US's economy has fully recovered?

The US real estate market is in recovery. Things are looking better.


http://www.nytimes.com/2012/07/08/b...-funds-are-helped-by-hints-of-a-recovery.html

http://www.cnbc.com/id/46398767/Real_Estate_Recovery_a_Tale_of_Good_Bad_and_Ugly

 

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Yes jobs picture is still getting worse. Agreed, jobs a being created now, but not enough to keep the "jobs deficit hole" from growing deeper each month. Certainly it is not get deeper as fast as it was at end of GWB´s 2nd term (His second recession had already started.) but with more potential workers joining the labor force and not able to find a job, this is something to be sad about, not happy. Also instead of high pay jobs in now closed US factories, many of the new jobs are "big mac" jobs or part time work.

I´d like to see some creditable reference giving any number less than 100,000 per month as adequate to keep even with the growing work force. If you have a reference, I bet, like you, they only consider the demographics and neglect a couple of more important effects.

Smallest number I have ever seen is 130,000. Demographics changes is only part of the story about changes in the work force. More important than the fact that fewer are turning 18 now than a few years ago is the fact many now have seen their house lose 30% of its value, their 401Ks etc do the nearly the same, so have not been able to retire when they planned - They must continue working many more years and are doing so, if not fired and forced to “bag groceries at the A&P”. (The old can´t get anything but a “big mac” job.) Have you noticed, as I did in my July 2012 visit to the US, how many old folks greet you as you enter a store or are manning the check out counters, etc.? Yes the average age of the worker is increasing rapidly along with the size of the potential work force, despite the slight demographic reduction in number of young entering the work force.

I.e. the work force is growing at least by 130,000 per month when you consider the large number of "not dropping out" as they can not afford too that normally would. Let me try to make what I am saying clear with some invented numbers in an example: Assume that a decade ago 130K new young people were just entering the work force but now only 120K are. This is easily off set by the disappointed baby boomer, say 14K of them, who must work 5 years more than normal as they can´t afford to retire as their house has lost 1/3 its value and more of their invested retirement funds have lost too PLUS about 35K of ~30 year old women who no longer can stay at home but must return to work force each month as husband lost his good job in the factory when it closed and now has only a big mac job with much less pay. A decade ago, only 15K of the "empty nest" ~30 year old women returned to the work force each month because they wanted to, were bored and feeling useless staying at home, not as now when 35K are going back to work for pay (20K must go back to make ends meet and 15K still want to feel productive, etc.).

Monthly work force growth was 10 years ago: 130K + 15K = 145,000
Monthly work force growth now is: 120K + 35K + 14K = 169,000

Now I don´t claim these are accurate numbers, which I made up just to illustrate the point that the demographic decrease in number of young people entering the work force each month is easily off set by the effect of bad economic times forcing years of delayed retirement and women who wanted to stay at home being forced back into the work force to keep mortgage paid, higher cost food on the table, now that hubby only has a big mac job.

Perhaps a reasonably accurate estimate of now big this "bad times" effect is on the work force size can be built on the fact the middle class´s purchasing power has dropped 7.2% in the last five years. So they need to earn (7.2/5)% more in nominal salary each YEAR. That ain´t easy as the typical big mac job available pays less than the factory job hubby had 5 years ago. I.e. For quite a few years, the deferred retirement plus women forced back into the work force will be, by its self, expanding the potential work force at about (7.2/5)% per YEAR or 0.12% per month. Now:

Thus potential work force (method 1) is: 154.6E6 / 0.635 = 243 million. (by Method 2) is 0.583 x 330 million population = 192 million
So lets call it a potential work force of 220 million. Then the potential monthly effect (increase in work force) by the "bad economy" is O.0012x 220E6 = 1.2E(-3) x 2.2E8 = 2.68E5 = 268,000. I think the actual increase is due to bad economy effect is only 10% (~27K per month added by the bad economy) as not all women will be returning and many who wanted to retire will and just accept lower living standards and retire when they planned. (or perhaps I have some gross error in this estimate of the bad economy effect?)

Any way my point is that demographic decrease in the number or young workers entering the work force is much less important than other considerations which are boosting the size of the work force.

