Need to Act Big
Yellen seeks a Sweeping Stimulus Package in Face of GOP Skepticism at her confirmation hearing.
“We need to make sure that people aren’t going hungry in America, that they can put food on the table, that they’re not losing their homes and ending up out on the street because of evictions,” Ms. Yellen said. “We really need to address those forms of suffering, and I think we shouldn’t compromise on it.”
If she is confirmed by the Senate as expected, Ms. Yellen will become the administration’s top economic-policy spokesperson responsible for selling President-elect Joe Biden’s $1.9 trillion proposal, which includes another round of stimulus payments, extended jobless benefits, grants for small businesses and a nationwide vaccination program. After that, Ms. Yellen said, long-term investments will be needed in areas such as infrastructure and workforce training to help make the U.S. economy more competitive and productive.
Delayed or inadequate support, she warned, could lead to a more-protracted economic recovery and cause long-term economic damage in the form of permanent job losses and business closures that could weigh on growth for years to come.
“It’s really critically important to provide this relief now,” she told lawmakers on the Senate Finance Committee, which will vote on her nomination.
Republican Skepticism
- “The only organizing principle that I can discern is it seems to spend as much money as possible, seemingly for the sake of spending it,” Sen. Pat Toomey (R., Pa.) said of Biden’s latest plan.
- Finance Committee Chairman Chuck Grassley of Iowa noted a “laundry list of liberal structural economic reforms” in Mr. Biden’s relief package including a $15 minimum wage.
What About the Debt?
Ms. Yellen acknowledged the government’s mounting debt load, which stands at $21.6 trillion—or roughly 100% of a year’s economic output. But she urged lawmakers to put those concerns aside for now. Interest rates are at historic lows and expected to remain there for some time, making borrowing more affordable, she said.
Put Aside Concerns For Now?
No, not for now, for ever.
Borrowing is “affordable” because rates are low. So rack it up. And we have to the tune of $27 trillion in national debt.
Indeed, we have racked up so much debt that it is impossible for the fed to normalize rates. And the fact that the Fed cannot hike rates makes it all affordable.
Got that?
I hope so because that is precisely how they think.
Swiss Cheese Thinking
In case you missed it, please see Janet Yellen’s Swiss Cheese Statements on the US Dollar
Mish
I got the free stuff from here for freely, is it good to having access? link to tricksgeek.com
The World Economic Forum’s Klaus Schwab, says you will own nothing and be happy, after the Great Reset.
I meant cannot buy a home now but will be able to buy a home.
It will take years for the undocumented to become citizens.
I think all houses below $300k or maybe $400k are going up in price.
So you add home owner incentives to an environment of all time low inventory. Bullish for homes.
I like the way you think.
I’m still trying to remove the mental image of Mish’s rendition of Johnny B Good from his post yesterday….it hurts…make it stop!
Mish is an Austrian economist, it goes without saying He’ll endlessly critique any Monetarist (or Keynesian), any member of the Fed will Monetarist be by default.
So, Mish, while Janet might be “Yellin’”, at least she’s NOT making karaoke video’s!
Oh, god, no….now I’m developing an imagine of Yellin’, no!..no!…..go away Yellin, no Karaoke for you!
All in good fun.
I’m thinking somebody could make a nice parody of “Dammit Janet” from the Rocky Horror Picture Show….. 🙂
“The money is ours so let’s print it, Janet”
“Forward guidance is all that matters, so let’s spin it, Janet.”
“Dammit Janet. I love you!”
“I’m thinking somebody could make a nice parody of “Dammit Janet” from the Rocky Horror Picture Show….. :)”
Please, don’t give Mish any idea’s. 0.o
I agree with Flatlaxity. Public debt is not the same as individual debt. The sky isn’t going to fall in due to additonal public spending right now, in fact it is what is keeping the sky from falling in.
The real issue is who is in control of the spending and who is benefiting from the spending. Expect lots of political fighting over this, as republicans realize beating the drum over spending is one of their most effective political tools, even though they are just as guilty of spending when they are in control of the purse.
“I agree with Flatlaxity. Public debt is not the same as individual debt.”
Make that three of us.
You might recall the infamous “Reinhart–Rogoff report” back about 10 years ago, claimed governments will collapse at around 110% of GDP – that had the Tea Party yelling “FIRE” in the theater, that turned out to be mistaken.
