The Economy Got Off to a Historically Bad Start in 2014 • Hacker News Board

Re: The Economy Got Off to a Historically Bad Start in 2014

#31

Post by kaonashi » Wed, Jun 25, 2014, 11:38 PM UTC

Retric wrote: post #13

nostromo wrote: post #2

I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. After years of propping up the economy and expanding the supply of money, we have very little to show for it on "main street." We have booming real-estate prices in some cities, a growing stock market, and lots of cheap money flowing into the hands of the wealthy -- but most regular folks have been completely shut out of th…

The US has huge structural problems and the Fed is just a useful band-aid. It's value is stabilizing the banking system not the economy. Systemic Corruption, Terrible primary education system, Ridiculous Military Spending, Unsustainable Debt Levels, Minimal Infrastructure Spending, Huge undocumented Immigrant population, Ridicules Sentencing Laws, Anti Middle Class / Start-up Tax Code, Legislation Requiring Middle Me…

> Unsustainable Debt Levels

There's no such thing as unsustainable debt levels in the thing you are the monopoly issuer of.

Re: The Economy Got Off to a Historically Bad Start in 2014

#32

Post by iammyIP » Wed, Jun 25, 2014, 11:41 PM UTC

oldmanjay wrote: post #11

jacobolus wrote: post #3

Earlier quoted context omitted.

Just sending checks to all citizens is politically difficult, because it starts conversations about “class warfare” and “socialism”, and implies that the federal government should have a policy of explicit wealth redistribution, rather than the current hodge-podge of means tested welfare programs and monetary policy tools. But to answer your question: yes, we’d increase liquidity, reduce unemployment and dramatically…

What I like about wealth redistribution scenarios is how they're so much easier to sell when you ignore the potential negative effects.

What potential negative effects would that be?

Re: The Economy Got Off to a Historically Bad Start in 2014

#33

Post by jqm » Wed, Jun 25, 2014, 11:41 PM UTC

s0uthPaw88 wrote: post #6

nostromo wrote: post #2

I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. After years of propping up the economy and expanding the supply of money, we have very little to show for it on "main street." We have booming real-estate prices in some cities, a growing stock market, and lots of cheap money flowing into the hands of the wealthy -- but most regular folks have been completely shut out of th…

Monetary policy has very limited effect when you are up against the zero lower bound of interest rates as the US has been for quite some time. http://krugman.blogs.nytimes.com/2013/10/15/five-on-the-floo...

Exactly. They have a limited supply of tools in their arsenal. And short of negative rates they can't drop the rate any lower. The economy is complex. Entities can influence it, but not even the Fed controls everything.

However, they were instrumental in the last economic crisis by fueling the housing bubble. It seems fueling bubble after bubble is something they do well. Maybe they have to to prevent the music from stopping. Or... who knows....

Count me among those who is inherently suspicious of bankers. But that could be as much bias and ignorance as anything else and I am well aware of it.

Re: The Economy Got Off to a Historically Bad Start in 2014

#34

Post by opendais » Wed, Jun 25, 2014, 11:42 PM UTC

nostromo wrote: post #2

I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. After years of propping up the economy and expanding the supply of money, we have very little to show for it on "main street." We have booming real-estate prices in some cities, a growing stock market, and lots of cheap money flowing into the hands of the wealthy -- but most regular folks have been completely shut out of th…

The Fed is a tool for managing inflation and monetary supply and it does its best with that tool to sustain job creation and the economy in general.

The real problem is the US's structural problems have become a systemic cancer that is choking off growth:

1) We have a tax code that incentives capital when capital isn't an economic constraint. We are demand constrained as far as I can tell, which means more people need to have an income to spend it.

2) We have a fundamentally broken political system that incentives things like invading other countries, the war on drugs, and a bunch of destructive spending over constructive spending on things like infrastructure that would act as an economic multiplier.

The net result is we basically need to equalize taxes on Labor v. Capital and shift the income into reducing taxes on the poorest people in the country who also pay taxes + infrastructure spending. It really is the only solution I can see that is truly going to fix anything.

