The Federal Reserve hoped that its three-year-old economic rescue campaign would reach a climax at the end of June. It hoped that consumers and businesses by now would be spending more and more, and the central bank could start doing less and less.
That peak now looks like a long plateau. The Fed still is expected to announce Wednesday that it will halt the expansion of its aid programs at the end of June, as scheduled, when it completes the purchase of $600 billion in Treasury securities. But growth is sputtering, and economists now expect that the Fed will leave its $2 trillion of bandages, props and crutches untouched until next year.
The pace of economic expansion has repeatedly fallen short of the Fed’s predictions, and the central bank is expected to lower its eyes once again when its releases a new forecast after a two-day meeting of its policy board, the Federal Open Market Committee.
[A] number of studies have concluded that the Fed’s efforts have had only a modest impact on the economy. Stock prices have climbed. Corporations have rarely been able to borrow money more cheaply. Mortgage loans have seldom been available at such low interest rates. But companies are hiring few new workers, and people are buying few new homes. Almost 25 million Americans cannot find full-time work, a number that is rising again after declining modestly over the last year.
Thanks to the geniuses at the Federal Reserve, the US dollar has the utility value of toilet paper, and our economy is just as bad, maybe even worse, than it was when it first started creating dollars out of thin air. QE1 and QE2 are failures and the Fed wants to double down on some more.
Interesting take from Kudlow:
[...] Egypt is the world’s largest wheat importer. Because of skyrocketing prices, Egyptian inflation is now over 10 percent.
Commodities are priced in dollars, and the Fed has been overproducing dollars for more than two years. Consequently, emerging markets throughout the world — and the food sector in particular — are suffering from rising inflation.
The CRB food index is up an incredible 36 percent over the past year, including 8 percent year-to-date. Raw materials are up 23 percent over the past year. Inflation breakouts have occurred in China, various Asian Tigers, India, Brazil, and other Latin countries. Even Britain and Germany are registering higher inflation readings.
That is to say, if by “holiday greetings” you mean some rancid turkey and a serious case of heartburn:
Unemployment is set to remain higher for longer than previously thought, according to new projections from the Federal Reserve that would mean more than 10 million Americans remain jobless through the 2012 elections – even as a separate report shows corporate profits reaching their highest levels ever.
Top Federal Reserve officials project that the unemployment rate, now 9.6 percent, will fall only to about 9 percent at the end of 2011 and about 8 percent when the next presidential election arrives, in late 2012. The central bankers had envisioned a more rapid decline in joblessness in their previous forecasts, prepared in June.
The sober economic forecast comes despite signs that the recovery is picking up slightly. The Commerce Department said Tuesday that gross domestic product rose at a 2.5 percent annual rate in the three months ending in September, not 2 percent as earlier estimated. And there have been solid readings in recent weeks on job creation, manufacturing and retail.
But wait, there’s more:
It was these diminished expectations for growth that led Fed officials this month to announce plans to buy $600 billion in Treasury bonds in a bid to drive down long-term interest rates and pump up growth.[...]
But most Fed officials expected the results of bond purchases “to help promote a somewhat stronger recovery in output and employment while also helping return inflation, over time, to levels consistent with the Committee’s mandate.” Some also thought the action would offer insurance against a further drop in inflation or against the “small probability” of persistent deflation.
But the [minutes of the last Federal Reserve meeting] also leaves little doubt that several Fed officials remain uneasy with the action. Some anticipated that they would have only a “limited” effect on the pace of recovery, arguing the action should only be taken if the odds of deflation “increased materially.”
And several “noted concern” that the action “could put unwanted downward pressure on the dollar’s value in foreign exchange markets” or “an undesirably large increase inflation.”
So not only are Fed officials implicitly acknowledging that nearly two years of Obamanomics are a complete failure, but that their fiscal policy, as encapsulated in Quantitative Easings I and II, are doing little, if nothing to help it as well.
We’re in the best of hands, folks.
But you know who
must really be feeling like an idiot this really hurts? Jeff Sommer.
With the Obama administration’s attempts at fiscal policy on steroids failing miserably, the last tool at lawmakers disposal, to help boost the economy is monetary policy on steroids, or in Federal Reserve parlance: “Quantitative Easing, part II”.
That would mean another $600 billion in crisp, newly minted bills to purchase securities:
NEW YORK (Reuters) – The U.S. economy is expected to grow only modestly through next year, despite the Federal Reserve’s pledge to buy another $600 billion of government bonds and better signs in the job market, a Reuters poll showed.
U.S. gross domestic product (GDP) will grow at a 2.0 percent annualized rate in the current quarter, the same pace as the third quarter and unchanged from the consensus last month, according to the median forecast from almost 70 economists.
