Archive for February 29th, 2012
This will be one of those “one picture is worth a thousand words” posts.
A quick preface:
During Congressional testimony, Ben Bernanke defended the Fed’s FX swap lines by saying that the ECB was “well-capitalized.” So instead of spending countless words explaining why that may not be quite so, we will merely show the bank’s total assets (net of LTRO 2) and its capital and reserves (link). The adjusted balance sheet is pro forma for today’s LTRO 2, which we noted earlier will add at least €311 billion in net assets to the ECB’s balance sheet, and potentially much more. Assuming the minimum, it means the ECB’s balance sheet will now hit €3 trillion. The capital backing these assets is €82 billion across the entire Eurosystem. In other words, the ECB’s leverage is 36.6x. This according to Ben Bernanke is “well-capitalized.”
Would you rather live in the America of 1950 or the America of 2012? Has the United States changed for the better over the last 62 years? Many fondly remember the 1950s and the 1960s as the “golden age” of America. We emerged from World War II as the wealthiest and most powerful nation on the planet. During that time period, just about anyone that wanted to get a job could find a job and the U.S. middle class expanded rapidly. Back in 1950, America was still considered to be a “land of opportunity” and the economy was growing like crazy. There was less crime, there was less divorce, the American people had much less debt and the world seemed a whole lot less crazy. Most of the rest of the world deeply admired us and wanted to be more like us. Of course there were a lot of things that were not great about America back in 1950, and there are many things that many of us dearly love that we would have to give up in order to go back and live during that time. For example, there was no Internet back in 1950. Instead of being able to go online and read the articles that you want to read, your news would have been almost entirely controlled by the big media companies of the day. So there are definitely some advantages that we have today that they did not have back in 1950. But not all of the changes have been for the better. America is in a constant state of change, and many are deeply concerned about where all of these changes are taking us.
There has never been any society in the history of the world that has been perfect. America was flawed in 1950 just as America is flawed today.
But that doesn’t mean that we should not reflect on how much things have changed over the past 62 years.
So which version of America would you rather live in?
America 1950 vs. America 2012 – you make the call….
In 1950, a gallon of gasoline cost about 27 cents.
In 2012, a gallon of gasoline costs $3.69.
In 1950, you could buy a first-class stamp for just 3 cents.
In 2012, a first-class stamp will cost you 45 cents.
In 1950, more than 80 percent of all men were employed.
In 2012, less than 65 percent of all men are employed.
In 1950, the average duration of unemployment was about 12 weeks.
In 2012, the average duration of unemployment is about 40 weeks.
In 1950, the average family spent about 22% of its income on housing.
In 2012, the average family spends about 43% of its income on housing.
In 1950, gum chewing and talking in class were some of the major disciplinary problems in our schools.
In 2012, many of our public schools have been equipped with metal detectors because violence has become so bad.
In 1950, mothers decided what their children would eat for lunch.
In 2012, lunches are inspected by government control freaks to make sure that they contain the “correct foods” in many areas of the country. For example, one 4-year-old girl recently had her lunch confiscated by a “lunch monitor” because it did not meet USDA guidelines….
A preschooler at West Hoke Elementary School ate three chicken nuggets for lunch Jan. 30 because the school told her the lunch her mother packed was not nutritious.
The girl’s turkey and cheese sandwich, banana, potato chips, and apple juice did not meet U.S. Department of Agriculture guidelines, according to the interpretation of the person who was inspecting all lunch boxes in the More at Four classroom that day.
The Division of Child Development and Early Education at the Department of Health and Human Services requires all lunches served in pre-kindergarten programs – including in-home day care centers – to meet USDA guidelines. That means lunches must consist of one serving of meat, one serving of milk, one serving of grain, and two servings of fruit or vegetables, even if the lunches are brought from home.
In 1950, the United States was #1 in GDP per capita.
In 2012, the United States is #13 in GDP per capita.
In 1950, redistribution of wealth was considered to be something that “the communists” did.
In 2012, the U.S. government redistributes more wealth than anyone else in the world.
In 1950, about 13 million Americans had manufacturing jobs.
In 2012, less than 12 million Americans have manufacturing jobs even though our population has more than doubled since 1950.
In 1950, the entire U.S. military was mobilized to protect the borders of South Korea.
