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Thread: QE2 Is the Right Fed Policy

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    Default QE2 Is the Right Fed Policy

    http://finance.yahoo.com/expert/arti...einvest/294376

    --snip--

    QE2 Is the Right Fed Policy

    One of the most gratifying experiences of my career was being a colleague of Milton Friedman's at the University of Chicago. This was my first academic position after receiving my Ph.D. in economics from MIT. Not only had Professor Friedman's political philosophy attracted me but he was also the acknowledged expert in monetary policy, which was my specialty. Friedman's path-breaking analysis of the Federal Reserve's failure to provide liquidity to the banks as a cause of the Great Depression was cited as one of the reasons he was awarded the Nobel Prize in 1976.

    After Friedman retired from teaching and moved to San Francisco, I visited him and his wife, Rose, as often as I could. I particularly recall a meeting with him in 1997 at his summer home in Sea Ranch, about 100 miles north of San Francisco. I asked him what the Japanese could do to help their economy, given that the Bank of Japan had reached zero short-term interest rates.

    He replied without hesitation, "Add more liquidity to the system -- create more reserves!" He reiterated a major theme of his monetary research -- that one should not look at interest rates when judging the stance of monetary policy but at liquidity, reserves, and the supply of money.

    Friedman died in 2004, several years before the recent financial crisis. The absence of his perspective on the Fed's monetary policy is sorely missed, but I have no doubt that he would have stood foursquare in favor of the quantitative easing now pursued by Ben Bernanke.

    Reasons for Quantitative Easing

    The Lehman bankruptcy in September 2008 set off the biggest liquidity shock to the U.S. financial system since the 1930s. Corporations, investors, and particularly banks rushed to hold large quantities of safe, liquid assets even though their yield went to zero. The Fed halted a credit collapse by providing more than $1 trillion of excess reserves to the banking system and temporarily insuring the money market funds and bank deposits. This provision of reserves was the first quantitative easing. Had it not occurred, banks would have called in loans and sold investments to meet liquidity requirements, sending financial markets much lower.

    Nevertheless, the desire for liquidity was so large that, while the Fed's provision of excess reserves stopped the contraction of credit, it did little to induce banks to lend. That is the goal of QE2, the second quantitative easing now being pursued by the Federal Reserve. By providing more reserves to the banking system, the Fed expects banks to coax some of these additional reserves, which are now earning very little interest, into a much more lucrative loan market.

    Interest Rate Not Right Indicator

    Less than a month after the Fed announced its plans to buy more Treasury securities, some observers are already calling QE2 a failure. Since the November 3 meeting, long-term interest rates have risen almost 50 basis points and are even higher than they were when Bernanke first hinted at a QE policy at the Fed's monetary conference in Jackson Hole last August.

    But looking for a decline of long-term interest rates to judge the success of QE is incorrect. In fact, an increase in long-term rates is indicative of the success of quantitative easing, not its failure.

    The reason for this counterintuitive result is that long-term interest rates are set by expectations of the future course of the economy and inflation. The actual buying of government bonds by the Fed by itself has only a very small impact on their price. Even the Fed's planned $600 billion purchase of long bonds over the next nine months will scarcely offset the new supply of those bonds floated by the Treasury to fund our huge federal deficit.

    The impact of quantitative easing comes through its effect on the supply of reserves and therefore lending and deposit creation, not interest rate reductions. If QE is viewed as effective at stimulating the economy, then long-term rates will rise, not fall, in response to the Fed's policy.

    The impact of open market purchases on long-term interest rates stands in stark contrast to its impact on the short-term, Federal Funds rate. Federal Funds are an overnight loan between banks and are influenced only by the supply and demand for liquidity over the next 24 hours. As a result, open market operations will always decrease the Fed Funds rate, but no such conclusion can be made on long rates.

    Variables to Watch

    If we cannot use long-term rates to judge the success of quantitative easing, how can we tell if QE is working? We can look at the dollar, commodity prices, but most important, the money supply and quantity of loans issued by the banking system. If we see those variables increase, we know that the increase in reserves is finding its way through the monetary system.

    By the way, it was extremely wise that the Fed chose not to peg the interest rate on long-term bonds as was suggested by some at an unusual teleconferencing meeting held on October 15. Bernanke knew that such a policy could be destabilizing, as the Fed might be required to purchase more bonds than it planned if a recovering economy sent interest rates higher.

    Quantitative easing is the right policy for the Fed to follow. It was the rush to liquidity that precipitated the financial crisis two years ago and it will be the provision of liquidity that will speed the economic recovery now. Those who cite the rise in interest rates as a justification for criticizing the Fed's current monetary policy have a fundamental misunderstanding of what should be expected from quantitative easing.

    --snip--

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    Default Re: QE2 Is the Right Fed Policy

    The critics of "Helicopter Ben " and recent Fed policy are NOT looking at interest rates. They are looking at M2 and monetary velocity. Many sensible folks have argued that what we need is NOT more liquidity. That we have plenty of liquidity i.e. money floating around the system.
    Why do you think the "smart money" has been shorting the long bond ?

    Interest rates reflect demand for our government's paper . One saving grace is when some say that China and others might develop a reluctance to buy U.S. government debt. Oh ? As compared to what ? Where else are they going to put it ? Europe ?

    We are already seeing the effects of both a weak dollar and too much money chasing too few goods. Bought gasoline for your car lately ? Shopped for food ?

    What we do need is to get more of that money into the hands of people who will spend it ; work for it; save it and invest it.

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    Default Re: QE2 Is the Right Fed Policy

    One saving grace is when some say that China and others might develop a reluctance to buy U.S. government debt. Oh ? As compared to what ? Where else are they going to put it ? Europe ?
    answer - into commodities which have 'intrinsic' value independent of sovereign credit ratings / gov't budget deficits etc. Chinese buying of oil, gas, grains, cotton, precious metals etc. has caused ALL of these prices to increase by 25% or more ( in some cases MUCH more ) since QE2 was put into effect.


    It was the rush to liquidity that precipitated the financial crisis two years ago and it will be the provision of liquidity that will speed the economic recovery now.
    Again the classic Keynesian versus Austrian argument as to whether the real problem is a lack of liquidity versus a lack of SOLVENCY ! Mainstream media tends to favor the former, while historical evidence tends to favor the latter.


    As a rebuttal, the 'gold foil hat' crowd would tell you that QE2 is the ONLY Fed Policy ... for the following reasons ... from

    (snip)"BLOOMBERG - Americans want Congress to bring down a federal budget deficit that many believe is “dangerously out of control,” only under two conditions: minimize the pain and make the rich pay.

    The public wants Congress to keep its hands off entitlements such as Medicare, Medicaid and Social Security, a Bloomberg National Poll shows. They oppose cuts in most other major domestic programs and defense. They want to maintain subsidies for farmers and tax breaks like the mortgage-interest deduction. And they’re against an increase in the gasoline tax.


    Got it? Must have this:



    Over in Britain an attempt to play a game called "reality" has led to violence:

    "LONDON — Britain’s coalition government survived the most serious challenge yet to its austerity plans on Thursday when Parliament narrowly approved a sharp increase in college fees. But violent student protests in central London, including an attack on a car carrying Prince Charles and his wife, Camilla, to the theater, provided a stark measure of growing public resistance."

    That the word "survived" had to be used in that paragraph is a stark reminder of just how close things are to not surviving "as currently constituted."

    Here's the problem with the American perspective (and that in Britain, for that matter): There is no means by which playing "tax the rich" can close the gap.