I don’t claim we can endlessly run up government debt, but the final solution is going to have to be an inversion of the decimation of middle class net worth of 40 years of “trickle down” failure.
“Job creating” tax cuts for the super-wealthy have created jobs for sure, in Mexico, China and India.
I don’t think a 70% effective tax is a good idea, but I also don’t think giving billionaire CEO’s a lower effective rate than a waitress is helping our debt either.
What’s next in the Fed’s bag of tricks? Now that they’ve goosed interest rates to effectively zero bound, can’t go negative without blowing up the world’s capital markets. Created crazy asset inflation that enriched the owners of assets immensly while screwing those not holding assets, tough luck for those saving fiat with some hope of buying assets for cash. Now here come the helicopters to keep this economic monstrosity going into perpetuity, UBI and who knows what else.
At some point they will be able to issue the sovereign “crypto-dollar”.
Using blockchain they will, in one stroke, completely eliminate cash (making negative interest easy to maintain)……and it will also make all financial transactions completely transparent to the government, effectively ending tax cheating and shrinking the cash black market to nearly nothing.
Sound like fun?
If cash is eliminated, how will Washington DC politicians take under the table cash payoffs? Washington DC will come to a standstill without cash
They’ll just have to exist on the legal graft they legislate for themselves, I guess.
Don’t fight the FED. You cannot. Buy assets.
Stop whining! Debts do not matter, once you decided to never reimburse your debts.
Can you imagine the disappointment & disillusionment when things don’t improve and may become worse over time?
Trump was a reaction to Clinton, Bush, Obama. What will be the reaction to Biden/Harris? Let’s hope its good.
What’s Government debt anyway? It’s not like you and me having debt.
Treasuries are being bought by the Fed , and the interest therefrom passed over to the Treasury. The “damage” occurs when the Fed prints money to buys the treasuries. What the Fed has done is to “…water the booze…”
This effect is immediate and contributes to stock market, real estate prices and other assets inflation. The increasing government stimulus only partially (circa 20%) goes to GDP creation which is the intended target to increase/maintain employment and standard of living. Increasing asset prices don’t do this – and can eventually bust without enough of a supporting GDP.
Internationally other central banks are doing the same thing, such that the dollar won’t suffer.
If the Fed owns the debt, why should there be a push to pay it off.
It’s the maintenance of the asset bubble we have to worry about.
It’s not a problem until it’s suddenly a huge problem. Once confidence in the USD is gone, it will drop like a brick in water. All it will take is a large debt holder like China or Japan to dump their USD holdings and/or decide they no longer want to prop the USD. Our enormous trade deficits won’t be able to be sterilized without support from every major trade partner.
“It’s not a problem until it’s suddenly a huge problem. Once confidence in the USD is gone, it will drop like a brick in water. ”
Yes
And once I’m exposed to gamma radiation and morph into the Hulk, I’ll rule the world.
I feel for some of those not paying rent, but stopping evictions is a bad idea. When you stop evictions, people stop paying rent. Regardless if they can afford to or not. People not paying rent is what’s propping up the stock market. Many who would ordinarily face eviction somehow have money to buy Tesla stock and Bitcoin.
Who in their right mind would decide it’s a good idea to be a landlord right now?
Me.
I’m a both a landlord and a willing buyer of rental real estate today, if I can find the right deal.
Let’s talk again in ten years and see how stupid I was. lol.
Now it is true I’m not in some socialist renter’s paradise like NYC. I would NOT want to be in that position.
well that didn’t take long. the 1776 commission website
link to whitehouse.gov
Welcome to “1984”.
i read the report . its ridiculous. but just shows you karma. trump took down obama’s election reform website first day too
I haven’t read it, but understand it to be an answer to the even more ridiculous 1619 Project with its assertion that a motive of the Founding Fathers was to keep slavery alive. Silly, silly, silly, and destructive, as all lies are.
At some point in the 4 hours since you posted that link – “404 / Page Not Found”
Oh, wait, that was why you posted the link, duh.
“Interest rates are at historic lows and expected to remain there for some time, making borrowing more affordable, she said.”
Wow, what a tool!
She’s a tool? Or cheap credit is a tool? lol.
Easy credit can be a very good tool, imho. But you have to take on debt to use it. Therein lies the rub.