In 2012, the U.S. borders with Mexico and Canada are wide open and now there are 1.4 million gang members living inside the United States.
In 1950, there were about 2 million people living in Detroit and it was one of the greatest cities on earth.
In 1950, the Dow Jones Industrial Average was slightly over the 200 mark.
In 2012, the Dow Jones Industrial Average is threatening to soar over the 13,000 mark.
In 1950, corporate taxes accounted for about 30 percent of all federal revenue.
In 2012, corporate taxes will account for less than 7 percent of all federal revenue.
In 1950, the median age at first marriage was about 22 for men and about 20 for women.
In 2012, the median age at first marriage is about 28 for men and about 26 for women.
In 1950, many Americans dressed up in suits and dresses before getting on an airplane.
In 2012, security goons look at the exposed forms of our women and our children before they are allowed to get on to an airplane.
In 1950, each retiree’s Social Security benefit was paid for by 16 workers.
In 2012, each retiree’s Social Security benefit is paid for by approximately 3.3 workers.
In 1950, many Americans regularly left their cars and the front doors of their homes unlocked.
In 2012, many Americans live with steel bars on their windows and gun sales are at record highs.
In 1950, the American people had a great love for the U.S. Constitution.
In 2012, if you are “reverent of individual liberty“, you may get labeled as a potential terrorist by the U.S. government.
In 1950, the United States loaned more money to the rest of the world than anybody else.
In 2012, the United States owes more money to the rest of the world than anybody else.
In 1950, the U.S. national debt was about 257 billion dollars.
In 2012, the U.S. national debt is 59 times larger. It is currently sitting at a grand total of $15,435,694,556,033.29. Surely our children and our grandchildren will thank us for that.
One of the only things that is constant in life is change.
Whether we like it or not, America is going to continue to change.
Back in the 1950s and 1960s, about 70 percent of all American adults were married.
Today, only about 50 percent of all American adults are married.
We have a higher standard of living than Americans in 1950 did, but we are also drowning in an ocean of debt unlike anything the world has ever seen.
For a lot more on how the U.S. economy is doing in 2012, just check out this list of interesting facts.
So is America 2012 a better version than America 1950 was?
Have we made progress since then or are we going backwards?
Please feel free to leave a comment with your thoughts below….
Oh Gary!!! Gary Johnson!!! Where are you Mr. Bankster-sucking candidate? (And yes, Obama is right there kneeling beside him performing obscene acts; this seems to be a common practice among our political class…)
The habitual filching of customers’ funds — even if the funds are later replaced — goes way beyond sloppy bookkeeping. It goes way beyond bad judgment. Just because MF Global got away with it for a long time before it blew up in its face doesn’t mean one can call it sloppy bookkeeping and have any reasonable person believe it. If federal investigators and law enforcement people want to make public statements like this, one should investigate corruption in their ranks. They seem to be providing undeserved excuses as a trial balloon to see if it will fly. Nice try, but it’s not working.
Habitual. Got that?
It’s kinda like me filching your car every night at 3:00 AM and returning it at 5:00. You don’t miss it, as you don’t need to go to work until 7:00. Arguing that MF Global did nothing punishable under these circumstances is an open invitation by you to similarly “borrow” your car, right? After all, you’re not using it at that moment in time, and I will bring it back before you need it again (well, right up until I smash it into a tree anyway….. kinda like what happened with MF Global eh?)
And here’s Janet Tavakoli’s idea, which I like a lot and will expand on — Federal investigators should be looking at the public statements of everyone who is excusing this behavior, including politicians, to see if there’s any hint of corruption present and if there is they should all be indicted and tossed in prison.
Janet, incidentally, is not some “political hack.” She’s a subject-matter expert on derivatives who anyone with a brain and even rudimentary knowledge of the industry respects. If you don’t have the chops to enter an intelligent debate with her and refuse to spend the time and effort to become knowledgeable then just admit to your shortfall in this regard and accept her perspective.
Incidentally, I have taken the time and, having done so, concluded she’s right.
Chairman Ben S. Bernanke
Semiannual Monetary Policy Report to the Congress
Before the Committee on Financial Services, U.S. House of Representatives, Washington, D.C.