Tbh, I'd settle for the taxation equalization with all of the gain on the Capital side going to the poorest income earners. That might be politically viable without the Republicans fighting it [after all, they are reducing taxes for everyone and only raising them on capital]. [e.g. Raise capital gains, raise the standard deduction for everyone]

I don't really see this happening while the US still frequently has good years. It is going to happen when we get hit with another great recession or other calamity.

Re: The Economy Got Off to a Historically Bad Start in 2014

#35

Post by wpietri » Wed, Jun 25, 2014, 11:44 PM UTC

dragonwriter wrote: post #4

nostromo wrote: post #2

I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. After years of propping up the economy and expanding the supply of money, we have very little to show for it on "main street." We have booming real-estate prices in some cities, a growing stock market, and lots of cheap money flowing into the hands of the wealthy -- but most regular folks have been completely shut out of th…

> I'm starting to wonder if the Federal Reserve is no longer an effective tool for job creation. The principle purpose of independent central banking is to put government debt on a secure footing by minimizing the risk of the government acting to monetize the debt by separating direct, day-to-day control of the money supply from the government organs responsible for borrowing and repaying debt, setting spending, etc.…

The Federal Reserve has, according to them, three objectives for monetary policy: "maximum employment, stable prices, and moderate long-term interest rates". [1] So actively promoting job growth is indeed part of their remit.

[1] http://www.federalreserve.gov/faqs/money_12848.htm

Re: The Economy Got Off to a Historically Bad Start in 2014

#36

Post by AnimalMuppet » Wed, Jun 25, 2014, 11:45 PM UTC

mikeyouse wrote: post #24

shirkey wrote: post #14

Earlier quoted context omitted.

Government stated inflation based on chained CPI and other new measures to reduce inflation may be at around 2%, but previous formulas used in the past to calculate inflation would show a much higher rate (6-10%)[1]. For those actually buying or consuming anything, that official number is a farce. [1] http://www.shadowstats.com/alternate_data/inflation-charts

Shadow stats isn't credible in any way. They can't even be bothered to take the raw data and apply the 'old' weights to them, so they just arbitrarily add a few percentage points to the CPI. The BLS has dedicated far too much effort into showing why they are an asinine source for 'data': http://www.bls.gov/opub/mlr/2008/08/art1full.pdf Consider this: If "real" inflation was 7%/year, in 10 years, the price of everythi…

Food? Gas?

I don't have hard numbers, but it sure feels like they're twice as expensive.

Re: The Economy Got Off to a Historically Bad Start in 2014

#37

Post by ChuckMcM » Wed, Jun 25, 2014, 11:46 PM UTC

mikeyouse wrote: post #24

shirkey wrote: post #14

Earlier quoted context omitted.

Government stated inflation based on chained CPI and other new measures to reduce inflation may be at around 2%, but previous formulas used in the past to calculate inflation would show a much higher rate (6-10%)[1]. For those actually buying or consuming anything, that official number is a farce. [1] http://www.shadowstats.com/alternate_data/inflation-charts

Shadow stats isn't credible in any way. They can't even be bothered to take the raw data and apply the 'old' weights to them, so they just arbitrarily add a few percentage points to the CPI. The BLS has dedicated far too much effort into showing why they are an asinine source for 'data': http://www.bls.gov/opub/mlr/2008/08/art1full.pdf Consider this: If "real" inflation was 7%/year, in 10 years, the price of everythi…

Apropos of nothing, and since you mentioned it, a surprising number of things are at least twice as expensive now as they were in 2004.

Nearly all produce products, gas, houses, rents, cars, and clothes. Beer, wine, and soda seem a bit less impacted.

If you want you can play this game yourself by looking at archived newspapers in Google's newspaper archive (http://news.google.com/newspapers) from 2004 and them comparing them to present day newspapers.

Re: The Economy Got Off to a Historically Bad Start in 2014

#38

Post by jqm » Wed, Jun 25, 2014, 11:47 PM UTC

nostromo wrote: post #7

jacobolus wrote: post #3

Earlier quoted context omitted.

