Dr. Ed Yardeni eloquently delivers our Quote of the Day on inflation, jobs, and the Fed:

“The Fed is still your friend if you are invested in cyclical stocks , commodities, and foreign currencies. If you eat food and run your car on gasoline, the Fed will continue to hurt you. If you are looking for a job, you may be wondering why it is still so hard to find ond despite all the money the Fed has spent so far on QE2.0. If you are retired and living on interest from your CDs, then you are getting really squeezed between rising food and fuel prices and the Fed’s zero interest rate policy. In other words, the Fed seems to be doing everything to widen the gap between the Haves and Have Nots than to lower unemployment and boost economic growth, which remains “moderate” according to yesterday’s FOMC statement.”

Hat tip Doug Kass

Category: Economy, Employment, Federal Reserve, Inflation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Yardeni: Is the Fed Your Friend? It Depends . . .”

  1. mitchn says:

    We’re on the threshold of a huge retirement/pension crisis. If we don’t get the bulk of the 70 million boomers through retirement and into their graves, our corporate kleptocracy is gonna come unraveled. TPTB just following Siegel’s advice: Stocks for the long run, baby.

  2. AHodge says:

    yes
    and dont forget
    if you are a banker or buying a house, they are more than friendly, your but buddy

  3. KJ Foehr says:

    “In other words, the Fed seems to be doing everything to widen the gap between the Haves and Have Nots than to lower unemployment and boost economic growth,”

    Ed’s operative wiggle words here are “seems to be doing”. If he really believed what he was intimating he would have said “is doing”, but he can’t say “is”, because he knows that is not really true.

    Ed must realize this situation is beyond the Fed’s ability to improve at this point. The Fed has already done everything it can to lower unemployment and boost economic growth (short of continuing QE). But to make interesting copy, he uses inconclusive words to insinuate the Fed is at fault anyway.

    In a normal cyclical recession the Fed’s lowering of rates to zero would have resulted in several million new jobs by now. Ben himself, I believe, said recently that reducing unemployment is beyond the direct control of the Fed, and that fiscal policy was better suited to job creation than monetary policy.

    .
    Is the Fed friend or foe? That depends on your economic and life philosophy, imo. If you want to be “protected” from economic reality, then he is your friend. If you believe truth and consequences followed by a chance to rebuild anew is the medicine we need, then he is your foe.

  4. KJ Foehr:
    If you really think Bernanke gives a darn about the little guy I have some nice beachfront property I’d like to sell you.

  5. beaufou says:

    So, the FED just printed a ton of dough, gave it to rich people and the little guy will lose everything in stocks when the next crash comes along, what’s new?
    Oh yes, make sure the little guy is bled by rising food and oil prices before it happens.
    What a bunch of fucking irresponsible assholes.

  6. Lugnut says:

    “The Fed is still your friend if you are invested in cyclical stocks , commodities, and foreign currencies. If you eat food and run your car on gasoline, the Fed will continue to hurt you”

    This pretty much parrots my statement in the depression sentiment thread. If Wall St and equities help generate your income, your fairly happy, if not then the Fed is making sure the recession of 2008 is never far behind in your rearview mirror.

  7. seneca says:

    At the recent press conference Bernanke said the Fed will keep interest rates at zero “for an extended period.” He then defined “extended period” to mean for at least two FOMC meetings. So now the markets know there will be no surprise Fed rate hikes to defend the collapsing dollar or prick the growing stock market and commodities bubbles until at least Aug 9 (the date of the second FOMC meeting). By August 9 it will be obvious to everyone that the new Fed experiment with “transparency” will have proven itself another disastrous policy mistake.

  8. Lugnut says:

    More to KJ’s point:

    “In a normal cyclical recession the Fed’s lowering of rates to zero would have resulted in several million new jobs by now. ”

    That was never the intention of ZIRP, it was to allow the banks to recapitalize themselves on (nearly) free money, paid back via 2-3% Treasury repruchases, and avoid the unseemly notion of just writing them gigantic checks to bail them out. JMHO. Nobody likes a dead PD, least of all Congress who needs someone to pick up the slack to continue running ridiculous annual deficits.

    Sorry for the snarky cycnicism, I question the motives that are publically provided. I do agree the Fed, at this point, is at a lose-lose position, but they have a lot of their own prior policy decisions to thank in part for that. The Maestro probably still sees himself as a clever guy.

  9. KJ Foehr says:

    @Phil

    Whether he personally cares or not, I don’t know, but, yes, I suspect he actually does at some level. More importantly, regardless of his personal feeling, his “caring” is now mandated by Congress:

    Congress “directed the Fed “to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.” The last two goals are really one. In the pursuit of the first, which requires the Fed to attempt to manage short-term economic growth, the Fed has started printing $600 billion – this is the meaning of what is called, with calculated opacity, “quantitative easing.””
    http://www.washingtonpost.com/wp-dyn/content/article/2010/11/17/AR2010111705316.html

    .
    Is that property a short sale? If so, give me the address and I’ll take a look at it.