February 29, 2012
Chairman Bachus, Ranking Member Frank, and other members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress. I will begin with a discussion of current economic conditions and the outlook and then turn to monetary policy.
The Economic Outlook The recovery of the U.S. economy continues, but the pace of expansion has been uneven and modest by historical standards. After minimal gains in the first half of last year, real gross domestic product (GDP) increased at a 2-1/4 percent annual rate in the second half.1 The limited information available for 2012 is consistent with growth proceeding, in coming quarters, at a pace close to or somewhat above the pace that was registered during the second half of last year.
Bah. The Federal Government continues to run deficits that are approximately 10% of GDP. This means that for the government to be sustainable GDP would have to expand by more than 10% of GDP. But that has never happened on a sustainable basis since WWII, and therefore there is no reason to believe that it will occur in the future.
In other words real economic growth is in fact negative as the government is borrowing to support the economy’s output at levels that the private sector cannot sustain. This is functionally identical to taxing the population as this borrowing-and-spending increases the denominator of dollars in the marketplace, thereby debasing the purchasing power of each one.
We have seen some positive developments in the labor market. Private payroll employment has increased by 165,000 jobs per month on average since the middle of last year, and nearly 260,000 new private-sector jobs were added in January. The job gains in recent months have been relatively widespread across industries. In the public sector, by contrast, layoffs by state and local governments have continued. The unemployment rate hovered around 9 percent for much of last year but has moved down appreciably since September, reaching 8.3 percent in January. New claims for unemployment insurance benefits have also moderated.
Bah again. Adjusted for population employment is not going up at all! This is what the labor participation rate tells us, and it’s in the toilet. In fact it has not materially changed in the last two years, since the first of 2010!
The decline in the unemployment rate over the past year has been somewhat more rapid than might have been expected, given that the economy appears to have been growing during that time frame at or below its longer-term trend; continued improvement in the job market is likely to require stronger growth in final demand and production. Notwithstanding the better recent data, the job market remains far from normal: The unemployment rate remains elevated, long-term unemployment is still near record levels, and the number of persons working part time for economic reasons is very high.2
The “decrease in the unemployment rate” is primarily people giving up and leaving the labor force. This is why paying attention to that number rather than the labor participation rate (“employment rate”) as displayed above is idiotic.
Since Bernanke knows this I must conclude that he’s not an idiot — he’s a liar.
Household spending advanced moderately in the second half of last year, boosted by a fourth-quarter surge in motor vehicle purchases that was facilitated by an easing of constraints on supply related to the earthquake in Japan. However, the fundamentals that support spending continue to be weak: Real household income and wealth were flat in 2011, and access to credit remained restricted for many potential borrowers. Consumer sentiment, which dropped sharply last summer, has since rebounded but remains relatively low.
Right. There’s been no improvement in purchasing power. So how does spending advance? Oh yeah, we dig ourselves a bigger hole with more borrowing!
That’s not going to work.
In the housing sector, affordability has increased dramatically as a result of the decline in house prices and historically low interest rates on conventional mortgages. Unfortunately, many potential buyers lack the down payment and credit history required to qualify for loans; others are reluctant to buy a house now because of concerns about their income, employment prospects, and the future path of home prices. On the supply side of the market, about 30 percent of recent home sales have consisted of foreclosed or distressed properties, and home vacancy rates remain high, putting downward pressure on house prices. More-positive signs include a pickup in construction in the multifamily sector and recent increases in homebuilder sentiment.
Prices are still too high.
Manufacturing production has increased 15 percent since the trough of the recession and has posted solid gains since the middle of last year, supported by the recovery in motor vehicle supply chains and ongoing increases in business investment and exports. Real business spending for equipment and software rose at an annual rate of about 12 percent over the second half of 2011, a bit faster than in the first half of the year. But real export growth, while remaining solid, slowed somewhat over the same period as foreign economic activity decelerated, particularly in Europe.
Free money, such as Solyndra-style handouts, work well. For a while. The problem is how you pay for it.