I know that doesn’t go over well with those buying bullion and anxiously awaiting the imminent collapse of the US dollar, but cheap money has its benefits, as far as I’m concerned.
If everyone has access to the same financial leverage (i.e., low interest rate loans) then no one benefits except those selling the assets since the result is asset prices go up.
Example: You and I are both competing to buy a house. You are richer than me so you can offer more money. Seller tells me what what your offering and asks if I care to match. I run to the bank, get a loan and up the ante. You go to the bank and do the same. The process continues until the bank says to me “this much and no more”. And let me tell you, they are giving me a lot thanks to “affordable borrowing”! Well, you have to do the same until you outbid me because you have more savings.
House hasn’t changed, only its price and you have to pay a lot more because a schmuck like me bid up the price due to low interest rates (along with loose lending standards left over from the moral hazards from 2008).
Apply this dynamic to automobiles, higher education, etc. The savers and honest folk get reamed.
“The savers and honest folk get reamed.”
Yes, Dan. I understand that access to cheap money is a driver of wealth inequality.
But…..what is more important to you?
Being some kind of noble poor person?….Or maybe using the leverage while it’s available to us ordinary folks…to better yourself?
Because I have lived in times when credit was very hard to come by at all….and it was way more expensive. Now the credit amounts to a gift, if I’m not afraid to use it.
The way it looks to me…..I have a choice….I can use the credit….or get reamed my own self….and I’m not (a) a Wall Street hedge fund manager or (b) a central banker.
And what I do mostly affects ME…not some hypothetical old person living on a fixed income who is getting starved out because I made a good investment decision…
And whether I use the debt leverage or not, that person’s fate is already determined anyway. They’re screwed no matter what I do.
I’m just trying to make sure that elderly saver getting screwed is not me personally.
Does that make any sense to you?
People seem to get all caught up in making these moral judgments….the system is the system. I didn’t make it, and I have no power to change it. I can play the game to win it, or I can whine about it. Seems like a no-brainer to me.
And hell, I’m elderly already. Let the devil take the hindmost.
I hear what your saying. I’m not trying to make a moral argument. I’m trying to point out that low interest rates don’t make anything “more affordable”. It simply increases the price of things. When credit was expensive, then house prices were more affordable because buyers simply couldn’t pay as much for the house. House prices had to fall, as they were (are) constrained by what people can afford. Lowering interest rates do NOT make the house more affordable and that is why Yellen is a tool – for stating that it does. Low interest rates hurts people who have the foolish idea that they should be able to pay off their house loan during their working lives and attempt to save a down payment so they only have to borrow an amount they know they can pay off (while saving for other things too). Now those honest folks have to compete with the fools who make no such calculation and just figure “well, the bank will give me the money now and I’m sure it will all work out somehow in the end.”
That end will most likely occur after your gone, so your position is understandable. However, if you were a young person, would you like to be in the position of having to buy something you know you couldn’t afford and “hope” that when the day of reckoning occurs, your on the right side of the bailout?
I’m trying to point out that low interest rates don’t make anything “more affordable”. It simply increases the price of things. When credit was expensive, then house prices were more affordable because buyers simply couldn’t pay as much for the house. House prices had to fall, as they were (are) constrained by what people can afford.”
Okay, I understand better…..but I still think you’re failing to see the big picture.
For one thing……Housing prices DON’T fall because prices are too high and therefore people can’t afford them. Housing prices almost always fall when credit dries up due to defaults…..in recessions when large numbers of people lose their jobs.
And…..prices have trended higher over time no matter what the interest rates were.
Housing has averaged over 4% per year price inflation nationwide going back to 1967. (Longer than that, but I can easily find a chart that proves it back to then.) In all kinds of interest rate environments.
In 1981 mortgage interest rates were at a nosebleed 16.63%…and people were buying houses like hotcakes.
You have to trust a trend like that. Very few things in this world are more certain than that.
WTF cares what makes the prices go up?….they go up. Actually there are lots of reasons, but the trend is what matters.
There are several different things going on when you buy a house with a locked in fixed rate loan.
More than one way to win.
Let’s just consider home ownership….the simple case.
You buy the house because you know damn well rents are unlikely to trend down over the long haul.
In some special cases it makes sense to rent, but for most people in most places in the US, buying a house is a way to get a stable payment into the future.