  10. Petey Wheatstraw says:

    “Is the Fed Your Friend? It Depends . . .”
    __________

    It depends on whether you’re a member of the corporatist cartel (cue, cognos and his lips to the market’s ass). All that is up is up on deceit and dishonest accounting and monetary policies. The Fed has chosen the winners and the losers (with the help of the corporatist-loving whores in all three branches of our government). The average citizen continues to be fleeced. The future continues to be leveraged. The great transfer of wealth to a small fraction of parasites continues.

    We would have been much better off by now had we enforced our laws with a vengeance, and if still needed, spent our newly-farted trillions of dollars on work programs for the middle class. Trickle up is better for the entire system than trickle down.

    Keep in mind that the haves are a small portion of the population, and the have-nots are increasing like stink bugs in the mid-Atlantic states.

    The end of this will not be based on policy, but on social upheaval.

  11. Petey Wheatstraw says:

    Maximum employment: Fail

    Stable prices: Fail

    Moderate interest rates: Fail

  12. KJ Foehr says:

    @ Lugnut,

    “More to KJ’s point:”
    “In a normal cyclical recession the Fed’s lowering of rates to zero would have resulted in several million new jobs by now. ”

    “That was never the intention of ZIRP, it was to allow the banks to recapitalize themselves on (nearly) free money, paid back via 2-3% Treasury repurchases, and avoid the unseemly notion of just writing them gigantic checks to bail them out.”

    Yes, but perhaps they had multiple intentions/goals. Perhaps they believed doing so would also accomplish the larger goal of boosting the economy and employment with it. That was my point: regardless of their intention(s), zirp, would have sent GDP into orbit and employment along with it in a normal cyclical recession such as 1991. I.e., in normal times the Fed DOES have significant ability to pump up employment. But we are so far down the drain now, so far from a normal economy, that all previous tools, plus the new ones he and others invented since 2008, can’t do it this time.

    There is only so much that easy money can do. There must be good places to go with that money (capital investments), if not it will only pump up some asset prices, but not effect employment significantly, imo.

    Supply-side economics is maxed out. We need to find a reset button.

  13. DeDude says:

    KJ Foehr;

    The question is could they possibly have been so stupid as to think that this was a normal cyclical recession and that the normal tools would have the normal effects just as if 2008 was 1991 all over again? Could you be full time employed to observe, study and understand the economy and yet not realize that this time the problem is a huge lack of spending money in the consumer class? Have they been so hypnotized by their constant staring at banks that they failed to understand how irrelevant the health of the banks are to the health of the economy (you can always just nationalize failed banks and put a new name sign on the building). At some point in time the more credible explanation becomes that they simply care less about their mandate than they care about their bankster friends.

  14. Raleighwood says:

    There will be no “social upheaval” as long as there is electricity for the TV and refrigerator.

    And thanks to the Patriot Act when the bread and circus no longer work there will be fear. If they can pat-down a six year old in the name of National Security they can do anything they want.

  15. franklin411 says:

    So Yardeni thinks that a global economic mega-depression will stimulate hiring? Huh?

    Well, I guess maybe. After all, the global economic mega-depression of early 1930s resulted in WWII, which slaughtered tens of millions of people around the world. Since those people were all dead, there were more jobs for the people who survived.

    Yardeni for the Nobel Prize in Economics!!!

  16. MayorQuimby says:

    Just save your money. Ben is trying to force people out of savings to get money flowing. You can respond by passing on the cost of living increase by switching to a prepaid phone plan, bringing lunch to work etc. Just pass the pain on.

    Make sure YOU are the first bill you pay every week/month.

  17. KJ Foehr says:

    @ DeDude

    “The question is could they possibly have been so stupid as to think that this was a normal cyclical recession and that the normal tools would have the normal effects just as if 2008 was 1991 all over again? Could you be full time employed to observe, study and understand the economy and yet not realize that this time the problem is a huge lack of spending money in the consumer class?”

    No, I don’t think they are stupid at all; I think they are smarter than most, including me, but I do not believe they are intentionally acting against the public’s interest.

    And I disagree that the problem is lack of spending money; I think it was/is too much debt, individually and in the business sector that has now been transferred to the public sector (government).

    I am not an economist or a financial professional. I am just expressing my opinion and trying to learn from other’s opinions as well. So I ask you and anyone else with thoughts on the matter, what other monetary tools do they have other than to lower interest rates, buy bonds and other securities, and make loans to banks?