I also note and agree that yes a less valuable dollar will help exports, but currently US buys from only China ~400billion and exports to China only 100billion each year (if memory is serving me correctly). The imports from China, with its increasing labor costs, will no doubt drop BUT the imports from Indonesia and Vietnam with their still very low labor cost will rise more and fully compensate for drop in Chinese imports. - Americans, with drop in purchasing power of more than 1% per year, must buy as cheaply as they can.

 

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There are plenty of other export markets for the USA besides China. China is a distant third in the list of US export destinations, behind Canada and Mexico.

Only if the US dollar does not decline with respect to those currencies. Otherwise, a weakened dollar is going to eat into the trade deficit.

It's the absolute level of per capita purchasing power - and exchange rate - that determines "how cheaply" a country "must buy," and not changes in such from year to year. And the USA is still the wealthiest major country in the world, with something like 5-6 times the per capita PPP income as China.

 

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From same source as graphs, this comment:

Billy T comment:I´ll just briefly note here that Brazil´s Minister of Finance, Mantega, who coined the term “currency war” and has started using it again during his recent week in Europe (London included). The last sentence above is mainly about the currency war effects. More on what Brazil is doing and planning to fight back against US´s perhaps unintended currency war in post I made in the “BRIC+ news” thread at: http://www.sciforums.com/showthread...amp-comments&p=2985625&viewfull=1#post2985625.

To quickly summarize what the graphs are showing, the quoted text, and Mantega (and I) are saying is that the US´s problem is not a lack of created money so making more of that via QE3 will do little if any good and in the next few years a great deal of harm, not only to the US economy, but even sooner to the global economy of others.

 

Beijing hints at bond attack on Japan

The Japanese Farmers in Tokyo are starting to regret selling some of their herd's productivity off to the Chinese Farmers. Which is interesting, for decades Japan has resisted selling off their unborn (it's an Asian thing... family I mean). But, after nearly a quarter century of Progressive Socialism the Social Democrats in Japan are getting desperate. Sadly most of the Japanese Cattle will be sold off to slaughter as poor ignorant dumb beasts of burden.

 

Delta got many new (and profitable) NYC to London slots in merger with Virgin:

Main reason unemployment rate drops with job creation less than work force growth, is workers too discouraged to look any longer are not counted as unemployed any more.

 

Well, no but relative to others is doing OK if the red curve below does not turn down. I.e. in Obama´s eight year we will get the lost jobs back.

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I hope I´m wrong, but I expect red curve to turn down sharply in about 1.5 years.

 

More Americans are sinking into a jobless abyss. Answer to thread´s question is still "NO" (but corporate profits are up, mainly from sales in Asia).
In table below, BLS is telling about the potential work force of nearly 90 million Americans, who are not working (not counted as in "workforce") for one reason or another (mainly by their choice, but not "by choice" for nearly 7 million Americans who would like to work, but economy has no job for them).

Main Point (by BLS´s own data) is that in 2011 true unemployed (but not the officially unemployed) Americans wanting a job totaled 6,437 million
and in 2012 that increased to 6.558 million (up 1.88%),
ENTIRELY DUE TO THE INCREASE IN THE LONG TERM JOBLESS POPULATION (i.e. those who gave up job looking more than a year ago)!
(Those who looked for work in last year, but not last 4 weeks and thus are not "officially jobless" did not increase from 2011 to 2012.)

US is growing an increasing population of long-term unemployed and food stamp needy etc. who if they had job skills are losing them.

Note also that more than 2.5 million are "underemployed" and want a full time job ("marginally attached" in table below / part time jobs, etc.).