    Here, again, is the budget picture in terms of deficits in US dollars:



    So let's assume we don't pass the tax cuts for the "rich." Ok, that's $70 billion a year. The gap between revenue and spending is over $1,600 billion.

    In other words "soak the rich" gets you 4.4% of the problem.


    And remember, this change gets rid of the dividend, capital gains, and income tax preferences for the wealthy, defined as "those who make over $250,000 as a couple, or $200,000 as an individual."

    If we "**** the rich" even more, we could probably take another $200 billion off that number. That still doesn't matter, simply on the mathematics.

    Beyond that level you probably run into "avoidance" - that is, perfectly legal choices to make less.

    There have been plenty of years where I've written really big checks to the IRS, and not all of them were related to MCSNet. The last few years have been pretty good. But this much I can tell you - if the government was to, for example, tax everything I made at 90% beyond $200,000, I would never make more than $200,000 a year again. Ever. I will not work hard to earn that money only to turn 90% of it over to the government.

    Those of you who get up and go to work every day simply don't get it or don't care to listen. You get paid time and a half for hours over 40, and double time on weekends and holidays. The former is actually Federal Law, not employer preference.

    I, on the other hand, was literally on-call 24x7 for a decade building what I had with MCSNet. I didn't have an actual vacation - a time when I could choose to shut off the pager and phone for so much as 24 hours - for more than five years. For a decent part of that time I not only ran my own joint I worked for "the man" at the same time. Today, as an entrepreneur, I still can't take that vacation. I had it for a few years when I was effectively "retired" but now it's gone again, as I run The Ticker and forum. I go on "vacation" or have a "nice weekend" and my phone and laptop are always with me, as I have to be able to respond to potential problems with the infrastructure - and if I hired someone to watch the infrastructure I'd have to be able to respond to "business issues."

    The motivation to do this - to take the risk of material loss of one's capital and to trade one's personal life off like this instead of being a working drone that works for "the man" from 9-5 and then comes home to watch "Dancing With The Stars" - is money. Remove that motivation by confiscating what I earn and I will stop doing it and sit in my hottub drinking Cognac or fishing every day instead - that's a promise and a fact, and your illusory "tax revenue" will fail to materialize.

    Exactly where does that "avoidance" behavior begin? I don't know. But what I do know is that it begins at a lot lower level than you probably think. And the spiral that this promotes downward in tax receipts is both very real and impossible for the government to stop or prevent.

    This isn't to say that letting the Bush Tax Cuts expire - all of them - shouldn't be done. It should, in my opinion, rather than not only extending them but creating a structural decrease in FICA tax that will, in my opinion, never be reversed. That will cause Social Security to run into actuarial trouble much sooner than it otherwise would.

    Never mind that the big problem is in Medicare and Medicaid, two sacred cows. But while I've long written about these, going back to Musings before The Ticker was formed, in point of fact it really doesn't matter at the rate we're going - we're not going to keep this set of plates in the air long enough for that to all play out.

    We have no leadership in Congress and worse, we've become soft as a nation, demanding handouts and refusing to work for what we have. We think we have a right to advanced medical technology even though we have no money, simply because we're alive. We have a "right" to unlimited unemployment if we can't - or won't - find a job. And make no mistake - much of it is "won't." There are jobs - just not at the rate of pay you expect to support the lifestyle you think you're entitled to, or that job might be halfway across the country - and you, of course, are "entitled" to live in a particular place, in a McMansion, irrespective of whether a job that pays enough to cover your expenses exists there.

    Our sense of hubris has exceeded our willingness to get off our collective fat asses by several orders of magnitude.

    I'm sure I'll get more hate mail for this missive, as I usually do when I write a Ticker like this.

    It doesn't matter. I deal in the truth folks, and whether you want to hear it or not I'm going to put it in front of you anyway. I don't do this because I want to be popular. I do it because it's right, and because it is impossible for me to sit here with a clean conscience and see polls like that referenced in Bloomberg and say "oh it will all be ok."

    No it won't, and the day of reckoning, when we're no longer able to play this game, will come here to the United States far sooner than most of you believe."(snip)

    huge thank-you's to Karl Denninger over at ^^^


    In other words, if gov't policy attempts to tax the rich too heavily, they will pursue legal tax avoidance options ( like buying tax free muni bonds instead of investing in business growth) as well as voluntarily reducing their efforts / earnings at the point where more 'fruits' of their labors goes towards taxes than it does towards their own family. Thus at some point, attempting to tax the rich becomes counter-productive. And as the article's hard cold math points out, even if draconian tax rates were imposed on the rich and legal tax avoidance options were reduced, there still isn't enough money available from taxes paid by the rich to make any serious dent in the US deficit. Simply put, the US gov't can't come close to balancing its budget - even at frozen spending levels - unless it significantly increases tax rates for the 'middle class'. Unfortunately, most of the 'middle class' is already 100% committed financially, thus a tax increase would undoubtedly precipitate a fresh round of mortgage foreclosures, bankruptcy filing, and 'revenge' at the ballot box.

    Along a different line, if gov't policy attempts to meaningfully reduce spending, along the lines of Britain's removal of college tuition subsidies, cutting pay rates for gov't workers, limiting available medical treatments under national health care, firing large number of gov't workers, cutting social welfare benefits etc., significantly cutting retirement benefits etc. there is every reason to believe that irate Americans will take to the streets. Simply put, any US gov't attempt to significantly cut spending will prompt massive negative reactions from current beneficiaries - probably to the point of violence in the streets.

    The third and only option open is for the FED to simply print up brand new US dollars by the billion and, by various machinations involving primary dealer banks and the US Treasury, allow the US gov't to use this freshly printed money to pay its bills ( i.e. gov't employee paychecks, medicare and medicaid, social welfare benefits, tuition subsidies etc. ) instead of tax revenue dollars.

    However, as the OP's article fails to point out, once potential foreign buyers of US Treasury Bonds and other US dollar denominated debt become convinced that a deliberate policy of US dollar devaluation via QE2 money printing is both massive and long-lived, they will absolutely opt to stop buying future US Treasury Bonds and other US dollar denominated investments for fear of currency exchange rate losses. This will result in rapidly rising interest rates ( check the US Treasury 10 year rate which is up 1% in the past couple of weeks ! ), rapidly rising US dollar denominated prices for all world market commodities ( i.e. food, energy, precious metals ).

    By trashing the purchasing power of the US dollar, this is the de-facto equivalent of a REgressive tax increase on all Americans, with those who spend the highest percentage of their earnings on food and energy i.e. the 'working poor' bearing the greatest effect, followed by the 'middle class'. Ironically, certain Americans are not significantly hurt by the trashing of the US dollar's purchasing power ... specifically the non-working poor whose food stamp and utility bill subsidy benefits will increase along with food and energy prices, and the 'rich' who can afford to efficiently invest in commodities, in globalized / foreign businesses, in precious metals etc. and thus hedge against the negative effects of a falling US dollar. By 'pure coincidence', this sort of de-facto redistribution of 'real' wealth to the rich and the very poor is a very common characteristic of 'Banana Republics' ... but that's a topic for a different thread.

    Arguably, debasing the currency is actually more damaging over the long term than tax increases or spending cuts ( ask the Roman Empire !!! ). However, it's highly valued attribute ( at least among the ruling elite and uber rich ) is that the vast majority of 'poor' and 'middle class' Americans are sufficiently financially illiterate to ever directly connect the dots between FED money printing this year versus major ( US dollar denominated ) price increases for 'necessities' next year, between a 1% bank account interest rate paid versus a ~24% interest rate charged on 'working poor' and 'middle class' credit cards etc.