Just sending checks to all citizens is politically difficult, because it starts conversations about “class warfare” and “socialism”, and implies that the federal government should have a policy of explicit wealth redistribution, rather than the current hodge-podge of means tested welfare programs and monetary policy tools. But to answer your question: yes, we’d increase liquidity, reduce unemployment and dramatically…

Let's put aside the Federal Government (and taxes and spending) for a moment and focus on the Federal Reserve. The Federal Reserve printed a large amount of money in response to the crisis. (That was a silent tax on anyone holding cash.) To inject this money into the economy, they bought a bunch of securities. My question is simply: why use asset buying as a vehicle for injecting money into the economy and not cash t…

When the fed buys securities, the securities go on their balance sheet. Now... granted some of the securities may be junk, but there is an entry on the balance sheet. What would go on their balance sheet if they gave away money? The fed is a bank. Not a government. It's (arguably) the governments job to redistribute income. Not the job of a private institution.

Re: The Economy Got Off to a Historically Bad Start in 2014

#39

Post by chuckcode » Wed, Jun 25, 2014, 11:48 PM UTC

nostromo wrote: post #7

jacobolus wrote: post #3

Earlier quoted context omitted.

Just sending checks to all citizens is politically difficult, because it starts conversations about “class warfare” and “socialism”, and implies that the federal government should have a policy of explicit wealth redistribution, rather than the current hodge-podge of means tested welfare programs and monetary policy tools. But to answer your question: yes, we’d increase liquidity, reduce unemployment and dramatically…

Let's put aside the Federal Government (and taxes and spending) for a moment and focus on the Federal Reserve. The Federal Reserve printed a large amount of money in response to the crisis. (That was a silent tax on anyone holding cash.) To inject this money into the economy, they bought a bunch of securities. My question is simply: why use asset buying as a vehicle for injecting money into the economy and not cash t…

Part of the reason for the purchase of securities was to lower the interest rate on longer term securities like the 10 year treasury note. This lowered the rate a lot of consumer loans like mortgages, car loans, etc. with the hope of stimulating the economy. Usually the Federal Reserve just changes the discount rate (overnight rate to banks) to try and stimulate the economy but lowering the discount rate through 2007 and 2008 wasn't lowering the longer term interest rates and thus consumer borrowing rates. Thus Bernanke took the unprecedented step of buying the securities to drive down the longer term interest rates as well.

In effect they printed money to do this but inflation remained quite low by standard measures. Bernanke requested Congress to help stimulate the economy in the near term, but politically it was impossible for Congress to achieve even a short term second stimulus package. History will be the final judge of the extraordinary actions taken by the Federal Reserve but to me it seemed like the best of a lot of bad options. Even as I'm glad that some agency was trying to stimulate the economy I'm concerned about the historical precedent that a small unelected group can decide to take on so much debt with no public comment.

Re: The Economy Got Off to a Historically Bad Start in 2014

#40

Post by jqm » Wed, Jun 25, 2014, 11:52 PM UTC

oldmanjay wrote: post #11

jacobolus wrote: post #3

Earlier quoted context omitted.

Just sending checks to all citizens is politically difficult, because it starts conversations about “class warfare” and “socialism”, and implies that the federal government should have a policy of explicit wealth redistribution, rather than the current hodge-podge of means tested welfare programs and monetary policy tools. But to answer your question: yes, we’d increase liquidity, reduce unemployment and dramatically…

What I like about wealth redistribution scenarios is how they're so much easier to sell when you ignore the potential negative effects.

Redistributing some wealth would be a positive for the economy at this point and time.

It's like playing monopoly and someone wins all the money. The game is over at that point. Now sure... some people try to keep it going by lending money. But when the winner gets all that as well and the other party eventually has mortgaged and sold everything there is no more money for the winner to get.

Getting money out of the hands of accumulators and hoarders (oh, I mean, "investors") and back into the hands of consumers would be the best thing that could happen to everyone at this point in time. It would re-energize the system. But... give that the hoarders have much more political clout this is difficult to do. Even if it is ultimately in their best interest.