Category…………….....….…|………...Total……| ………..…………………….…Age Groups ..…....…....……..…....|….…….…..…..….Sex…………....…..…..|
…………………………….........|… in Millions .….|…..….16 to 24…….|…..….25 to 54…......|….55 & more…...|….….. Men……...|……...Women…….|
………………………….....…....|....2011..…2012…|...2011……2012….|….2011……2012….|…..2011..…2012..|…2011..…2012...|...2011……2012….|
Total NOT in labor force..|..86,001..88,310 |..17,201..17,499….|..22,961…23,061..|.45,839..47,750..|..34,343..35,017..|.. 51,658..53,293..|
Do not want a job now. ..|..79,564…81,752..|..15,177..15,383 ..|..20107 ..20,248..|..44,280..46,120..|..31,298..31,989...|..48,266..49,763..|
Want a job 1 . . . . . . . . ...|…6,437…..6,558..|….2,023..…2,115..|….2,854….2,813….|....1,560....1,630..|….3,045….3,028..|….3,392.. .3,530..|
Did not search for work
in previous year. . . . . . . |.. 3,268 .. 3,390 ….…1,010 ..1,064 ……..1,303 ..1,328 ………….955 ..998 ………1,463 ..1,490 ..........1,804..1,900
Searched for work in
previous year, but not
in past 4 weeks 2. . . . . . .| . 3,169 ..3,168 ……1,014 ..1,052 …….1,551 ..1,484……….. 605.. 632 ………..1,582 ..1,537 ……..1,587.. 1,630
Not available to work now| . 597 …..651 ……..262 …..282 ………262 …..288 ……..…….73….82 ………….236 ….253 ………..361 …..399
Marginally attached 3 &
now available to work. |. . 2,573 ..2,516 ……….752 …..770 …….1,289 ..1,196 ………..532 ..550 …………1,346 ..1,285 …….1,227 …1,232
Discouraged over job
prospects 4. . . . . . . . .|. . . . . 989 ….909 ……….222 …..217……… 519….. 451 ……….248 ...241………….. 579 …..541 ………410 …..368
Reasons other than….
Discouragement: . . . .|. . . 1,584 ..1,608 ……….530 …..553 ………770 …..746 ……….284… 309 …………..767 ….743……… 817…… 864
…Family responsibilities.| . ....215…. 229 ………..30 …….33 ………139 …...147 ………..45 …..49 ……………48 …….61 ………166 ……168
…In school or training. |. . . . 323 ….339 ………245 ……257 ………75 ……..73 ………….4 ……9 …………..183 …..175 ,,,,,,,,,140 …….164
…Ill health or disability.|. . . . 169 ….168 ………..18 …….18 ……….93 ……..83 ………..58 ….66……………. 86 …….80……….. 83 ……..87
…Other5 . . . . . . . . . . . .|. . . . 877 ….871……… 238 ……245 ……..463 ……442 ………177 …185 …………..449 …..427 ………428 ……444
1 Includes some persons who are not asked if they want a job.
2 Persons who had a job in the prior 12 months must have searched since the end of that job.
3 Persons marginally attached to the labor forceare those who want a job, have searched for work during the prior 12 months, and were available to take a job during the
reference week, but had not looked for work in the past 4 weeks.
4 Discouraged workers are persons marginally attached to the labor force who did not actively look for work in the prior 4 weeks for reasons such as thinks no work available,
could not find work, lacks schooling or training, employer thinks too young or old, and other types of discrimination.
5 Includes those who did not actively look for work in the prior 4 weeks for such reasons as child-care and transportation problems, as well as a small number for which reason

For better format, see Bureau Labor Statistic original data at: http://www.bls.gov/cps/cpsaat35.pdf

 

Hogwash Billy T, Most Americans who want jobs have jobs. The unemployment rate is 7.9%. That means 92.1% of Americans who want employment have employment. That is contrary to your notion that, "More Americans are sinking into a jobless abyss.". Your so called "true unemployment rate" includes employed people.

 

Almost all above is wrong Joe:
(1) It is, as you know, ONLY 7.9% because 6.6 million have ceased to look for job for 28 days of more, and 3.4 million of them gave up more than a year ago so none of those 6.6 million not now working are counted as "unemployed" by the US´s "head in the sand" government.
Ignoring them does not make them not exist, not fill food stamp rolls or worse, turn to crime to eat.

Also counted among the "employed" are 2.5 million who do have part time jobs, but need and or want full-time jobs.
So the "Hogwash" is your statement that 92.1% of Americans that want employment have jobs.

(2) No, it does not! First point is it is not Billy T´s data:
(2A) It is the BLS saying that in 2012, 6.558 million wanted a job but could not find one. 3.390 million of that 6.558 million have been out of work for more than a year and stopped looking (They were wasting their money and time looking.) and 3.168 have been looking for a job less than a year but not in the last 28 days. 6.558 = 3.390 + 3.168.

(2B) It is the BLS saying that 3268 who wanted a job were out of work for more than a year in 2011, vs. 3390 who wanted a job but were out of work for more than a year in 2012. That is an increase of > 3.7%! - I.e. more Americans ARE "Sinking into the jobless abyss annually" - Why I said:
US is growing an increasing population of long-term unemployed and food stamp needy etc. who if they had job skills are losing them.