    ~
    Last edited by Melonie; 12-10-2010 at 03:13 PM.

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    Default Re: QE2 Is the Right Fed Policy

    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    Default Re: QE2 Is the Right Fed Policy

    Every day brings more evidence that QE II is the WRONG policy. Of immediate concern is the rise in food , oil and metal prices. All fed by the easy money from the FED. It is 1979-1980 all over again. If we measured inflation as we did back then, it would be running at an annual rate of over 13% !

    As Mel and I have repeatedly pointed out, the FED's largesse has NOT filtered down to the folks that need it.
    Has small business borrowing increased ? They are the engine for start-ups and job creation.
    As far as I can see, the only ones profiting from QE II are the big banks. The FED is buying up CDO's and MBS's but who says the banks need the help ? They can already borrow money from the FED at virtually zero and lend it out at over 4% or buy T-Bills and Notes paying as much as 3.3% on the 10 Year Note. Even the dumbest of the dumb among bankers can make money that way. And they are.

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    Default Re: QE2 Is the Right Fed Policy

    the only ones profiting from QE II are the big banks
    don't forget that the typically rich stockholders of the big bank companies are also profiting handsomely from fat dividends and rising share prices ! This is the arguable explanation why Porsche and Maserati are sold out at book prices while Hyundai is offering big discounts to move unsold inventory. This is the reason why Nordstroms is experiencing record sales / profits while WalMart is down on both counts etc. The very same vested political interests who decry a certain political party's supposed support of big business at the supposed expense of the working stiff are avidly supporting the other political party's 'printing' of huge profits for big banks and 'wealthy' American shareholders while creating devaluing currency related higher food and energy prices that hit those working stiffs the hardest.

    And 'speak of the devil' ... from today's


    (snip)"In other words, the vast majority of assets held by the Baby Boom generation are in the top 5% of households, and most of the remaining assets are owned by the 15% tranch just beneath the top 5%. The bottom 80% don't have much home equity or directly owned bonds or stocks.

    So the Fed propping up housing and the stock market only benefits the top 20%, and most of the benefit flows to the top 5%--not exactly what most Americans think of as "middle class."

    Most voters probably look at the top chart and see themselves as stakeholders in the status quo.

    But if they examine the second and third charts, they may find their stake in the status quo--and thus in the Fed's unprecedented propping-up of bubble valuations-- is considerably less than the mirage of "middle class wealth" constantly generated by the Mainstream Media, the political class and of course the Fed itself.

    "Saving middle class assets" turns out to benefit only the top slice of households, while the dwindling middle class is left with food and energy inflation and the ginned-up perception of "rising wealth" gained by staring at the ever-rising Dow Jones Industrials: Dow 11,908, here we come.(snip)

    ~
    Last edited by Melonie; 01-14-2011 at 03:04 PM.

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by Eric Stoner View Post
    Every day brings more evidence that QE II is the WRONG policy. Of immediate concern is the rise in food , oil and metal prices. All fed by the easy money from the FED. It is 1979-1980 all over again. If we measured inflation as we did back then, it would be running at an annual rate of over 13% !
    There's no comparison between now and 1979-1980. The prices of most products have been stable. The price of cars has not increased. The price of televisions has not increased. The price of houses has actually decreased in many areas. Wages certainly haven't increased.

    Quote Originally Posted by Eric Stoner View Post
    As Mel and I have repeatedly pointed out, the FED's largesse has NOT filtered down to the folks that need it.
    Yes it has. Millions of people have refinanced their homes at lower interest rates, so they are paying less for their house and have more money to spend.

    Quote Originally Posted by Eric Stoner View Post
    Has small business borrowing increased ? They are the engine for start-ups and job creation.
    No, the engine for job creation is consumer spending. If consumers aren't buying their products or services, small businesses, or large businesses, won't be creating jobs.

    Quote Originally Posted by Eric Stoner View Post
    As far as I can see, the only ones profiting from QE II are the big banks. The FED is buying up CDO's and MBS's but who says the banks need the help ? They can already borrow money from the FED at virtually zero and lend it out at over 4% or buy T-Bills and Notes paying as much as 3.3% on the 10 Year Note. Even the dumbest of the dumb among bankers can make money that way. And they are.
    Anyone who is paying lower interest rates on their credit cards or mortgage is benefiting. I just got $5,000 in credit at 0% interest for a year on my newest credit card.

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    Default Re: QE2 Is the Right Fed Policy

    The prices of most products have been stable. The price of cars has not increased. The price of televisions has not increased. The price of houses has actually decreased in many areas. Wages certainly haven't increased.
    More tortured statistics. The price of recent model second-hand cars ... the type of cars most often purchased by 'working stiffs' ... has increased significantly ( thanks in part to Cash for Clunkers). The price of new high end cars has also increased significantly ( thanks to QE2 -> Prop Trading -> NYSE^ => cap gains + for richest 20% ). Car models where prices have stayed the same are lower end models targeted towards the US 'middle class', where sales have been 'soft'.

    The all-in cost of home ownership / equivalent rent is indeed up, thanks to rising property taxes, rising insurance costs, rising utility / heating oil costs etc. Relative property valuations in local real estate markets are a different story, and are driven by a different economic dynamic ( i.e. local economic opportunities, local tax rates, local crime rates etc ).


    Millions of people have refinanced their homes at lower interest rates, so they are paying less for their house and have more money to spend
    True that they are making a lower mortgage payment per month. Not necessarily true that the money 'saved' is being used for increased consumer purchases ( versus paying increased prices for necessities like food, gasoline, heating oil, utility bills, health care, state and local property / sales taxes etc. )


    the engine for job creation is consumer spending. If consumers aren't buying their products or services, small businesses, or large businesses, won't be creating jobs
    This doesn't compute when global competition enters the picture. US consumer spending that ultimately flows back to Chinese goods and/or Indian services creates extremely few US jobs ... even if the name of the international company involved is perceived to be American. Granted that dividends / cap gains for ( the richest 20% of Americans who are ) stockholders will increase as a result.


    Anyone who is paying lower interest rates on their credit cards or mortgage is benefiting. I just got $5,000 in credit at 0% interest for a year on my newest credit card
    Again cherry picking to promote a distorted position. True that ( the richest 20% of ) Americans with very good credit ratings have been able to take advantage of historically low interest rates. But for the 'working stiffs' whose creditworthiness has been adjusted downwards ( as a result of Dodd - Frank and other recent regulations re income verification, re debt to income ratio etc. ), there isn't a prayer in hell of actually getting approved for such low interest rate credit. Instead, 'working stiffs' now face usuriously high interest rates if they can get approved at all.

    However, one noteworthy exception is ALLY Financial ( former GMAC ), who is able to offer below 'cost' subprime auto loans on new GM vehicles thanks to the full faith and credit of the US federal taxpayer - but that's a whole 'nuther story.

    ~
    Last edited by Melonie; 01-15-2011 at 10:24 PM.

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    Default Re: QE2 Is the Right Fed Policy

    The Fed is the worst trader ever. "Attention market - I am about to buy. Also, what price would you like me to pay?".

