Rajan: There are still hidden fractures that threaten the global economy. The United States papers over it with an extreme degree of stimulus which creates conditions for excessive consumption and investment. We are pressing too hard on the accelerator here. Just look at the interest rates: They remain at a very low level, which is quite unusual. We are witnessing a recovery, but it is a false,... [more]
Rajan: There are still hidden fractures that threaten the global economy. The United States papers over it with an extreme degree of stimulus which creates conditions for excessive consumption and investment. We are pressing too hard on the accelerator here. Just look at the interest rates: They remain at a very low level, which is quite unusual. We are witnessing a recovery, but it is a false, unstable recovery.
Rajan: Economists are still debating whether the Federal Reserve Bank was responsible for the slump in 1937 or whether it was the rise of wages, unionization and regulation. I do not propose any overnight increase in interest rates, and certainly not to a high number like 5 percent. That would be irresponsible. I just think that sustained low interest rates are dangerous. They encourage the people to run up debt and to invest in risky assets. We are moving from crisis to crisis.
Rajan: People are focused too much on the benefits of low interest rates without considering the costs. The economy is drifting from bubble to bubble. We already made this mistake once, after 2002. There is the danger that we will repeat this mistake.
Rajan: Politicians gave poorer people access to loans for houses, as a way to make them forget about their stagnant incomes. They supported the acquisition of real estate with the help of Fannie Mae and Freddie Mac. That was a lot easier and faster to achieve than providing the people with education and giving them opportunities for advancement. People got easy access to credit, the house prices were rising, it created a sense of wealth, they borrowed more money and they used it for consumption. And therefore they paid less attention to the fact that their incomes did not rise.
Rajan: The USA is living beyond its means -- it consumes too much. The Chinese, German and Japanese economies, for their part, are too export-oriented. This is all unsustainable.
http://www.spiegel.de/international/business/0,1518,722520,00.html[less]
Consider these two data points: First, an American retiree named Dianna who has seen her retirement savings rendered worthless by the ill-considered policy actions of the Federal Open Market Committee. Second, the action of the gold market, which is likewise suggesting that fiat paper dollars have no value. If you take the two observations together, it suggests to us that the Fed's actions are feeding global deflation and that the next leg down in the U.S. financial markets could be particularly severe -- especially if the Fed resumes printing more funny money.
While some analysts are calling for a mild devaluation of the dollar, what we see forming ahead could be something far more dramatic and potentially disruptive to the world economy, namely a protracted period of deflation driven by the subserviant position of the Fed vis-a-vis the largest banks. This new shrinkage will not only see gold moving higher but will also see the dollar collapse a la the FDR dollar devaluation of the early 1930s. This crisis is being caused by Fed zero interest rate and quantitative easing ("QE") policies.
As we have said before and we'll say again, the FOMC's zero rate policies imply that the dollar and all assets denominated in dollars have no value. Stocks, bonds and other financial assets depend upon income to make these obligations money good. Without a positive return, there is no reason to hold dollar assets. When President Abraham Lincoln introduced fiat paper dollars backed by nothing to finance the Civil War, these pieces of debt originally were convertible into Treasury notes that paid interest. But the need of a growing nation for a means of exchange rendered such devices irrelevant.
Today the situation is reversed. Non-commercial demand for dollars is collapsing in much of the global economy, in part because the Fed is transferring something like three quarters of a trillion dollars annually from individual and corporate savers to the Wall Street banks. And even this vast subsidy will be insufficient to prevent the ultimate restructuring of the top three U.S. banks. What will Fed Chairman Ben Bernanke and the other members of the FOMC say to Dianna and the millions of other Americans impoverished by their policy errors when we have to break up the top-three U.S. banks anyway?
People don’t usually spend their money buying things they don’t want or need, so for private transactions, this kind of inefficient spending is not much of a problem. But the same cannot always be said of the government. If the stimulus package takes the form of bridges to nowhere, a result could be economic expansion as measured by standard statistics but little increase in economic well-being.
------------------------------------------------
In the magazine article, Mr. Obama reflects on his presidency, admitting that he let himself look too much like “the same old tax-and-spend Democrat,” realized too late that “there’s no such thing as shovel-ready projects.”
You really don't stop, do you?
http://valueinvestingworld.blogspot.com/2010/10/raghuram-rajan-on-cnbc.html
Rajan basically says the Princeton Economists running things
are morons.
Ok my turn. I got a nasty speeding tkt once.
Ok, your turn riversider, tell me all that you have been wrong about in life.
nasty speeding ticket and nasty rash. Interesting.
http://streeteasy.com/nyc/talk/discussion/32152-I-got-a-bad-rash-down-there
Consider these two data points: First, an American retiree named Dianna who has seen her retirement savings rendered worthless by the ill-considered policy actions of the Federal Open Market Committee. Second, the action of the gold market, which is likewise suggesting that fiat paper dollars have no value. If you take the two observations together, it suggests to us that the Fed's actions are feeding global deflation and that the next leg down in the U.S. financial markets could be particularly severe -- especially if the Fed resumes printing more funny money.
While some analysts are calling for a mild devaluation of the dollar, what we see forming ahead could be something far more dramatic and potentially disruptive to the world economy, namely a protracted period of deflation driven by the subserviant position of the Fed vis-a-vis the largest banks. This new shrinkage will not only see gold moving higher but will also see the dollar collapse a la the FDR dollar devaluation of the early 1930s. This crisis is being caused by Fed zero interest rate and quantitative easing ("QE") policies.
As we have said before and we'll say again, the FOMC's zero rate policies imply that the dollar and all assets denominated in dollars have no value. Stocks, bonds and other financial assets depend upon income to make these obligations money good. Without a positive return, there is no reason to hold dollar assets. When President Abraham Lincoln introduced fiat paper dollars backed by nothing to finance the Civil War, these pieces of debt originally were convertible into Treasury notes that paid interest. But the need of a growing nation for a means of exchange rendered such devices irrelevant.
Today the situation is reversed. Non-commercial demand for dollars is collapsing in much of the global economy, in part because the Fed is transferring something like three quarters of a trillion dollars annually from individual and corporate savers to the Wall Street banks. And even this vast subsidy will be insufficient to prevent the ultimate restructuring of the top three U.S. banks. What will Fed Chairman Ben Bernanke and the other members of the FOMC say to Dianna and the millions of other Americans impoverished by their policy errors when we have to break up the top-three U.S. banks anyway?
http://us1.institutionalriskanalytics.com/pub/iramain.asp
People don’t usually spend their money buying things they don’t want or need, so for private transactions, this kind of inefficient spending is not much of a problem. But the same cannot always be said of the government. If the stimulus package takes the form of bridges to nowhere, a result could be economic expansion as measured by standard statistics but little increase in economic well-being.
------------------------------------------------
In the magazine article, Mr. Obama reflects on his presidency, admitting that he let himself look too much like “the same old tax-and-spend Democrat,” realized too late that “there’s no such thing as shovel-ready projects.”
http://gregmankiw.blogspot.com/