Both I and the BLS listed the 2.5 million as "under-employed;" Those who want full time job are listed as employed in your 92.1%. S & I are NOT including them in the 6.558 million who want jobs but have none and yet the government does not list them as "under-employed." Instead they are falsely included with the full-time employed to make that 92.1% employed number you quote.

A separate number for the "under-employed" should be given.

Only thing you got right is that yes, more than 50% of Americans who want jobs do have one - often not the job the went $40,000 or so dollars into educational debt to train for, but a job, and given how many have none, they feel lucky to have one.
If US does go into deep depression, as I expect, even that claim of yours may no longer be correct.

Read the BLS table of data in post 128 and get your facts straight!

 

Yeah, we have been down this road before. Contrary to your claim, the facts are the vast majority of people in the US are employed. The facts are that we are 92.1% of the people who want jobs have jobs. That is what the BLS data says in very clear and uncertain terms (1 minus the unemployment rate of 7.9% = 92.1% employment). It’s pretty straight forward basic math. The facts are unemployment in the US is down from over 10% a few years ago to 7.9% as of last month. Those are BLS numbers.

The “marginally attached” the part-time workers are not new. They are always there. And when you add them together with the unemployed you get a bigger number. That is not new, it is not unusual, and it is not rocket science, and it is certainly not a case for concern.

And it has been pointed out to you numerous times before the reason the US labor force is shrinking is because baby boomers like me are choosing to leave the workforce and do other things. That does not affect the unemployment rate as the unemployment rate is based on a survey… something called the household survey (unemployed/labor force and where the labor force equals the employed plus the unemployed).

 

Yes Joe, you can claim 92.1% of Americans who want a job are employed IF you ignore the 6.6 jobless* who, according to BLS want a job but have not looked for a job in last 28 days and include the more than 2.5 million who have only a part time jobs but want full time jobs and ignore the BLS´s fact that the long-term (more than a year) jobless, who want a job (according to BLS´s data) but don´t have one is now increasing at 3.7% annually. Again:

Ignoring these millions does not make them not exist, not add to the food stamp rolls or worse turn to crime to eat. By pretending they don´t exist, don´t need to eat, etc. You and the government have your heads in the sand as they do exist and are an increasing cost to the government as well as a non-productive part or even destructive part of US society. Problems don´t get better by ignoring them, especially when BLS data show they are growing worse by 3.7% annually!

Please don´t put words in my mouth. I never claimed: "Contrary to your claim, the facts are the vast majority** of people in the US are employed." That may come true if and when US is in deep depression - worse than the "great depression" of the 1930s. I & many others who don´t ignore facts the BLS admits are true, do think the true unemployment rate is more than 10% and rising.

* 3.4 million of those 6.6 million looked for job more than a full year and then gave up as it was a waste of time and money. -Society simply had no job for them. Machines dig ditches now and cut trees etc. Many lack the skills modern US requires. I put most of the blame for that on local funding of schools - poor neighborhood have terrible schools, broken window to look out of and rats to watch.

** Interesting to note that you have lowered your claim from 92.1% of Americans who want to work do have jobs. Is that because you now accept the BLS data stating that in 2012, 6.558 million wanted a job but could not find one?

 

I am not ignoring anyone or anything. There are always part-time workers who are seeking fulltime employment. Unemployment has been much worse. In the 80’s unemployment was double digit, and the nation survived. Inflation was in the double digits, and the nation survived. All this gloom and doom stuff is not rooted in fact or reason.

I don’t put words in your mouth. You do that well enough. The only threat of recession or another great depression are the Republicans in Congress. The continuation of Republican fiscal irresponsibility could easily drive the nation into a recession or another great depression. But it is not etched in stone. It is not because of past actions but future actions that they may take. Recession and depression are non inevitable.

You have no proof of any of your allegations that people are dropping out of the work force because they are frustrated. The notion doesn’t even make sense, as has been pointed out to you several times before. People get so frustrated with job seeking that they decide to forgo their unemployment checks and welfare checks for starvation and homelessness. Ah, yeah right. Additionally, I haven’t lowered anything. I rely on real data from credible sources.

 

The last round of unemployment numbers was officially explained, officially described, as indicating that many people formerly seeking work had stopped doing so.