    It was the rush to liquidity that precipitated the financial crisis two years ago and it will be the provision of liquidity that will speed the economic recovery now
    So many people throw about the word "liquidity" without seemingly understanding what it means. Oh well, if they want to give away money, may as well take it.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by Melonie View Post
    (Zerohedge)
    So the Fed propping up housing and the stock market only benefits the top 20%, and most of the benefit flows to the top 5%--not exactly what most Americans think of as "middle class."
    ~
    If they're propping up a housing bubble, just don't buy in. Owning a property won't do rich folks any good when the irrational buyers inevitably disappear.
    Once again, the conservative, sandwich-heavy portfolio pays off for the hungry investor
    - Dr John Zoidberg

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by Melonie View Post
    More tortured statistics. The price of recent model second-hand cars ... the type of cars most often purchased by 'working stiffs' ... has increased significantly ( thanks in part to Cash for Clunkers). The price of new high end cars has also increased significantly ( thanks to QE2 -> Prop Trading -> NYSE^ => cap gains + for richest 20% ). Car models where prices have stayed the same are lower end models targeted towards the US 'middle class', where sales have been 'soft'.
    No, the price of second-hand cars has decreased over the past four months, and overall, the price of new vehicles has slightly decreased over the past year. The vast majority of new cars sold, are the ones sold to the US 'middle class'.

    http://www.bls.gov/news.release/cpi.nr0.htm


    Quote Originally Posted by Melonie View Post
    The all-in cost of home ownership / equivalent rent is indeed up, thanks to rising property taxes, rising insurance costs, rising utility / heating oil costs etc. Relative property valuations in local real estate markets are a different story, and are driven by a different economic dynamic ( i.e. local economic opportunities, local tax rates, local crime rates etc ).
    No, for many people property taxes are down. Property taxes are generally based on the value of the property. Since the value of properties have gone down in many areas, property taxes would also have gone down. For most people utility/heating costs have not gone up, except for anyone with oil heating. For the vast majority of Americans that use gas or electricity for heating, or don't need any heating at all because they live in an area where the climate is warm in the winter, utility/heating costs have barely gone up or not gone up at all. On average, the cost of electricity went up less than 1% over the past year, and the cost of (piped) gas service went down.

    http://www.bls.gov/news.release/cpi.nr0.htm

    Quote Originally Posted by Melonie View Post
    True that they are making a lower mortgage payment per month. Not necessarily true that the money 'saved' is being used for increased consumer purchases ( versus paying increased prices for necessities like food, gasoline, heating oil, utility bills, health care, state and local property / sales taxes etc. )
    For many people, costs have not increased on any of the above, other than gasoline, which pretty much went up everywhere. Less than 10% of Americans depend on oil for heat.

    From:
    http://www.eia.doe.gov/pub/oil_gas/p...re/heatbro.htm

    "Of the 107 million households in the United States, approximately 8.1 million use heating oil as their main heating fuel."

    For most working Americans with health insurance, their insurance is paid for by their employer. Unless their employer passed more of the insurance cost to the employee, their health care costs did not increase. I work for a large corporation and there has been no increase as to how much I contribute for my health insurance. I'm sure its the same for many others.

    Quote Originally Posted by Melonie View Post

    This doesn't compute when global competition enters the picture. US consumer spending that ultimately flows back to Chinese goods and/or Indian services creates extremely few US jobs ... even if the name of the international company involved is perceived to be American. Granted that dividends / cap gains for ( the richest 20% of Americans who are ) stockholders will increase as a result.
    Imports make up less than 20% of the US economy, so the bulk of any increase in consumer spending goes towards American goods and services. Even when consumers buy imported products, a significant amount of the money stays in the American economy. When an American buys an imported product, they are also paying for the cost of unloading the product from the ship, transporting the product, and the retail cost.

    Quote Originally Posted by Melonie View Post

    Again cherry picking to promote a distorted position. True that ( the richest 20% of ) Americans with very good credit ratings have been able to take advantage of historically low interest rates. But for the 'working stiffs' whose creditworthiness has been adjusted downwards ( as a result of Dodd - Frank and other recent regulations re income verification, re debt to income ratio etc. ), there isn't a prayer in hell of actually getting approved for such low interest rate credit. Instead, 'working stiffs' now face usuriously high interest rates if they can get approved at all.

    ~
    No, you're making stuff up to exaggerate how bad things are. From:

    http://www.money-zine.com/Financial-...-Credit-Score/

    " The national average credit score is 680 and a good credit score is anything above 700. Does that mean that half of all Americans have a credit score below the national average?

    The short answer is No. In fact, 58% of Americans have credit scores above 700. The national average is only 680 because the average is being pulled down by some very low credit scores. Remember, we're not talking about the median score (half above and half below), we're talking about an average score."

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by eagle2 View Post
    No, the price of second-hand cars has decreased over the past four months, and overall, the price of new vehicles has slightly decreased over the past year. The vast majority of new cars sold, are the ones sold to the US 'middle class'.

    http://www.bls.gov/news.release/cpi.nr0.htm




    No, for many people property taxes are down. Property taxes are generally based on the value of the property. Since the value of properties have gone down in many areas, property taxes would also have gone down. For most people utility/heating costs have not gone up, except for anyone with oil heating. For the vast majority of Americans that use gas or electricity for heating, or don't need any heating at all because they live in an area where the climate is warm in the winter, utility/heating costs have barely gone up or not gone up at all. On average, the cost of electricity went up less than 1% over the past year, and the cost of (piped) gas service went down.

    http://www.bls.gov/news.release/cpi.nr0.htm



    For many people, costs have not increased on any of the above, other than gasoline, which pretty much went up everywhere. Less than 10% of Americans depend on oil for heat.

    From:
    http://www.eia.doe.gov/pub/oil_gas/p...re/heatbro.htm

    "Of the 107 million households in the United States, approximately 8.1 million use heating oil as their main heating fuel."

    For most working Americans with health insurance, their insurance is paid for by their employer. Unless their employer passed more of the insurance cost to the employee, their health care costs did not increase. I work for a large corporation and there has been no increase as to how much I contribute for my health insurance. I'm sure its the same for many others.



    Imports make up less than 20% of the US economy, so the bulk of any increase in consumer spending goes towards American goods and services. Even when consumers buy imported products, a significant amount of the money stays in the American economy. When an American buys an imported product, they are also paying for the cost of unloading the product from the ship, transporting the product, and the retail cost.



    No, you're making stuff up to exaggerate how bad things are. From:

    http://www.money-zine.com/Financial-...-Credit-Score/

    " The national average credit score is 680 and a good credit score is anything above 700. Does that mean that half of all Americans have a credit score below the national average?

    The short answer is No. In fact, 58% of Americans have credit scores above 700. The national average is only 680 because the average is being pulled down by some very low credit scores. Remember, we're not talking about the median score (half above and half below), we're talking about an average score."
    When Melonie does this you immediately accuse her of "Making things up based on her ideology." What's your excuse ?

    Where are property taxes down ? Mine are certainly going up. It all depends on what basis those taxes are assessed. Almost no taxing entity uses actual market value. Taxes are levied based on assessed valuations.

    49 out of 50 states have snow on the ground so presumably the residents of those states are using something to heat their homes. Even Miami has been rather chilly this winter. If it's heating oil, the price is over $2.60 a gallon. If it's electricity, it is up in many areas. If it's natural gas, it has been stable. What about multiple dwellings ? The landlord has to pass along his increased costs to the tenants.

    Almost all trucks run on gasoline or diesel fuel ( more's the pity ). Plus tolls on bridges, tunnles and turnpikes have skyrocketed. Those costs get passed along to the consumer.

    Been grocery shopping lately ? Food prices are hitting record levels and it's going to get worse. The latest numbers on the American corn and soybean crops have both at below normal levels. Add in import restrictions on things like sugar and soybeans plus diversion of about 40% of our corn crop to ethanol production and the future for food prices does not look good for 2011.

    Wear anything made of cotton ? Checked out the record price for it lately ? Clothing prices are ready to climb.

