The FOMC again has moved to cheapen the cost of money still waiting and hoping for a different result. If only the cost of money was the impediment to growth. They announced its intent “to purchase, by the end of June 2012, $400b of Treasury securities with remaining maturities of 6 yrs to 30 yrs and to sell an equal amount of Treasury securities with remaining maturities of 3 yrs or less. This program should put downward pressure on longer term interest rates and help make broader financial conditions more accommodative.” They will also continue its reinvestment of MBS principal payments. On the economy they said growth “remains slow” using similar wording as they did in Aug and added “there are significant downside risks to the economic outlook, including strains in global financial markets.” They also remain sanguine on inflation as they always seem to be. Again, Fisher, Kocherlakota and Plosser did not support additional policy accommodation at this time. Bottom line, the FOMC gave the market exactly what was expected still believing in their monetary powers to cure the economic ills that ail us. When you misdiagnose the disease (hangover from too much borrowing/debt) however, you give the wrong treatment (to induce more borrowing/debt) and the Fed continues to perpetuate this and they wonder why the medicine doesn’t work. Refinancing is great but that doesn’t extinguish debt, it just alters its terms. We need to eliminate debt and encourage savings.

Category: MacroNotes

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.

10 Responses to “Fed still hoping for a different result”

  1. ByteMe says:

    We need to eliminate debt and encourage savings.

    No, we need to stimulate demand, so that producers start hiring to fill that demand. Unfortunately, increased savings is inversely related to increased demand.

  2. HarleyHoward says:

    Once again the political entrenched elites are trying to bail out the financial entrenched elites, and both are putting us further down the rabbit hole! If we don’t vote them out, they will destroy our country trying to protect their wealth obtained at our expense. Common Sense from the Heartland – http://howardwemple.com

  3. HarleyHoward says:

    And, add that $400 Billion to the deficit/debt! Thanks Bernie. Where to you plan to go after the collapse?

  4. HarleyHoward says:

    Where do you plan to go?

  5. franklin411 says:

    Agreed with Byte. Boockvar has completely jumped the shark with this one:

    “We need to eliminate debt and encourage savings.”

    Boockvar, the savings rate is at an historical high…so why is growth at an historical low? And what good is savings? The idea behind a high savings rate is that people put their money in the bank, which then lends it out to the business community to produce more goods.

    But we know that businesses are earning record profits, and we know that business isn’t investing because there are no customers for its products.

    What’s it gonna take for people like Boockvar to put down the wingnut, supply-side goblet and realize “hey, this stuff is poison!”

  6. Greg0658 says:

    F411 (others) .. American people are not over Saved .. they are over invested in corporations and hense the corporations are in the money .. corps don’t need to borrow – we give them their M&A & expansion cash on their terms … and they get better rates on their money loaning us credit card cash to buy their stuff in this round’n’round … you “jumped the shark”

    if we we’re over saved it was in McMansions and now with a job crisis .. the infrastructure must go on .. so taxes will take their toll .. hense:
    “EDAR (Everyone Deserves A Roof) is a 501(c)(3) nonprofit organization that provides unique mobile shelters to homeless men, women and children” .. is the wave of the future (in warm climates) for up and coming educated fluid financial professionals
    http://www.edar.org/

  7. wally says:

    “…still believing in their monetary powers to cure the economic ills that ail us.”

    I don’t think that is a true statement. I believe Bernanke has pointed out that fiscal action by Congress is needed.

    Demand, when it returns, will cure all those doomsday concerns that are so in vogue today.

  8. MayorQuimby says:

    Franklin et al- The savings rate is up but nowhere near an all-time high.

    Secondly, it has only been up for a couple of years. It needs to stay up in perpetuity.

    Thirdly, what good is saving money when the Fed is actively trying to destroy it?

    When the author states that savings is needed he means, encouraged, supported and favored – over the long haul.

  9. farfetched says:

    The Mayor is right.
    If the Fed were really trying to induce the elimination of debt and encourage savings, they would GET THE HELL OUT OF THE WAY and let the market set interest rates.
    Money seeks YIELD in relation to risk. Debt at higher rates encourages debt reduction.

    Clearly the Fed is still stealing from the people to bail out bankers.
    In doing so they are destroying the value of the currency, discouraging savings and impoverishing potential customers. By destroying the value of the dollar they are increasing inflation which in light of record low interest rates makes mortgages too risky and unprofitable for banks to entertain.

    Are these clowns really the financial elite? Either they are total frauds or they are retards.
    Sometimes it’s hard to tell one from the other.

    How many retired people and people with some capital would save (read recapitalize banks) and spend more if they could actually make a return on their savings? How many banks would loan money for real estate if they could count on inflation staying contained and loans were profitable?

    The Fed has a ego problem. They think they’re ‘all that’. They are not ‘all that’. The owners of capital are ‘all that’ and should have the right to determine their own risk/reward without some un-elected bunch of pencil pushing pea brains screwing the whole thing up. The Fed dissenters are only partially right.

  10. wally says:

    “The savings rate is up but nowhere near an all-time high.
    Secondly, it has only been up for a couple of years. It needs to stay up in perpetuity.”

    Nice to see you arguing for Social Security, Quimby, even though you probably don’t even comprehend why your statement supports it!