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Old 09-13-2012, 04:56 PM   #21
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In another vein, you need some demand to drive up inflation. That 10 cent elephant deal. It's only a deal if you have 10 cents and need an elephant.

Get that employment machine fired up.

-CC
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Old 09-13-2012, 05:01 PM   #22
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I have been trying to follow this stuff and found the announcement somewhat confusing. Various article I read talked about employment targeting (which seems to be what they announced) as somewhat weaker than NGDP targeting but working along similar lines. Is this sort of a halfway move -- or more like a vaguely 2/3 move toward NGDP targeting? Both approaches provide long term assurances and (so the theory goes) should reassure the companies sitting on their piles of cash. It will be interesting to see what comes from it.
By my read the Fed is implementing an NGDP target without explicitly saying so. Perhaps that is weaker because so much of this is supposed to work through the expectations channel. I guess I'd also agree that the Fed would probably get more bang for its buck by communicating more clearly. But as said earlier, communicating more clearly is probably not politically desirable. So under the circumstances, the Fed is doing as much as I think they reasonably can.

Now we get to see if that is enough. Fascinating stuff.

Edit to add: The reason I think an NGDP target is at the heart of the Fed announcement is because of the statement that they'd maintain high levels of accommodation even after the economic recovery strengthens. You have to think they have something specific in mind here. When does the Fed decide to start removing accommodation? They don't say. A good bet is when NGDP has risen back to trend.

Edit to add II: The reason I don't think the Fed is "employment targeting" is because everyone still remembers the 1970s. If high unemployment is caused by structural problems, all money printing will do is increase inflation without lowering the unemployment rate. The Fed might never be able to achieve its "employment target" under such a scenario. But NGDP is impacted by inflation. As long as the Fed can influence inflation, it can hit an NGDP target. Which means it will have a clear signal to remove accommodation even if unemployment remains stubornly high.
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Old 09-13-2012, 05:18 PM   #23
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This QE3 would only deflate our purchasing power by inflating food / gas cost. It would not help to lower our mortgage rate as the rates are so low now that they will not go much lower in all material aspect. However, deflating the US dollar may improve our export and discourage import, thus may be able to improve our unemployment picture. One thing that I am certain is that gas is going to cost more. Food prices are going to cost more. Any commodities that is based in US dollar will cost more. Improving in employment is not as certain.
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Old 09-13-2012, 06:14 PM   #24
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Interesting to see at least one member of the Fed say he expects interest rates to start rising sooner than the more commonly quoted 2014 or 2015.

For the rest of the world, more QE will be seen as weakening the USD and pushing up inflation. It will be interesting in a balance sheet enhancing way to see if the Asian stock markets get a pop today.
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Old 09-13-2012, 08:00 PM   #25
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Edit to add II: The reason I don't think the Fed is "employment targeting" is because everyone still remembers the 1970s. If high unemployment is caused by structural problems, all money printing will do is increase inflation without lowering the unemployment rate.
Except that there is no evidence that current unemployment is being caused by structural problems. It's not as though there's a shortage of programmers but there are too many nurses.
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Old 09-13-2012, 09:39 PM   #26
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Interesting to see at least one member of the Fed say he expects interest rates to start rising sooner than the more commonly quoted 2014 or 2015.

For the rest of the world, more QE will be seen as weakening the USD and pushing up inflation. It will be interesting in a balance sheet enhancing way to see if the Asian stock markets get a pop today.
So far a nice pop in the Asian markets. What are the balance sheet enhancing conclusions you derive?
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Old 09-13-2012, 10:08 PM   #27
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So far a nice pop in the Asian markets. What are the balance sheet enhancing conclusions you derive?
Very nice pop indeed.

QE is good for my personal balance sheet - shares are up, precious metals are up, interest rates on my mortages will stay down and property values are supported. Of course, the downside is that I will have to either pay more for any new investments or sit on cash which is depreciating due to inflation.
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Old 09-13-2012, 10:33 PM   #28
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All I have to say is "ugg". Just pulled the trigger last night to invest my nice little five figure lump sum payout from my former employer's ESOP retirement plan. Unfortunately I am receiving today (Thursday's) close of business pricing, after the 1.5-2% price jump.