    Now add in all the extra FED money sloshing around and a weak dollar and the situation is compounded.

    Your employer has not yet reacted to Obamacare. Others are not offering health insurance or are increasing their employee contribution.

    As to your Keynesian view that we need more consumer spending, that method was tried . Twice by Bush and once under Obama. None were successful. Unless you call 9 to 15 % unemployment a "success".

    Most of all, you have a mental block of some kind or perhaps a fixation on interest rates. Particularly short term rates which are the only ones the FED has any control over. They are low. But if you look at long term rates, particularly the 10 Year Note and 30 Year Bond, they are going UP ! Even so this misses the importance of money supply , its rate of growth and its velocity. All of which have soared. Nobody, least of all you, has been able to cite a single historical example where a country was able to debase its currency as we have and get away with it.
    Where they did not have a whopping dose of inflation to deal with.
    Last edited by Eric Stoner; 01-17-2011 at 07:54 AM.

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    Default Re: QE2 Is the Right Fed Policy

    Eric has responded to every topic except credit ratings ... so I will pick up the 'ball'.

    Nobody is disputing the fact that an average 680 credit score isn't accurate. The point is that a 680 credit score is no longer sufficient to gain approval for a 'prime' mortgage, auto loan, or credit card. Resurrecting Fannie's new mortgage loan eligibility / interest rate 'penalty' chart ...



    ... it's pretty simple to understand that an average American with a 680 credit score and 20% down will wind up paying an extra 2.5% in interest rate premium versus a 'prime' borrower with a credit score of 740 ... which is a HUGE additional dollar cost over the life of a 30 year mortgage.

    Most 'in house auto lenders' have now dopted similar interest rate 'tiers' ... with a 680 credit score falling into the lowest approveable tier with the highest interest rate under 'in house' financing. Same holds true for bank eligibility criteria for various credit cards, with a 680 credit score generally placing the applicant into a credit card with an interest rate in the 'teens'.

    As to your claim that the median credit score is in the 700 range, the same Fannie interest rate penalty chart shows that this only varies as a matter of degree versus the points made about 680. Same principle also applies to 'in house' low interest rate auto financing and bank eligibility for low interest rate / low annual fee credit cards. The sad fact is that the artificially low 'prime' interest rates promoted by the FED ( at the expense of the US taxpayer ) do NOT actually flow to average Americans in the same way that they DO flow to the top 20% of Americans ( the ones with 740+ credit scores, low debt to income ratios, and money in the bank with which to make large down payments )


    I would also add to Eric's point about property taxes. Yes in most areas market values of homes have declined. However, on a 'straight up' basis, if the local gov't needs more money to balance its budget it merely tweaks up tax rates to counteract lower assessed values - with the end result being the payment of higher property and school taxes. In addition, some states have property tax increase caps in place which effectively prevented out of pocket homeowner tax dollars from rising more than 3% or whatever per year. In a scenario where property values had doubled since 2000, but have now lost some 30% from their peak, that's still a 70% increase in property value. But due to the annual property tax increase caps, homeowner tax bills have only been allowed to increase perhaps 1.03 ^ 10 or 45% over the past 10 years. As a result, property valuation could still decline another 25% before the capped 3% annual tax increases 'catch up' with actual property valuations !!!


    PS I don't accept the attempted point re BLS auto data at face value either due to seasonality as well as to the data failing to properly account for 'cash for clunkers' credits. In other words, it's very easy to claim that the price of a new mid-sized American auto has decreased slightly from last year's price ( without 'cash for clunkers' credit applied ) versus this year's price (with no such credit available ). However, in terms of 'out of pocket' dollars, new car buyers in 2011 will tell you that there is a major net price increase !

    ~
    Last edited by Melonie; 01-17-2011 at 10:07 AM.

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    Default Re: QE2 Is the Right Fed Policy

    To follow up on the money supply point. We are following almost the exact same path that Britain did. Not to be boring, but they accumulated huge debts resulting in devaluation of the Pound among other steps that were taken. None of it worked. Britain went through decades of economic decline until Maggie Thatcher finally restored some economic sanity and brought the unions to heel. Her policies were followed by John Major and even Tony Blair during his first few years as PM.

    If you want to see what REALLY works, look at the three most recent periods of long term economic expansion in the U.S. All followed the same road map : reduced spending; reduction in the size of government; reduced debt and TAX CUTS . Harding / Coolidge ; Reagan and Clinton. The biggest mistake of Bush The Dumber ( well one of his biggest because he made so many ) was to not reduce spending while cutting taxes. To his credit, Clinton did not cut taxes until the deficit was under control and we were headed for surpluses.

    We already have rumblings of Uncle Sam losing his "AAA" credit rating and questions about the balance sheet at the Fed.

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    Default Re: QE2 Is the Right Fed Policy

    We already have rumblings of Uncle Sam losing his "AAA" credit rating and questions about the balance sheet at the Fed
    yes, but ... keep in mind that this downgrading of US gov't debt, and the resulting increase in US interest rates, would greatly benefit the rich 'investor' class ( providing that they are hedged against US dollar risk via offshore investments / gold / foreign currency bank accounts ). It also benefits the unemployable 'poor' whose gov't benefits will increase in response to rising prices of food, rent, energy etc. In reality, it will only be the 'middle class' that gets hammered !

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by Eric Stoner View Post
    When Melonie does this you immediately accuse her of "Making things up based on her ideology." What's your excuse ?

    Where are property taxes down ? Mine are certainly going up. It all depends on what basis those taxes are assessed. Almost no taxing entity uses actual market value. Taxes are levied based on assessed valuations.
    Here's one example of property taxes going down:

    http://www.jhnewsandguide.com/article.php?art_id=5593

    I'm sure this isn't the only place this is happening.

    Quote Originally Posted by Eric Stoner View Post
    49 out of 50 states have snow on the ground so presumably the residents of those states are using something to heat their homes. Even Miami has been rather chilly this winter. If it's heating oil, the price is over $2.60 a gallon. If it's electricity, it is up in many areas. If it's natural gas, it has been stable. What about multiple dwellings ? The landlord has to pass along his increased costs to the tenants.
    As I mentioned before, of the 107 million households in the US, only 8 million use oil for heating. I also mentioned, overall, the average cost of electricity has increased less than one percent over the past year.

    Quote Originally Posted by Eric Stoner View Post
    Almost all trucks run on gasoline or diesel fuel ( more's the pity ). Plus tolls on bridges, tunnles and turnpikes have skyrocketed. Those costs get passed along to the consumer.
    Tolls haven't increased where I live. I don't think there's been an increase in the NJ turnpike tolls since 2008 and legislators are talking about rolling them back.

    http://www.newjerseynewsroom.com/sta...nct-arc-tunnel


    Quote Originally Posted by Eric Stoner View Post
    Been grocery shopping lately ? Food prices are hitting record levels and it's going to get worse. The latest numbers on the American corn and soybean crops have both at below normal levels. Add in import restrictions on things like sugar and soybeans plus diversion of about 40% of our corn crop to ethanol production and the future for food prices does not look good for 2011.

    Wear anything made of cotton ? Checked out the record price for it lately ? Clothing prices are ready to climb.
    haven't been any significant increases in the price of food or clothes where I live. If the price of corn goes up, it may be a good thing. Maybe food producers will stop poisoning us with high-fructose corn syrup.

    Quote Originally Posted by Eric Stoner View Post
    Now add in all the extra FED money sloshing around and a weak dollar and the situation is compounded.

    Your employer has not yet reacted to Obamacare. Others are not offering health insurance or are increasing their employee contribution.