The members of the Board and the presidents of the Federal Reserve Banks recently projected that economic activity in 2012 will expand at or somewhat above the pace registered in the second half of last year. Specifically, their projections for growth in real GDP this year, provided in conjunction with the January meeting of the Federal Open Market Committee (FOMC), have a central tendency of 2.2 to 2.7 percent.3 These forecasts were considerably lower than the projections they made last June.4 A number of factors have played a role in this reassessment. First, the annual revisions to the national income and product accounts released last summer indicated that the recovery had been somewhat slower than previously estimated. In addition, fiscal and financial strains in Europe have weighed on financial conditions and global economic growth, and problems in U.S. housing and mortgage markets have continued to hold down not only construction and related industries, but also household wealth and confidence. Looking beyond 2012, FOMC participants expect that economic activity will pick up gradually as these headwinds fade, supported by a continuation of the highly accommodative stance for monetary policy.
There’s been no reduction of materiality in systemic leverage. We’ve shifted where it went, but not what it is. There is no meaningful recovery that can take place until that situation is addressed — we can only try to blow more bubbles which means we’ll screw more and more people.
With output growth in 2012 projected to remain close to its longer-run trend, participants did not anticipate further substantial declines in the unemployment rate over the course of this year. Looking beyond this year, FOMC participants expect the unemployment rate to continue to edge down only slowly toward levels consistent with the Committee’s statutory mandate. In light of the somewhat different signals received recently from the labor market than from indicators of final demand and production, however, it will be especially important to evaluate incoming information to assess the underlying pace of economic recovery.
In other words — “we don’t know.”
At our January meeting, participants agreed that strains in global financial markets posed significant downside risks to the economic outlook. Investors’ concerns about fiscal deficits and the levels of government debt in a number of European countries have led to substantial increases in sovereign borrowing costs, stresses in the European banking system, and associated reductions in the availability of credit and economic activity in the euro area. To help prevent strains in Europe from spilling over to the U.S. economy, the Federal Reserve in November agreed to extend and to modify the terms of its swap lines with other major central banks, and it continues to monitor the European exposures of U.S. financial institutions.
Oh, so we should be backstopping European deficit spending too? Why not — we haven’t done a damn thing about our own!
A number of constructive policy actions have been taken of late in Europe, including the European Central Bank’s program to extend three-year collateralized loans to European financial institutions. Most recently, European policymakers agreed on a new package of measures for Greece, which combines additional official-sector loans with a sizable reduction of Greek debt held by the private sector. However, critical fiscal and financial challenges remain for the euro zone, the resolution of which will require concerted action on the part of European authorities. Further steps will also be required to boost growth and competitiveness in a number of countries. We are in frequent contact with our counterparts in Europe and will continue to follow the situation closely.
Lie. Never mind Bwarney who’s spewing about how getting rid of our deficits would be “excessive.” Sorry jackass, we have no choice. You’ve lied to the people for your entire time in Congress and this has not changed. The lies must stop.
As I discussed in my July testimony, inflation picked up during the early part of 2011.5 A surge in the prices of oil and other commodities, along with supply disruptions associated with the disaster in Japan that put upward pressure on motor vehicle prices, pushed overall inflation to an annual rate of more than 3 percent over the first half of last year.6 As we had expected, however, these factors proved transitory, and inflation moderated to an annual rate of 1-1/2 percent during the second half of the year–close to its average pace in the preceding two years. In the projections made in January, the Committee anticipated that, over coming quarters, inflation will run at or below the 2 percent level we judge most consistent with our statutory mandate. Specifically, the central tendency of participants’ forecasts for inflation in 2012 ranged from 1.4 to 1.8 percent, about unchanged from the projections made last June.7 Looking farther ahead, participants expected the subdued level of inflation to persist beyond this year. Since these projections were made, gasoline prices have moved up, primarily reflecting higher global oil prices–a development that is likely to push up inflation temporarily while reducing consumers’ purchasing power. We will continue to monitor energy markets carefully. Longer-term inflation expectations, as measured by surveys and financial market indicators, appear consistent with the view that inflation will remain subdued.
Yeah, right. Gasoline demand is falling in the United States but prices are going up. It’s that denominator thing again….
Monetary Policy Against this backdrop of restrained growth, persistent downside risks to the outlook for real activity, and moderating inflation, the Committee took several steps to provide additional monetary accommodation during the second half of 2011 and early 2012. These steps included changes to the forward rate guidance included in the Committee’s post-meeting statements and adjustments to the Federal Reserve’s holdings of Treasury and agency securities.