Although the rest of the portfolio is looking pretty nice right now...
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Old 09-14-2012, 07:05 AM   #29
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Can't speak for all small business but the small business I'm retiring from isn't going to borrow money to grow for 2 reasons: concerns about the economy going forward & the fear that borrowed principal has to be repaid with taxable income in a business environment that we believe will see rising corporate tax rates. We fear the double whammy-less profit because of the economy & higher taxes whether the economy improves or not. So even if interest goes to 0, the people running small businesses like ours may be afraid to borrow. It might be too conservative but it's the way a lot of folks think.
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Old 09-14-2012, 08:10 AM   #30
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Can't speak for all small business but the small business I'm retiring from isn't going to borrow money to grow for 2 reasons: concerns about the economy going forward & the fear that borrowed principal has to be repaid with taxable income in a business environment that we believe will see rising corporate tax rates. We fear the double whammy-less profit because of the economy & higher taxes whether the economy improves or not. So even if interest goes to 0, the people running small businesses like ours may be afraid to borrow. It might be too conservative but it's the way a lot of folks think.
+1 nothing will fix the economy until there is clarity on taxes.
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Old 09-14-2012, 08:54 AM   #31
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+1 nothing will fix the economy until there is clarity on taxes.
The only thing that will fix the economy is demand. Demand is created by consumers. The average consumer's wages have been falling over the last 30 years.....It may take just as long to fix it...There are no 'quickie' solutions.

If taxes drove anything, we would be awash in jobs and in a booming economy...We have steadily cut taxes for the last 10 years. It hasn't worked, because the average consumer (Lower middle class) does not benefit that much from tax cuts.
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Old 09-14-2012, 08:56 AM   #32
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All I know is it is party time! DOW 20,000 here we come!

QE to infinity and beyond!
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Old 09-14-2012, 09:02 AM   #33
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I think this is just going to exacerbate the current biflationary environment. It's not going to create demand in the discretionary stuff people aren't buying, but it will help fuel the commodity inflation that's already baked into the overall picture.

That Congress refuses to do anything about the budget other than kick the can is less than helpful, too.
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Old 09-14-2012, 09:07 AM   #34
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The only thing that will fix the economy is demand. Demand is created by consumers. The average consumer's wages have been falling over the last 30 years.....It may take just as long to fix it...There are no 'quickie' solutions.

If taxes drove anything, we would be awash in jobs and in a booming economy...We have steadily cut taxes for the last 10 years. It hasn't worked, because the average consumer (Lower middle class) does not benefit that much from tax cuts.
And you will not see demand grow until there is clarity with respect to our messed up tax structure, unless the next really big thing comes along as a game changer.
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Old 09-14-2012, 09:08 AM   #35
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I think this is just going to exacerbate the current biflationary environment. It's not going to create demand in the discretionary stuff people aren't buying, but it will help fuel the commodity inflation that's already baked into the overall picture.

That Congress refuses to do anything about the budget other than kick the can is less than helpful, too.
+1 A lot of people are excited about it, but I would say be careful what you wish for.........
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Old 09-14-2012, 09:08 AM   #36
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The only thing that will fix the economy is demand. Demand is created by consumers. The average consumer's wages have been falling over the last 30 years.....It may take just as long to fix it...There are no 'quickie' solutions.

If taxes drove anything, we would be awash in jobs and in a booming economy...We have steadily cut taxes for the last 10 years. It hasn't worked, because the average consumer (Lower middle class) does not benefit that much from tax cuts.
Is this really THE famous "Cut-throat" from years ago, the legend? If so, welcome back!
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Old 09-14-2012, 09:11 AM   #37
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An interesting interview with Ray Dalio, a successful hedge fund manager CEO Speaker Series: A Conversation with Ray Dalio - Council on Foreign Relations

The developed world has too much debt. The Central Bankers are not trying to fix that, just lessen the pain and avoid a repeat of '30. We have a long, difficult trudge ahead.
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Old 09-14-2012, 09:13 AM   #38
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And you will not see demand grow until there is clarity with respect to our messed up tax structure, unless the next really big thing comes along as a game changer.
I disagree, the average consumer (Median income is around $50K per household) does not consider tax structure when spending...They spend what's in their pockets...Their pockets have been thinning.

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Is this really THE famous "Cut-throat" from years ago, the legend? If so, welcome back!
Thanks!
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Old 09-14-2012, 09:15 AM   #39
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I disagree, the average consumer (Median income is around $50K per household) does not consider tax structure when spending...They spend what's in their pockets...Their pockets have been thinning.
The average consumer is more concerned about whether or not they will keep their job, and whether they can keep up with inflation in the essentials like food, energy and health care even if they do. That's not an environment conducive to freely spending some of their excess cash flow.
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Old 09-14-2012, 09:17 AM   #40
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Is this really THE famous "Cut-throat" from years ago, the legend? If so, welcome back!
Yeah, welcome back CT.
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