    As to your Keynesian view that we need more consumer spending, that method was tried . Twice by Bush and once under Obama. None were successful. Unless you call 9 to 15 % unemployment a "success".
    It has nothing to do with Keynesian theory. It's common sense. When consumers buy more, businesses sell more, which eventually leads to more hiring. I don't know where you got the idea that more consumer spending was tried under Obama. Consumer spending has greatly decreased, which is why unemployment is so high. In addition, the government doesn't control consumer spending, consumers do. Government can provide incentives for consumers to spend more, such as lowering interest rates, but they don't control it.


    Quote Originally Posted by Eric Stoner View Post
    Most of all, you have a mental block of some kind or perhaps a fixation on interest rates. Particularly short term rates which are the only ones the FED has any control over. They are low. But if you look at long term rates, particularly the 10 Year Note and 30 Year Bond, they are going UP ! Even so this misses the importance of money supply , its rate of growth and its velocity. All of which have soared. Nobody, least of all you, has been able to cite a single historical example where a country was able to debase its currency as we have and get away with it.
    Where they did not have a whopping dose of inflation to deal with.
    No, you have a mental block with your ideology. Your ideology takes precedence over all else. Your one solution for everything is strengthen the dollar and cut taxes.

    I have already provided an example. The US weakened its currency in the early 1990's and we ended up with an unprecedented economic expansion. China has kept its currency artificially low and they have the fastest growing economy in the world, of all the major countries.

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by Eric Stoner View Post
    To follow up on the money supply point. We are following almost the exact same path that Britain did. Not to be boring, but they accumulated huge debts resulting in devaluation of the Pound among other steps that were taken. None of it worked. Britain went through decades of economic decline until Maggie Thatcher finally restored some economic sanity and brought the unions to heel. Her policies were followed by John Major and even Tony Blair during his first few years as PM.
    We're not following the same path that Britain did before Margaret Thatcher. We haven't nationalized all of our major industries. Our government is actually selling off the few major corporations they took control of. Unions have become much weaker over the past few decades, not stronger.


    Quote Originally Posted by Eric Stoner View Post
    If you want to see what REALLY works, look at the three most recent periods of long term economic expansion in the U.S. All followed the same road map : reduced spending; reduction in the size of government; reduced debt and TAX CUTS . Harding / Coolidge ; Reagan and Clinton. The biggest mistake of Bush The Dumber ( well one of his biggest because he made so many ) was to not reduce spending while cutting taxes. To his credit, Clinton did not cut taxes until the deficit was under control and we were headed for surpluses.
    Reagan did not reduce spending. He greatly increased spending on a major military buildup. The biggest economic expansion we had was before and during World War II, when taxes and spending were greatly increased. We also had a major economic expansion during the 1960's when government spending on the military and social programs was greatly increased.

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    Default Re: QE2 Is the Right Fed Policy

    from

    (snip)Trickle Down Economics From Bernanke and The Left
    Guest post by Stefan Karlsson, independent Swedish economist.

    Advocates of tax cuts are often accused by the left of advocating “trickle down economics”, which is the idea that if you give the rich a lot of money, it will trickle down to the rest of the population.

    In reality, the economic case for tax cuts certainly doesn’t lie in any “trickle down” idea, something which is illustrated by the fact that it applies to tax cuts for people with low or moderate income as well. Instead, it is based on the insight that if you improve incentives, then more wealth will be created.

    However, as is pointed out here, Bernanke is in fact making the case for “quantitative easing” on the basis of “trickle down economics”, when he says it will boost the economy by the “wealth effects” that higher stock prices creates. And as the richest 1% in America owns 51% of stocks and mutual fund assets while the bottom 50% only owns 0.5%, “quantitative easing” is thus a big redistribution scheme in favor of the wealthy.

    Ironically, most of the leftists that complains the most about the increase in inequality is in favor of this inequality increasing scheme.snip)

    plus ...

    (snip)"and you believe they pay taxes?
    January 16, 2011
    Julius Baer Whistleblower To Expose 2,000 High Net Worth Tax Evaders To The World

    Julius Baer, may have just nailed the last, and with that set off a chain reaction that will force a huge outcry against pervasive global tax fraud (but likely achieve nothing ultimatel). According to the Guardian, tomorrow Elmer will hand over details of 2,000 “high net worth individuals and corporations” to WikiLeaks which will make him “the most important and boldest whistleblower in Swiss banking history.” And since among those exposed will be “approximately 40 politicians” expect all hell to break loose"(snip)




    If the 'gold foil hat' crowd is correct, it becomes rather easy to understand the unswerving support for QE policies by many liberals. Well, to be more specific, by already rich liberals ...

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by eagle2 View Post
    Here's one example of property taxes going down:

    http://www.jhnewsandguide.com/article.php?art_id=5593

    I'm sure this isn't the only place this is happening.


    As I mentioned before, of the 107 million households in the US, only 8 million use oil for heating. I also mentioned, overall, the average cost of electricity has increased less than one percent over the past year.



    Tolls haven't increased where I live. I don't think there's been an increase in the NJ turnpike tolls since 2008 and legislators are talking about rolling them back.

    http://www.newjerseynewsroom.com/sta...nct-arc-tunnel




    haven't been any significant increases in the price of food or clothes where I live. If the price of corn goes up, it may be a good thing. Maybe food producers will stop poisoning us with high-fructose corn syrup.



    It has nothing to do with Keynesian theory. It's common sense. When consumers buy more, businesses sell more, which eventually leads to more hiring. I don't know where you got the idea that more consumer spending was tried under Obama. Consumer spending has greatly decreased, which is why unemployment is so high. In addition, the government doesn't control consumer spending, consumers do. Government can provide incentives for consumers to spend more, such as lowering interest rates, but they don't control it.




    No, you have a mental block with your ideology. Your ideology takes precedence over all else. Your one solution for everything is strengthen the dollar and cut taxes.

    I have already provided an example. The US weakened its currency in the early 1990's and we ended up with an unprecedented economic expansion. China has kept its currency artificially low and they have the fastest growing economy in the world, of all the major countries.
    Sigh. Well maybe if everybody lived where you do, things would be much better for more of us. For those of us living in the "real world" , property taxes and other taxes have gone UP ! As I said, if the taxing authority assesses based only on MARKET VALUE then presumably property taxes would go down. however most do NOT use that method. They use ASSESSED valuation which is an artificial value and in most places, including NYC , it is going UP !

    Tolls where I live have gone UP. The Verrazzano Bridge is now $13 for cars. For trucks it is even higher. Many other similar type authorities have raised tolls.

    Again, I don't know where you live but it certainly sounds like some sort of Nirvana , impervious to the market forces that affect the rest of us. For MOST of the country, food has most definitely increased in price and increased prices for cotton clothing is in the pipeline based on record prices for said fiber. Fyi, corn is used for a lot more than high fructose corn syrup ( I agree that it is agricultural pornography.) What do you think they feed cattle before slaughter ? Bought or ordered a steak lately ? Read any food labels and seen how much soy is in how many products ? Soybean oil ?

    We tried a demand side solution no less than three ( 3 ) times since 2008. There were two stimulus programs under Bush The Dumber and one under Obama. How soon we forget ! You also admit an essential flaw in demand side theory : There is no guarantee it will work ; nobody can control consumer disposal of discretionary income. And with higher inflation, folks are just gonna use any increase in their income to cover the price increases for food, clothing, shelter and fuel. And in Illinois, for higher state taxes.

    China also has a healthy rate of inflation and a serious bubble in real estate prices. Sound familiar ?