Growth is expected to accelerate to an annualized 2.2 percent in the first quarter of next year, and 2.5 percent in the second quarter of 2011, also unchanged from the last poll.
“We expect that the Fed’s new large-scale asset purchase program — dubbed QE2 — will likely boost growth only modestly, perhaps by 0.2 percent to 0.3 percent in 2011,” said Richard Berner, chief U.S. economist at Morgan Stanley.
Berner added that QE2 ought to help limit downside risks to both growth and inflation. The Fed said last week it could make further purchases beyond the middle of next year if it deems that necessary.
The first round of QE totaled about $1.7 trillion. Add in QE II, and we’re looking at over $2 trillion in newly printed greenbacks, in an economy whose GDP is approximately $14 trillion.
Think about that for a moment–the Federal Reserve has created about 16% of the total US GDP’s worth in new currency, right out of thin air. I’m certainly no expert in monetary policy, but that gives me an uneasy feeling. In fact, that should scare the bejesus out of us all.
UPDATE. What happens when the Federal Reserve shifts the printing press into overdrive? You get
too many a lot of greenbacks floating around the world, and when that happens, the value of the dollar heads south. And when that happens, you get a boom in gold. (It’s almost as if the Feds are purposely trying to destroy our currency. That, or they have no clue what they’re doing.) If anything, Glenn Beck is guilty of honesty in advertising.
UPDATE. Welcome The Other McCain readers…
The Fed’s latest Beige Book report is out and shows an economic pulse that’s barely beating:
The U.S. economy continued growing this summer but “with widespread signs of deceleration,” according to a new report on business conditions around the country.
The Federal Reserve’s “beige book,” an eight-times-a-year compilation of anecdotal information from companies in the 12 Fed districts, offers a portrait of an uncertain economic moment in which growth has slowed in much of the United States.
“Economic growth at a modest pace was the most common characterization of overall conditions,” said the report, released Wednesday afternoon and based on interviews with businesspeople from mid-July through the end of August. However, five of the regional Fed banks east of the Mississippi River “highlighted mixed conditions or deceleration in overall economic activity.”
The anecdotal information contained in the beige book is consistent with a slew of economic reports showing that the burst of growth in late 2009 and early 2010 has not persisted through the summer, as the impact of businesses rebuilding their inventories and fiscal stimulus fades.
Therein lies the failure of Keynesian government spending used to stimulate demand. It generally is a one-time shot in the arm and does little to promote sustainable long-term growth.
The Senate has passed FinReg by a vote of 60-39, with three Republican helping the Democrats.
The scope of the “reform” is staggering–a 2,000+ page bill, creating some 243 new bureaucratic offices. Like most reform packages to come from Congress, it will hardly be a model of efficiency.
But perhaps the most alarming aspect is the broad, new powers it gives to existing regulators, regulators who should have been minding the store back in the 2000s, when the financial system was ready to implode.
When politicians begin to take notice of an issue, and start whining about “reform” and “action” to be taken, it’s usually too late, and is really just an indication that said politicians have no clue about what they are trying to do.
Such is the case with Wall Street reform. Since the 1930s, with the establishment of the SEC and the creation of our modern financial regulatory state, politicians have deemed themselves the white knights and saviors of bubbles and crashes, wrought by “evil and greedy” Wall Street bankers.
And anyone who actually believes that this is the case, is being extremely ignorant:
This isn’t the first time Congress has expanded the Fed’s role. After the Great Depression, it passed the Employment Act in 1946, charging the Fed with averting the huge unemployment seen in the 1930s. After the double-digit inflation of the 1970s, the Fed was formally given a dual mandate of promoting both price stability and maximum sustainable employment. In the wake of the latest financial crisis, the Fed is effectively being told to add the maintenance of financial stability to its responsibilities.
The risks, however, are that the Fed still won’t be able to prevent another crisis, and that it will be an even clearer target for blame if that occurs. “The bill has good intentions, but I’m worried about its implementation. If I were the Fed, I’d be seriously worried about being left holding the bag,” said Anil Kashyap, a professor at the University of Chicago’s Booth School of Business.
As long as there are free markets, and market participants free to engage in those markets, there will be bubbles and crashes, peaks and troughs–such is the nature of the system.
The problem is and never was lack of regulation–the banking industry is one of the most heavily regulated in the country. It comes down to who is doing the regulating.
When you see Dodd, Frank, Reid, Pelosi, and all the rest up there patting themselves on the back for passing yet more “reform” of the industry, ask yourselves who is the real problem here.