That was the explanation for the fact that the number of new jobs filled had not been sufficient to deplete the ranks of the unemployed nearly as much as they had been depleted.

Recognize that the people leaving the official work force are not always, as you describe, giving up benefits and welfare and so forth - many people in the US have run out of unemployment benefits, do not qualify for welfare or receive it without looking for work, etc. Another large percentage have been running on casual employment, crime, etc, and can drop off the unemployment rolls without affecting their income (I was on unemployment for a while a couple of years ago, but seldom got any money because my casual work paid too much each week. When it got to be too much trouble to sign in, I dropped off the rolls without having found a job and without losing much income.). And yet another percentage have simply chosen or been forced to retire early on lower SS benefits, ride on their savings until they can do that, cut the corners of legitimacy to go on SS disability, etc.

Meanwhile, we have the verdict on the huge HSBC laundering operation - the Obama administration explicitly declining to prosecute because the bank was too big to safely "destabilize" - and the USB tax avoidance operations - likewise. So too big to fail - the central vulnerability of dependence on a few huge banks, who can therefore blow the economy to smithers for their own profit at taxpayer expense any time they want to - remains.

As does the collusion of investment and retail banking under the same roofs (the central problem of the Great Depression invited back by the revocation of Glass Steagall) and the continual failure to regulate the derivatives market or even the new high speed algorithm trading on Wall Street, and the market distortions from federal capital gains tax policy as well as the lowered income tax rates and various awkward deductions/loopholes.

So we are still in the middle of this mess - not only not recovered, but not getting any nearer recovery in some respects.

 

Oh, perhaps you would be so kind as to show where the official explanation says what you say it says? Below is the official announcement.

“Transmission of material in this release is embargoed USDL-13-0144
until 8:30 a.m. (EST) Friday, February 1, 2013

Technical information:
Household data: (202) 691-6378 * cpsinfo@bls.gov * www.bls.gov/cps
Establishment data: (202) 691-6555 * cesinfo@bls.gov * www.bls.gov/ces

Media contact: (202) 691-5902 * PressOffice@bls.gov


THE EMPLOYMENT SITUATION -- JANUARY 2013


Total nonfarm payroll employment increased by 157,000 in January, and the unemployment
rate was essentially unchanged at 7.9 percent, the U.S. Bureau of Labor Statistics
reported today. Retail trade, construction, health care, and wholesale trade added jobs
over the month.

Household Survey Data

The number of unemployed persons, at 12.3 million, was little changed in January. The
unemployment rate was 7.9 percent and has been at or near that level since September 2012.
(See table A-1.) (See the note and tables B and C for information about annual population
adjustments to the household survey estimates.)

Among the major worker groups, the unemployment rates for adult men (7.3 percent), adult
women (7.3 percent), teenagers (23.4 percent), whites (7.0 percent), blacks (13.8 percent),
and Hispanics (9.7 percent) showed little or no change in January. The jobless rate for
Asians was 6.5 percent (not seasonally adjusted), little changed from a year earlier.
(See tables A-1, A-2, and A-3.)

In January, the number of long-term unemployed (those jobless for 27 weeks or more) was
about unchanged at 4.7 million and accounted for 38.1 percent of the unemployed. (See
table A-12.)

Both the employment-population ratio (58.6 percent) and the civilian labor force
participation rate (63.6 percent) were unchanged in January. (See table A-1.)

The number of persons employed part time for economic reasons, at 8.0 million, changed
little in January. These individuals were working part time because their hours had been
cut back or because they were unable to find a full-time job. (See table A-8.)

In January, 2.4 million persons were marginally attached to the labor force, down by
366,000 from a year earlier. (The data are not seasonally adjusted.) These individuals
were not in the labor force, wanted and were available for work, and had looked for a
job sometime in the prior 12 months. They were not counted as unemployed because they had
not searched for work in the 4 weeks preceding the survey. (See table A-16.)