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by eagle2 View Post
    We're not following the same path that Britain did before Margaret Thatcher. We haven't nationalized all of our major industries. Our government is actually selling off the few major corporations they took control of. Unions have become much weaker over the past few decades, not stronger.



    Reagan did not reduce spending. He greatly increased spending on a major military buildup. The biggest economic expansion we had was before and during World War II, when taxes and spending were greatly increased. We also had a major economic expansion during the 1960's when government spending on the military and social programs was greatly increased.
    From a fiscal and monetary standpoint, we are most certainly following the path trod by Britain both before and after W.W. II. Bernanke is repeating the idiocy of Arthur Burns in the 1970's. His big bugaboo is deflation. Anyone see any evidence of deflation ?

    Now I really have you caught red handed as far as making up facts. "Big economic expansion before W.W.II " ???? Rotflmao ! How easily you forget the Recession of 1938. A historical event you categorically refuse to recognize EVER happened . I've had to repeatedly remind you of what the unemployment and economic growth rates were in 1938 and 1939. It was only when FDR started to rearm in 1940 that the economy seriously expanded and really began recovering.

    As for Reagan, it is true he increased defense spending. However you and others have delighted in showing how he reduced the rate of increase on many domestic programs. If you look at government spending as a % of GDP it went down under Reagan and in the early years of Johnson's Administration. Why ? An expanding economy and ( sit down, brace yourself ) TAX CUTS !

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by Eric Stoner View Post
    Sigh. Well maybe if everybody lived where you do, things would be much better for more of us. For those of us living in the "real world" , property taxes and other taxes have gone UP ! As I said, if the taxing authority assesses based only on MARKET VALUE then presumably property taxes would go down. however most do NOT use that method. They use ASSESSED valuation which is an artificial value and in most places, including NYC , it is going UP !
    You don't know that property taxes went up for everyone else. No matter what the facts are, you and Melonie are always going to exaggerate how bad things are, as long as the government doesn't go along with your ideology. Maybe your property taxes did go up, but you have no idea how much everyone else's taxes went up or down.

    Quote Originally Posted by Eric Stoner View Post
    Tolls where I live have gone UP. The Verrazzano Bridge is now $13 for cars. For trucks it is even higher. Many other similar type authorities have raised tolls.
    The tolls on the NJ Turnpike have not gone up, and the NJ Turnpike is probably by far, the biggest toll road in NJ.

    Quote Originally Posted by Eric Stoner View Post
    Again, I don't know where you live but it certainly sounds like some sort of Nirvana , impervious to the market forces that affect the rest of us. For MOST of the country, food has most definitely increased in price and increased prices for cotton clothing is in the pipeline based on record prices for said fiber. Fyi, corn is used for a lot more than high fructose corn syrup ( I agree that it is agricultural pornography.) What do you think they feed cattle before slaughter ? Bought or ordered a steak lately ? Read any food labels and seen how much soy is in how many products ? Soybean oil ?
    I live the the real world, not your ideological based world. In the real world, there has not been any major increase in the price of food. Overall, the price of food increased approximately 1.5% for consumers, which is barely noticeable.

    http://www.bls.gov/news.release/cpi.nr0.htm

    I went to McDonald's today. The price of a Big Mac is about the same as I've been paying for as long as I can remember. The Big Mac comes from the same place steak does.

    In addition, as you mentioned before, the main reason for the increase in the price of corn has to do with the low output of corn crops this past year, rather than actions of the Fed.

    Quote Originally Posted by Eric Stoner View Post
    We tried a demand side solution no less than three ( 3 ) times since 2008. There were two stimulus programs under Bush The Dumber and one under Obama. How soon we forget ! You also admit an essential flaw in demand side theory : There is no guarantee it will work ; nobody can control consumer disposal of discretionary income. And with higher inflation, folks are just gonna use any increase in their income to cover the price increases for food, clothing, shelter and fuel. And in Illinois, for higher state taxes.
    Yes, we can't control consumer disposal of discretionary income, so when consumers aren't spending, government should step in and spend to stimulate the economy. The stimulus programs weren't anywhere near big enough to have an impact with the economic downturn we've been through. We would still be worse off without them.

    Quote Originally Posted by Eric Stoner View Post
    China also has a healthy rate of inflation and a serious bubble in real estate prices. Sound familiar ?
    I don't know how true this is, but someone from China told me that in China, most real estate is bought with cash rather than risky loans, like in the US for the past decade. If this is true, China is much less at risk from a downturn in real estate than the US was. In addition, if China does have an economic downturn, the government won't be starting the downturn already in trillions of dollars of debt like we did.
    Last edited by eagle2; 01-18-2011 at 10:59 PM.

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by Eric Stoner View Post
    From a fiscal and monetary standpoint, we are most certainly following the path trod by Britain both before and after W.W. II. Bernanke is repeating the idiocy of Arthur Burns in the 1970's. His big bugaboo is deflation. Anyone see any evidence of deflation ?
    There's no comparison between the US and Britain after World War II. Do you know anything about what Britain was like in the 1970's? Most British industry was under the control of the government and most government-owned industries were losing billions of dollars each year. The top tax rate in Britain was 98%. The economy was being crippled by strikes. For a time, most people only had electricity three days a week, as a result of a coal-miners strike.

    There's not much evidence of deflation because the fed took the proper actions. The cost of housing is still probably going down in some areas. The idea that the Fed should make American-made products more expensive and imports cheaper when the unemployment rate is 10% is ridiculous. The Fed tried strengthening our currency in 1930 and look how that turned out.

    Quote Originally Posted by Eric Stoner View Post
    Now I really have you caught red handed as far as making up facts. "Big economic expansion before W.W.II " ???? Rotflmao ! How easily you forget the Recession of 1938. A historical event you categorically refuse to recognize EVER happened . I've had to repeatedly remind you of what the unemployment and economic growth rates were in 1938 and 1939. It was only when FDR started to rearm in 1940 that the economy seriously expanded and really began recovering.
    I meant the years preceding the US entrance into the war, when the US began its military buildup, but was not fighting the war. I do not refuse to recognize there was a recession in 1938. The reason why there was a recession was because government decreased spending. When the government increased spending again, the economy started growing again. When the government greatly increased spending on a military buildup, the economy really started growing again. According to your ideology and Melonie's ideology, increased taxes and government spending should slow or stop economic growth, yet the opposite happened. Imagine that.

    Quote Originally Posted by Eric Stoner View Post
    As for Reagan, it is true he increased defense spending. However you and others have delighted in showing how he reduced the rate of increase on many domestic programs. If you look at government spending as a % of GDP it went down under Reagan and in the early years of Johnson's Administration. Why ? An expanding economy and ( sit down, brace yourself ) TAX CUTS !
    No it didn't. Government spending as a percent of GDP was lower in the 1970's than it was in the 1980's.

    http://www.usgovernmentspending.com/...&local=s&show=

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by eagle2 View Post
    You don't know that property taxes went up for everyone else. No matter what the facts are, you and Melonie are always going to exaggerate how bad things are, as long as the government doesn't go along with your ideology. Maybe your property taxes did go up, but you have no idea how much everyone else's taxes went up or down.



    The tolls on the NJ Turnpike have not gone up, and the NJ Turnpike is probably by far, the biggest toll road in NJ.


    I live the the real world, not your ideological based world. In the real world, there has not been any major increase in the price of food. Overall, the price of food increased approximately 1.5% for consumers, which is barely noticeable.

    http://www.bls.gov/news.release/cpi.nr0.htm

    I went to McDonald's today. The price of a Big Mac is about the same as I've been paying for as long as I can remember. The Big Mac comes from the same place steak does.