Taxes will go up. Repairs will have to be done (although on a new house there won’t be many in the first ten years.) But generally you buy the house to keep from having your rent raised every new lease, year after year. Renters pay for their taxes and repairs in the rents…and then some….always.
If you are fortunate and you buy a house when interest rates are artificially low, intentionally distorted by the Fed for their own nefarious reasons…you can damn sure get a lot more house for your payment dollar than when interest is high.
As a result of short term Fed policy, you get what amounts to a discount every month for 30 years.
People who own their homes and stick it out end up with significantly higher net worths than people who don’t, regardless of what kind of retirement account they might or might not have with their employment. That’s a fact, and I have a friend who spent a lot of time and energy researching that, and I’d be happy to recommend his book if you don’t believe me.
It isn’t a crapshoot. It’s a well-proven path to building wealth.
And what happens if there is REAL inflation across the board….double digit inflation?….
Don’t think that can happen, because of the debt? I wouldn’t be so sure…..there is no trend that shows that.
If inflation gets hot enough at some point the Fed will have to raise rates. Inflating away the debt is the painless, politically expedient way to deal with big government debts…..but there is another way. Serious financial repression and really high taxes. If you don’t think that can happen, I recommend you study the 1950’s. From 1951 to 1963 the top marginal tax rate in the US was 91%.
If real inflation gets to even 6%….and your mortgage from 2021 is 3%…..you will end up absolutely killing it….as you end up paying that mortgage off in dollars so much cheaper than the ones you borrowed…..it’s like like the bank loaning you money and paying you interest, instead of you paying them.
If I were a young person would I take a deal like that? Damn right I would.
But do your own DD. I recommend reading Daniel Amerman’s The Homeowner Wealth Formula. That’s the friend I mentioned. I’m no shill. I bought his new book myself, even though I had a fairly good understanding already of the subject matter. I’m reading it now.
for the first time since early 2008, i am significantly invested in stocks. just move a bunch in to celebrate yellen’s appointment.
If, as Japan has proven, a birth rate of less than 1.7 births per woman is highly deflationary, what’s wrong with printing money to maintain price stability?
If the population were to decline wouldn’t you need less money? If you print more money, wouldn’t the same number of people buy the same goods and services, but perhaps pay more for them? How would that help, fewer people would still be consuming fewer goods and services. The dollar value might be the same or higher but that is meaningless.
It’s a bit light comparing box office sales of modern day films with those of 50 years ago. It’s a meaningless comparison, but if you compared ticket sales it would make more sense.
“If you print more money, wouldn’t the same number of people buy the same goods and services, but perhaps pay more for them?”
Pay more than they otherwise would? Sure. But the problem is you’re dealing with massive deflationary pressure. You need to print money just to keep prices stable.
And you might say aren’t lower prices good? Not if you consider that wages and prices are linked. If prices fall 30% wages will fall 30% – all else being equal. But your mortgage will still be the same. The same is true for corporations. If borrowed $1 billion to build a new factory and the prices of their widgets is down 30%, the loan doesn’t deflate along with wages and prices.
Printing money doesn’t solve the problem of excess supply as a result of a decline in the population. Presumably the reason you’re suggesting prices would fall is because of the excess supply, ie sellers would lower prices to make their goods more attractive. However, the aggregate of sales will never rise, regardless of price, because there are fewer people to buy them. Ultimately production will fall to match the new supply and prices stabilise again. The supply of money in this instance is a red herring.
Scoot,
What’s your explanation for what happened in Japan? Your theory didn’t seem to work in their case.
Interest rates and bond yields are kept artificially low which forces profit margins down and discourages investment.
Because printing money equates to prices going up, but paychecks (at least for the unsubsidized private sector) staying the same.
By the way, what is wrong with prices going down?
“By the way, what is wrong with prices going down?”
See – The Great Depression.
Please do see the Great Depression. The government protracted it by interfering in the marketplace and trying to elevate prices by restricting demand. Imagine pouring milk down drains when people are hungry! And we’re talking being skinny and hungry, not like today!
A great book that I haven’t read discusses what happened when the government actually allowed the marketplace to correct on its own.