    They are not a welfare program. They cannot give people money and they can’t create jobs, other than their own staff. I doubt they can loan money directly to individuals either. But they can make loans to banks so that those banks can then lend money to individuals. And they did buy MBSs to make a market for those securities when no one else wanted them. Does that not help people who want to buy houses and the economy indirectly as a result?

    “The Federal Reserve’s $1.25 trillion program to purchase agency mortgage-backed securities was intended to provide support to mortgage lending and housing markets and to foster improved conditions in financial markets more generally.”
    http://www.newyorkfed.org/markets/soma/sysopen_accholdings.html

    What else can they do? And if they are doing all they can, then how are they intentionally helping banksters and harming people?

    .
    “Have they been so hypnotized by their constant staring at banks that they failed to understand how irrelevant the health of the banks are to the health of the economy (you can always just nationalize failed banks and put a new name sign on the building). At some point in time the more credible explanation becomes that they simply care less about their mandate than they care about their bankster friends.”

    I think the health of banks is important to the health of the economy. That is why TBTF banks are considered TBTF; their failure would cause havoc in the economy.

    Nationalize them? I agree that would have been a better choice. But you realize the free-marketeers consider this socialism and would not stand for it, right? The country has been in no mood for that since Jimmy Carter lost to Ronald Reagan in 1980. Actually, I think it might have been possible until as recently as 2001. Even Reagan might have nationalized them, or let them fail instead of bailing them out, but that’s just my guess.

    So “bailouts” were their only choice. Failure was not an option, and nationalization would have been seen as a government takeover even greater than the Affordable Care Act; plus the top executives would probably have all lost their jobs in that process (as they should have, imo). So voila, they use the Fed to ply the banks with cash to keep them on their feet (Zombies).

    These people are not stupid, they know exactly what they are doing. And it is easy to assume they are doing it all just to help banksters, but I disagree. They did it to help the banks because they were TBTF and we needed them to prevent further damage to the economy and thus to people in general, and because the country has moved too far right to stomach nationalization (actually, now that I think about it, I don’t really believe that; they could have done nationalization, but the politicians lack the guts and independence to make the tough decisions anymore.)

    This is what I have been saying; they stepped in to stop the normal course of events to protect all of us (and themselves), banks, corporations, small business, and the public; and they are still doing it with ZIRP and QE. Rather than letting the patient die and a new one be reborn, they are keeping the frail economy on life-support, hoping that it will regain its former strength before the steroids run out.

    Whether that will happen or not, without paying the more painful price they have saved us from thus far, is the question.

  18. Lugnut says:

    “Yes, but perhaps they had multiple intentions/goals. Perhaps they believed doing so would also accomplish the larger goal of boosting the economy and employment with it.”

    They could help restore liquidity, but they couldn’t make them lend. What was coming in the back door isn’t going out the front. Money velocity has dropped again, and is trending down. Commecrical loan volumes haven’t accelerated.

    Instead of giving these guys a back door float to stuff into their pockets where it stayed, we would have much better served having the government seeting up the 1st National Bank of the United States, with the express purpose of being a cmpeting loan facility targeted to small and mid sized businesses. That is, if they are truly intending to create jobs. I believe that idea may have been floated by Barry here before, if I recall correctly.

    Commercial stock incorporated banks are only interested in maximizing return for shareholders, not revitalizing the economy. A co-opted Fed only serves its most connected constituents, and that ain’t us.

  19. KJ Foehr says:

    @Lugnut

    Please see my previous comment for more on the Fed.

    I think the National Bank idea may be a very good one — at least temporarily. It would meet very stiff resistance from free-marketeers though. (We need another serious recession soon to flush their ruinous philosophy from our midst, imo.)

    Do you have a link to money velocity dropping and trending down?

    TIA

  20. That is actually one of my strongest debating points when discussing central banks with people. The fact that the Fed hurts old people. The people most defenseless. The people that can’t go out and get a job because they are too weak. These are the folks that the banking cartel kicks in the teeth the hardest. It is deeply immoral and must earn a special room in hell

  21. Tarkus says:

    Something isn’t adding up to me (after a few drinks and a chat with the folks at the bar…)

    1) Raising taxes reduces your purchasing power – and our esteemed politicians on both sides of the isle say that is bad in a recession. Very very bad.
    2) QE and QE2 are spurring inflation (except in iPads – which are necessary to live). Like the highest gasoline prices now showing up in Florida.
    3) Inflation reduces your purchasing power too – so kind of like increasing a tax.

    So does that mean the Fed is trying to fulfill one of its mandates of maximizing employment – by levying a (effective) tax?

