Fed prediction: It's going to keep sucking for awhile

I'd take 8.1 percent right about now.

 

First, they can't predict the future. Those numbers are meaningless. Just as their numbers last year were meaningless when they were throwing out rosy recovery scenarios.

Second, if they expect unemployment to stay that high, what was the purpose of 1) dropping rates to zero and keeping them there, and 2) two rounds of quantitative easing that were each sold as a prescription for reviving the economy and helping with unemployment? Were those minutes an admission of failure -- an admission that their "monetary policy" doesn't do jack squat (except possibly cause future negative consequences)?

Third, with the effect of them devaluing the dollar to such an extreme, forget the fact that unemployment is likely to remain high for a lengthy period of time. What about the inflation the Fed is undoubtedly precipitating?

High unemployment (which they are predicting) + inflation (which they are ignoring, but doing everything they can to cause) = stagflation. The Fed has done everything it can to stoke inflation. It's maneuvering has had zero effect on economic growth (and unemployment), even as it has created a potential disaster. So by extension, the minutes of that meeting are a de facto admission by the Fed that if we see stagflation -- something you'd have to put at greater than 50/50 odds -- the Fed will have played a large part in causing it. They did politically-motivated/panicked easing to an extreme that has had no effect on economic growth. Now let's see what will be the consequences in terms of a weak dollar and inflation (in addition to high unemployment), and how they will avoid acknowledging their part in making the misery even worse.

 

I'm not disagreeing with you, but just asking ...

Nothing else so far has jump-started this thing in two-plus years. Would you just leave things alone and not do anything vs. trying to something/anything to kick-start things, which it appears the Fed is doing. Because what's been done the past two-plus years has done nothing to revive this thing, yet you are convinced this move will make things worse.

Again, I'm no expert. Just curious to your point of view.

 

My point of view is simple. They have two BS tools at their disposal: Fiscal policy and monetary policy. Neither work. Neither have worked.

I can give a long post explaining why, and I have a number of times on here.

But economies are cyclical. They are like giant ships. You can not do things using fiscal and monetary policy that sets the thing full throttle -- which is what we did for a long time -- and then think you can slam on the brakes and stop on a dime.

The result of the tinkering of Central Banks is that they create much more dramatic economic cycles than we'd experience without their interference. They can keep monetary policy loose for a long time, as Alan Greenspan did, to benefit the politicians they are beholden to. There is eventually a price to pay, in the form of the asset bubbles it creates, and when the economy overheats and melts down, we experience big recessions.

We are in the mess we are in, in large part because of the Fed. Our response was nonsensical fiscal policy that had us wastefully spend trillions of dollars that was rushed through by politicians who fed fear into a public in order to get away with the kinds of pork barrel spending they normally can't pull off that easily. In terms of monetary policy, we are doubling down. Easy money helped create the mess we are in. Now the Fed has put trillions of dollars on its balance sheet by taking the troubled assets off the hands of banks that screwed up. At the same time, it has shit all over the dollar. In this environment, their reindeer games aren't powerful enough to have the effect they have when things are more stable. They are spitting into the wind.

So to answer your question, NOTHING would leave us much better off than the politically-motivated floundering they subject us to, which creates big messes for us. Centralized banks work to our detriment, not to our benefit.

History proves this. RECENT history proves it. What has all the easing accomplished? How much of an inflation threat are we now facing due to their "policies"? What is the likelihood it is actually stagflation, meaning they had zero effect on economic growth, but through their actions, also added an inflation problem to the mix? Whether that happens or not, their "policies" have certainly been a formula for it -- using their own methodology.

 

Is "Big Business" some monolithic entity we should all be familiar with?

A weak dollar does lots of things that effect businesses. It discourages foreign investment in the U.S., which drives up the yields on treasuries, which could have an impact on the cost of money for businesses. That probably won't be a problem, to be honest, because businesses are sitting on piles of cash right now, but even that cash is worth less than it was a year ago thanks to our monetary policy.

A weak dollar does mean that it drives up the price of things produced overseas, but given that there are tons of things produced overseas that we don't produce cheaply in the U.S., it could lead to a larger trade deficit -- which in turn could further weaken the dollar and create a spiraling drain downward. Expect to see some of that effect.

And most importantly, that monolith you imagine exists doesn't operate in a U.S. vacuum. We live in a very global world. U.S. companies buy raw materials and parts overseas, to a great degree, and that means that they are seeing their costs rise in dollar terms. Commodities have gotten expensive and businesses are already feeling it. That means they will have to raise prices for their products (one reason why a weak dollar causes inflation). If the economy remains weak, that will cut into profits. People will do without, when they don't have the money to buy those products.

"Big Business" may be stupid at times. But the people running those businesses can read a P&L statement and know when they are getting hurt, not helped.