The Forgotten Depression: 1921: The Crash That Cured Itself
“James Grant’s story of America’s last governmentally untreated depression: A bible for conservative economists, this “carefully researched history…makes difficult economic concepts easy to understand, and it deftly mixes major events with interesting vignettes” (The Wall Street Journal).”
“The government protracted it by interfering in the marketplace”
A convenient lie trotted out by libertarians.
Too much deflation too fast is a bad thing. A steady 2% per year would be fine, and should be what happens given improvements in technology.
I suppose eventually you would get to a point where the smallest denomination of currency is too big for a small purchase, (see Bitcoin) and at that point extra printing would be justified to stop further deflation.
“A steady 2% per year would be fine,”
Not for someone who just took out a 30 year mortgage.
All these conversations were really in vogue in 2008-2009.
What we ended up seeing in the real world….is that in terms of price push…..certain necessities like food and shelter and medical expenses just kept going up….no matter how many more gigabytes the wafer makers could put on a piece of silicon.
No matter how many people got smart phones….no matter how many drones were flying or how many people were on Facebook.
And as somebody beside me pointed out a day or two ago, housing prices tend to trend higher and then fall precipitously when credit dries up….the takeaway being that availability of credit is more important than interest rates for housing.
I just did the math to see if we qualify for the new PPP loan……am I the last one to apply again?
I just wanted to see if we really had a quarter that was down 25% y.o.y. before I applied. The loan app does not require proof if it isn’t huge (below 150K) …but they will ask for it eventually when you apply for forgiveness.
No problem, as it turns out.
Quarter two we were down 57% from 2019 levels. Quarter three was down 46%.
Made my stomach lurch. Worse than I thought.
I probably overpaid my income tax. lol.
I hope to get my application in for the new PPP today or tomorrow. For those who haven’t done it, the app is up on the SBA site, but you need to take it to your bank, from what I gather.
The new (forgivable) PPP amount is 2.5 months of payroll expense. The rules for spending the money are the same as the old PPP, AFAIK.
Did the R senators note that they did a 1.8 trillion dollar give away to the rich as a countercyclical stimulus?
That’s different. Different class of welfare. Different hunger. lol.
Exactly. It’s so ludicrous that we’re going to start the discontent 2 hours into Biden’s term. We all know they’re going to try and add their own seasoning to the pot while no one is looking – like McConnells horse racing doping pork that he was able to squeeze into that last one. Seems Covid related to me.
These are unusual words for a Treasury Secretary but I looked up what the role of Treasury Secretary is
The President of the United States looks to the Secretary of the Treasury as a principal advisor on economic issues. The secretary makes recommendations about domestic and global economic and tax policy. The secretary plays a very important part in creating strategies that affect economic and government financial outlooks for issues the government faces.
Seems like making sure people don’t go hungry is an economic issue. I know I’d rather see these goals coming out of Treasury as opposed to the Federal Reserve
I think the Fed and the Treasury are going to be very hand-in-glove in this administration.
Powell said the same thing in August, basically, and the Congress blew him off. Now with the executive branch pushing for stimulus, it might happen.
Yellen and Powell do have a work relationship and voted the same on most issues while at the Fed. The sole difference between Yellen and Powell is that Yellen was stronger on regulation but they followed near identical Fed policy
The question is….”why are they going hungry”
IF you don’t make enough for food, you qualify for food stamps. They are very generous.
So if food stamps (SNAP) isnt’ working then we need another government intervention?
How much do we need to do for people if we’ve already done everything that needs to be done?
It’s too early to expect the vaccine to be making much difference. I think we are past the holiday spike now….new cases beginning to fall here. Maybe…
If the vaccine effect starts to show up in the numbers, we could look much better in a few months. But we aren’t there yet……I don’t think the vaccine effect can be seen yet.
Roughly one in twenty Texans has been vaccinated…..needs to be more like one in two. Almost 1.5 million does given, mostly round one.
I’m glad to to see the money fire hose being applied. It is called for at this time, imho.
My investor hat says it’s time to raise cash and look for a few deals…..but I’m not anxious to make changes. I hate change at my age……hate dealing with paperwork and loans and selling and buying. I could just stay in hunker down mode…..but I think it takes sense to make some portfolio changes.
“makes sense”, not “takes sense”
Because covid is the economy…
Here it is…South Africa reports more than 4,300 suspected cases of COVID-19 reinfection
We are in for a much longer haul….