    All out politicians say that is bad. Very very bad.

  22. b.tom.darga says:

    KJ,

    “No, I don’t think they are stupid at all; I think they are smarter than most, including me, but I do not believe they are intentionally acting against the public’s interest.”

    I’m sorry but I see this as kind of a weasel-word statement.

    Suppose some person, P, takes some action, A, for the purpose of achieving objective, O, and in the full knowledge that it will very likely also produce effect, E (which, in fact, happens). We want to answer the question “Did Person P intended to cause effect E”? One perspective (#1) is that it is perfectly fair to say that P “intended” E if he knew that action A was very likely cause E even if his actual objective was O. Another (#2) is that P categorically did not “intend” to cause E because his objective was O and not E.

    Everyone professes the former the large majority of the time. I, at least, have NEVER met anyone who consistently applies the latter logic without regard to interest. In fact, it is almost always the case that you can predict whether someone will argue #1 or #2 based on whether they have a vested interest in concluding that P did not intend E. Yes, people who have an interest in condemning P will argue #1, but it is also the argument used by almost everyone when they don’t have any interest in either outcome.

    “I think the health of banks is important to the health of the economy. That is why TBTF banks are considered TBTF; their failure would cause havoc in the economy.” … “So “bailouts” were their only choice”

    1) It seems like you are, intentionally or not, obscuring the difference between the Banks and the Bankers. Lots of people accept that the Banks (the institutions) needed to be bailed out. What we REALLY object to is that the Bankers (the people) were also bailed out. See below.

    2) PLEASE square this with the recent Rolling Stone article describing how the Fed gave taxpayer money to lots of institutions that were simply NOT TBTF AT ALL but only seem to have one thing in common : they are owned/ran by bankers & their families & friends who profited enormously from the Fed’s actions.

  23. Tarkus says:

    Typos

    That should be “both sides of the aisle” and “All our politicians”.

  24. rip says:

    @Petey: You have a very good way with words and thinking.

    Thanks.

  25. MikeW says:

    Those are excellent points, and I am heartened to read them being expressed by someone with as substantial a reputation as Mr. Yardeni’s.

    Bernanke, the Fed, and the USG, for all their academic pretentions, are taking the easy-money, low-integrity path of debasing the currency that one more expects to see in third world countries.

    Monetary discipline has never been easy, but helps accounts for the great wealth built up over generations in those relatively few nations that have maintained it.

    Nations that can’t maintain that kind of discipline cover the globe, and we’ve apparently joined them.

    I’m not sure how well a Newsmax link will play here, but a Swiss banker recently expressed his view that our financial problems have a fundamentally moral basis, and I hope some of you may find it interesting :

    http://www.newsmax.com/deBorchgrave/GeorgeKarlweis-GeorgeSoros-BankofEngland-hyperinflation/2011/04/26/id/394111

  26. HEHEHE says:

    The damage Bernanke is doing to the elderly living on a fixed income in this country is criminal. I don’t know how the guy looks at himself in a mirror. He obviously is off in some Ivory Tower surrounded by sychophants.

  27. DeDude says:

    KJ Foehr;

    There are very few things left that the Fed can do except for stop shooting themselves in the foot (by hurting the consumer class). Maybe they could also use their power to regulate financial institutions to crack down on some of the worst consumer abuse from the banksters. By acting like a welfare program for the banks they hurting the consumer class and, therefore, the economy. Because the real economy cannot use more investment money, the excess money that the Fed is pushing into the system is being used for speculation in commodities. As a result prices on the products that the consumer class needs (food, gas) are pushed up and that hurt their ability to spend on other things. But the real meat and potatoes of saving the economy have to come from the legislative branch – and good luck with that.

    In the economy “lack of spending money” and “too much debt” are two sides of the same coin. The GDP (=size of the economy) is 70% consumer spending. When the consumer is loading up with debt to finance spending growth the country is actually “loaning” GDP growth from the future. That was probably the biggest failure of the Bush and Fed policies in the past decade. We produced GDP “growth” by borrowing it from the future (Barry had a chart some time ago showing the real GDP growth after subtracting mortgage debt and it turns out we had barely 1% GDP growth/year in the decade before the crash).

    I agree that we must have a healthy banking system but one of the reasons we do not have that is that we did not allow them to fail in the first place (wiping out their debt and recapitalizing them). Nationalization was the only way to get a healthy system reestablished, and I agree that it was politically difficult with the current crop of legislators. However, I did not see the Fed come out and say “the only way to get out of this crisis is to give us the temporary authority to take over banks that are insolvent and sell them off in pieces as needed”. If they had asked for that and been rejected then I could accept the idea of them doing the only thing politically doable. It would also have put specific names on the responsibility for the current mess.