The Federal Reserve Board’s decision to continue quantitative easing surprised investors, but I frankly never heard what they claimed to have understood the Fed to have said – that they would “taper” securities purchases under current economic conditions.
The mindset that the Fed would reduce QE took on a life of its own this summer as investors bailed out of the bond market.
They seem to think that the Fed is going to turn QE on and off like a light switch going from a bright 200-watt bulb to pitch black in an instant. At least that is the way the bond market reacted.
The uptick in mortgage rates quickly showed up in weaker housing data to display how vulnerable and inelastic the housing recovery is to rising interest rates.
The housing recovery is an inseparable component of an economic recovery. You are not going to sustain one without the other.
The Fed continues to pull back on its forecast for economic growth. The future impact of the federal sequester is being understated. That was not just a one-time event that is in the market. It will continue to sit on top of economic growth.
Consumers bought new cars, but pulled back on other spending. Corporate guidance going forward is more guarded. The velocity of money is not expanding. The dynamics of growth are just not there showing up in weak employment numbers.
The official unemployment rate is virtually an illusion when all of the caveats in the underlying supportive numbers are analyzed.
Twenty percent of young people under age 25 are unemployed. They are not all just sitting around not wanting to work opting to collect food stamps. It is a real tough job market out there to find a living income.
There are structural issues that are curtailing employment growth that QE can’t reach. Congress could help with fiscal policy, but is completely dysfunctional.
The ideologues are only gonna make it worse. This has been a superficial employment recovery. Congress is focused more on taking away, subtracting from the social safety net as it attempts to defund Obamacare and SNAP, than on job creation – private or public.
I have no idea who starts these things, but Sept. 19 was International Talk like a Pirate Day. The conservatives take the tack that, “The beatings will continue until morale improves” which fits in well with Pirate Day.
They seem to believe that adding chaos will help. That appears to be where House conservatives want to push the economy. They fully intend, with an 80 percent chance, that they will take their ideology over the edge along with the economy by refusing to fund the government over Obamacare and refusal to increase the debt ceiling.
The real economy was hurt the last time they shut the government down in 1995-96. They know that, and they don’t appear to care. I listened as one said “they would fund the government and increase the debt ceiling as long as their terms were met.”
Of course he claimed that this was not a hostage-taking situation, but it really is. They appear to be voluntarily lighting a fuse in the ship of state’s powder magazine and then walking the plank telling everyone that when it blows up it’s all gonna be the captain’s fault.
At least that is what Ben Bernanke appears to think. The expectation that the ideological impasse in Washington is going to blow up doing damage to the economy was most likely on the top of the list of reasons why this would have been a poor time for the Fed to have pulled back on monetary policy impacting the Fed’s decision.
It would have signaled monetary tightening just when Congress is going to do something really irresponsible and stupid. That could have compounded the negative impact to the economy.
The conservatives appear to be in some kind of contest as to how much damage they can do to the economy which, in their ideological perspective, is somehow supposed to save the country from itself.
They hate the Fed. Yet the Fed has enabled Congressional dysfunction by offsetting horrible fiscal policy with the power of QE. Conservatives know it and hate that, too.
They don’t want anyone saving this thing. They are invested long on gold and gold typically performs well during chaos.
I don’t understand their insatiable single-minded focused desire to tank the economy in order to prove that it is false and validate all they say is wrong with the world.
I think that it would be better to work on constructive fixes while the Fed is providing a window of accommodation in order to allow time to implement them.
Instead they are scuttling the ship.
I guess that I just don’t make a very good pirate.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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