The target range for the federal funds rate remains at 0 to 1/4 percent, and the forward guidance language in the FOMC policy statement provides an indication of how long the Committee expects that target range to be appropriate. In August, the Committee clarified the forward guidance language, noting that economic conditions–including low rates of resource utilization and a subdued outlook for inflation over the medium run–were likely to warrant exceptionally low levels for the federal funds rate at least through the middle of 2013. By providing a longer time horizon than had previously been expected by the public, the statement tended to put downward pressure on longer-term interest rates. At the January 2012 FOMC meeting, the Committee amended the forward guidance further, extending the horizon over which it expects economic conditions to warrant exceptionally low levels of the federal funds rate to at least through late 2014.
Oh, so the economy will suck through late 2014? Why not just say it out loud?
In addition to the adjustments made to the forward guidance, the Committee modified its policies regarding the Federal Reserve’s holdings of securities. In September, the Committee put in place a maturity extension program that combines purchases of longer-term Treasury securities with sales of shorter-term Treasury securities. The objective of this program is to lengthen the average maturity of our securities holdings without generating a significant change in the size of our balance sheet. Removing longer-term securities from the market should put downward pressure on longer-term interest rates and help make financial market conditions more supportive of economic growth than they otherwise would have been. To help support conditions in mortgage markets, the Committee also decided at its September meeting to reinvest principal received from its holdings of agency debt and agency mortgage-backed securities (MBS) in agency MBS, rather than continuing to reinvest those proceeds in longer-term Treasury securities as had been the practice since August 2010. The Committee reviews the size and composition of its securities holdings regularly and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in the context of price stability.
Yeah, yeah. Balance sheet manipulation does nothing. There’s no solution to be found until the budget is balanced and the destruction of purchasing power caused by deficit spending stops. All you can do in the meantime is try to blow more credit bubbles. The market is figuring this out — slowly, but it is, and when it finally gets tired of it the entire world is going to come crashing down around your ears.
Before concluding, I would like to say a few words about the statement of longer-run goals and policy strategy that the FOMC issued at the conclusion of its January meeting. The statement reaffirms our commitment to our statutory objectives, given to us by the Congress, of price stability and maximum employment. Its purpose is to provide additional transparency and increase the effectiveness of monetary policy. The statement does not imply a change in how the Committee conducts policy.
Transparency is enhanced by providing greater specificity about our objectives. Because the inflation rate over the longer run is determined primarily by monetary policy, it is feasible and appropriate for the Committee to set a numerical goal for that key variable. The FOMC judges that an inflation rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with its statutory mandate. While maximum employment stands on an equal footing with price stability as an objective of monetary policy, the maximum level of employment in an economy is largely determined by nonmonetary factors that affect the structure and dynamics of the labor market; it is therefore not feasible for any central bank to specify a fixed goal for the longer-run level of employment. However, the Committee can estimate the level of maximum employment and use that estimate to inform policy decisions. In our most recent projections in January, for example, FOMC participants’ estimates of the longer-run, normal rate of unemployment had a central tendency of 5.2 to 6.0 percent.8 As I noted a moment ago, the level of maximum employment in an economy is subject to change; for instance, it can be affected by shifts in the structure of the economy and by a range of economic policies. If at some stage the Committee estimated that the maximum level of employment had increased, for example, we would adjust monetary policy accordingly.
The dual objectives of price stability and maximum employment are generally complementary. Indeed, at present, with the unemployment rate elevated and the inflation outlook subdued, the Committee judges that sustaining a highly accommodative stance for monetary policy is consistent with promoting both objectives. However, in cases where these objectives are not complementary, the Committee follows a balanced approach in promoting them, taking into account the magnitudes of the deviations of inflation and employment from levels judged to be consistent with the dual mandate, as well as the potentially different time horizons over which employment and inflation are projected to return to such levels.
Thank you. I would be pleased to take your questions lie in my responses and blow House members under the desk.
Gee, do I see some of these coming out? Might be!
But remember, among the candidates and current office-holders, nearly all are still saying that “nobody ever committed any crimes.”
Are you going to vote for one of the clowns who can’t be bothered to get off their damn knees before the banksters before they lie to you again?
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