and want”. However, will he be in a better position to deliver after the election?
Well thought trump may have had a come to Jesus moment with the covid. Guess not.
The Fed has bought nearly a trillion dollars worth of MBS’s this year….and last I read they remain committed to buying 40 billion more per month. That amounts to about half of what they spent and are still spending for Treasuries.
They don’t really care so much about house prices (or equity prices) as they do the total lock-up of the credit markets for the planet. It amounts to a lesser evil…at least it is for the bankers.
Since various kinds of stimulus is all markets have run on since 2008, and since it still seems to work….I expect them to keep right on doing it until some fine day it doesn’t work….and I expect that it will do that….at some point. That’s what we all have to fear…
Rates have been steadily dropping since the 80’s, which is basically stimulus. The latest extension is playing with the fed balance sheet, after which we probably go to state allocation (already much that way already) which would occur with the likes of UBI and/or open direct assimilation of private debt (mortgages etc.) . Maybe they will create a hybrid system where “dual” currency emerges, one “higher grade” central bank guaranteed and the other common admin/private banking fiat dregs. That would give a state controlled/managed economy and the socialist utopia will become reality etc. (i.e. no one will have any choice).
There’s a more likely outcome: a total reset ala Soviet Union, but the Soviet Union had some fine disciplined population.
Compare that to the privileged Americans, and shiver runs down the spine.
The downward spiral is somewhere in the future, but where?
I see it more as a controlled demolition, where answers are prepared and containment planned and replacement/answers to whatever crisis or destruction is happening are already in the wings if not partly advanced. “They” have no intention to see the western world completely obliterated, there would be a path designed through this because, if nothing else, there is a part reliance on the functioning of society and economy. However, and the other side to the coin being that spoilt complacency does not generate a proper fighting community able to overturn a decrepit order, there is still no guarantee as to how events would play out… and as history shows us the ideas society creates or follows can be extremely exentric to what any calculating but rational person might imagine would be the direction. This is the great danger that goes with the purposeful dissolution of culture, ethics, or nations even. What are often more recently seen as problems are in fact also the limits that stop a descent into chaos.
In the case of Soviet Union, there was good intention of fixing things in a peaceful way, just by little steps.
Noone anticipated that there was boiling pot of discontent. The haphazard/primitive internal spying network thought they have thing under control.
And it was single dimensional: property, prices, credit were not an issue.
The present crisis which is a monetary one can easily be resolved if the whole system declared bankruptcy, and everybody would started over with a clean sheet (discounting the legality of it). However, what a tsunami of other problems that would create.
The other factor is social, the legitimacy of the system that led to this state. In a complex system, things can get out of hand with the best of intentions.