    In addition, as you mentioned before, the main reason for the increase in the price of corn has to do with the low output of corn crops this past year, rather than actions of the Fed.



    Yes, we can't control consumer disposal of discretionary income, so when consumers aren't spending, government should step in and spend to stimulate the economy. The stimulus programs weren't anywhere near big enough to have an impact with the economic downturn we've been through. We would still be worse off without them.



    I don't know how true this is, but someone from China told me that in China, most real estate is bought with cash rather than risky loans, like in the US for the past decade. If this is true, China is much less at risk from a downturn in real estate than the US was. In addition, if China does have an economic downturn, the government won't be starting the downturn already in trillions of dollars of debt like we did.
    You don't know that they went down.

    Did the N.J. Turnpike raise tolls last year ? No. Christie was in charge. Thank God. But Corzine certainly raised them. The MTA has raised bridge and tunnel tolls on every facility in the region. And increased subway and train fares. As did N.J. Transit btw.

    O.K. Based on the REAL World would you kindly tell us where last month's 1.1 % monthly increase in the PPI came from ? And the monthly increases before that ? It was increased energy and food costs. I must confess I am not familiar with the "Eagle - McDonald's Food Price Survey." Would you please tell us where those numbers are published ? Is that an official government statistic or just a little something of your own ? Is there some sort of formula by which you extrapolate supermarket food prices from the price of Big Macs ? If so, what is it please ? I'm always willing to learn something new.

    As for the FED you are deliberately misunderstanding me. As usual. FED policy is NOT affecting crop yields BUT too much money sloshing around with reduced supply leads inevitably to increased prices. Remember the real estate bubble ?
    We are seeing the same effects with respect to gold and other precious metals and of course with respect to oil prices.
    Last edited by Eric Stoner; 01-19-2011 at 08:43 AM.

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by eagle2 View Post
    There's no comparison between the US and Britain after World War II. Do you know anything about what Britain was like in the 1970's? Most British industry was under the control of the government and most government-owned industries were losing billions of dollars each year. The top tax rate in Britain was 98%. The economy was being crippled by strikes. For a time, most people only had electricity three days a week, as a result of a coal-miners strike.

    There's not much evidence of deflation because the fed took the proper actions. The cost of housing is still probably going down in some areas. The idea that the Fed should make American-made products more expensive and imports cheaper when the unemployment rate is 10% is ridiculous. The Fed tried strengthening our currency in 1930 and look how that turned out.


    I meant the years preceding the US entrance into the war, when the US began its military buildup, but was not fighting the war. I do not refuse to recognize there was a recession in 1938. The reason why there was a recession was because government decreased spending. When the government increased spending again, the economy started growing again. When the government greatly increased spending on a military buildup, the economy really started growing again. According to your ideology and Melonie's ideology, increased taxes and government spending should slow or stop economic growth, yet the opposite happened. Imagine that.



    No it didn't. Government spending as a percent of GDP was lower in the 1970's than it was in the 1980's.

    http://www.usgovernmentspending.com/...&local=s&show=
    FISCAL Policy. MONETARY policy. Our policies in those areas and those of Britain since W.W. I are disturbingly similar. You have NOT posted a word differentiating our policies and Britains's as to FISCAL and MONETARY policy.

    How many times have I posted how and why the idiocy of the Fed turned a recession into a The Great Depression ? Why do you think I and many others want to abolish the Fed. The times they have got it "wrong" with respect to monetary policy far outnumber the times that correct policies were followed. An argument can be made that Bernanke followed the correct policies after the Lehman crash. There is no excuse for burning out the printing presses now.

    The main cause of the 1938 Recession was NOT the decrease in government spending. It was FDR's tax increases. Just as Hoover's idiotic tax increases deepened and worsened the Depression. Both raised taxes when they should have been cut.

    Melonie and I have explained to you, over and over again, how and why W.W.II pulled us out of the Depression and it had nothing to do with tax increases. Which could have and should have been dispensed with btw. As we have repeatedly pointed out, the War was won on BORROWED money. You have heard of War Bonds ? Remember Bing Crosby singing : "Buy a bond" ?

    The clincher is that if your theories are correct and high taxes and high government spending are good for the economy; that in some perverse way they promote growth and employment, then the economy should be humming along and unemployment ought to be going down. Spending as a % of GDP has gone way UP under Obama. To levels only exceeded by FDR during W.W. II. And you want to borrow and spend MORE ! ? ! ? Tax rates have not gone down. They are fairly close to what they were under Clinton. And what do we have ? Spiraling debt and deficits; anemic growth ( everyone is ready to greet 4% growth like the Second Coming when 8 % is the typical post recession rate) and high unemployment.
    Last edited by Eric Stoner; 01-19-2011 at 08:55 AM.

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    Default Re: QE2 Is the Right Fed Policy

    Quote Originally Posted by Eric Stoner View Post
    FISCAL Policy. MONETARY policy. Our policies in those areas and those of Britain since W.W. I are disturbingly similar. You have NOT posted a word differentiating our policies and Britains's as to FISCAL and MONETARY policy.
    Again, fiscal and monetary policy had little to do with Britain's decline. For some reason you seem to have this mad obsession with fiscal and monetary policy, while you ignore everything else that went on in Britain post World War II.

    Quote Originally Posted by Eric Stoner View Post
    How many times have I posted how and why the idiocy of the Fed turned a recession into a The Great Depression ? Why do you think I and many others want to abolish the Fed. The times they have got it "wrong" with respect to monetary policy far outnumber the times that correct policies were followed. An argument can be made that Bernanke followed the correct policies after the Lehman crash. There is no excuse for burning out the printing presses now.
    Yes there is. Unemployment is close to 10%.


    Quote Originally Posted by Eric Stoner View Post
    The main cause of the 1938 Recession was NOT the decrease in government spending. It was FDR's tax increases. Just as Hoover's idiotic tax increases deepened and worsened the Depression. Both raised taxes when they should have been cut.
    Yes, FDR went against Eric's ideology, therefore he was wrong.

    Quote Originally Posted by Eric Stoner View Post
    Melonie and I have explained to you, over and over again, how and why W.W.II pulled us out of the Depression and it had nothing to do with tax increases. Which could have and should have been dispensed with btw. As we have repeatedly pointed out, the War was won on BORROWED money. You have heard of War Bonds ? Remember Bing Crosby singing : "Buy a bond" ?
    No, the war was won on REVENUE FROM TAXES, GOVERNMENT SPENDING on war material, and borrowed money. Just because you and Melonie explain something doesn't make it true.

    Quote Originally Posted by Eric Stoner View Post
    The clincher is that if your theories are correct and high taxes and high government spending are good for the economy; that in some perverse way they promote growth and employment, then the economy should be humming along and unemployment ought to be going down. Spending as a % of GDP has gone way UP under Obama. To levels only exceeded by FDR during W.W. II. And you want to borrow and spend MORE ! ? ! ? Tax rates have not gone down. They are fairly close to what they were under Clinton. And what do we have ? Spiraling debt and deficits; anemic growth ( everyone is ready to greet 4% growth like the Second Coming when 8 % is the typical post recession rate) and high unemployment.
    It is not my theory that high taxes and high government spending are good for the economy. I'm not an ideological fanatic like you. There are times when tax increases and/or increases in government spending are good for the economy and country. There are also times when tax cuts and spending cuts are beneficial. The same is true for monetary policy. There are times when a strong dollar is best for the economy and there are times when a weak dollar is good for the economy. For some reason, this logic is too complicated for conservative ideologues to understand.

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