Among the marginally attached, there were 804,000 discouraged workers in January, a decline
of 255,000 from a year earlier. (The data are not seasonally adjusted.) Discouraged workers
are persons not currently looking for work because they believe no jobs are available for
them. The remaining 1.6 million persons marginally attached to the labor force in January
had not searched for work in the 4 weeks preceding the survey for reasons such as school
attendance or family responsibilities. (See table A-16.)”
http://www.bls.gov/news.release/empsit.nr0.htm

What you don’t understand is that if people want to be counted as unemployed, then they have to get off their duff and look for work. The notion that the unemployment rate is somehow understated because it doesn’t count people sitting on their duff not looking for work is ludicrous. If you are not looking for work and want work, you probably are not going to get it. If you are living off your savings because you don’t qualify for welfare and/or your unemployment benefits ran out and you don’t feel like looking for work anymore because you are so discouraged, well that is your choice. If you want work, it starts by looking for work. If you are looking for work and are unemployed, you get counted as unemployed. The vast majority of people who are unemployed receive government benefits like welfare and unemployment which require them to look for work and thus be counted as unemployed. And as for this notion that unemployed people are resorting to crime - Billy T and I have had this discussion before - there is just no evidence to support that notion. In fact, according to the FBI, crime is down. So this notion of a vast undercount of the unemployed because of “discouraged workers” is just nonsense.

The BLS does track “discouraged workers”, they are counted as marginally attached. In January the BLS reported 804k discouraged workers, down 22% from the previous month. Discouraged workers account for less than ½ of one percent of the labor force. That is not a huge number in relation to the labor force.

The issue with HSBC was money laundering which is illegal under existing law. Glass-Steagall would not have changed anything with respect to this incident. Although the Attorney General has decided not to criminally prosecute the bank at this time, the Attorney General’s Office has retained the right to do so if the bank does not change its operations. The bank will be flowed closely by the US government and if it does not change, the Attorney General’s Office has said they will pursue the criminal charges against the bank. In addition the bank is being fined and will pay the US government 1.9 billion dollars. That is hardly a slap on the wrist. One final point, Dodd-Frank has not been fully implemented. It takes time. There are no magic wands.


http://dealbook.nytimes.com/2012/12...1-9-billion-settlement-over-money-laundering/

 

From Peter Schiff, a perma-bear gold bug, who has some facts right in the following:

"The Fed is expected to buy nearly 90% of new Treasury bonds in 2013, according to Bloomberg. This is a tremendous subsidy that has kept 10-year Treasury yields below 1.95% on average this year so far. Last year, with 10-year yields averaging 1.8%, the Treasury spent $360 billion on interest payments alone. That represented nearly 10% of all expenditures.

Let's assume a Fed tightening causes these rates to triple - not unreasonable for a government facing over 100% debt-to-GDP. If these rates triple by 2015, and another $2 trillion or so is added to the debt, then interest would make up over 30% of annual federal expenditures. Just interest. Then, there are principal repayments, Medicare/Medicaid, Social Security, the Armed Forces, and all the other entitlements for which the Treasury is responsible. Is Washington going to default on our creditors, our seniors,* or our men and women in uniform?

I believe these assumptions are still rosy compared to what might actually happen if the Fed were to withdraw support. {Billy T insert: kill or drastically reduce QE-infinity´s 85 billion /month buying with thin-air money} As I outlined in my January Gold Letter, the US sovereign debt market is a house of cards in which the Fed, foreign creditors, and domestic investors each play a part. If the Fed were to signal that creditors might face haircuts, then the reaction could be swift to the downside. If rates went above 10%, as they have in Greece, then over half of the federal budget would be committed to interest payments alone. {Billy T insert: And government revenue would be fast falling in that environment as it is in Greece.}

But that's not all. Higher interest rates would cause the shaky housing market to take another nosedive. Few Americans are in a position to buy a $300K house at 10+% interest. Rather, prices would have to decline to levels affordable for cash buyers and those willing and able to take out high-interest mortgages. That might mean another 50% decline or more, in real terms. ..."

-------------------
*Not on our senors, at least not in nominal terms, as there are too many of them (and a growing percent of the voters), but the service men and women will mainly be coming home to add to the un-employment.

PS - Its not the "Ides of March" one needs to beware of this year - Its March 27.

 

Yes funds than can be removed by increasing bank reserve requirement but they are negligible compared to the thin-air money created even if Fed required 100% reserves - I.e. took all the funds the bank has and stopped all new lending by banks. Banks must pay their several insurances, their clerks, loan officers, electric bills and even the janitor who mops the floor, etc. Thus no bank can survive even only a 25% reserve requirement. The thin-air assets are huge compared to the circulating money, and that (due to the 10 fold multiplication factor) is large compared to the bank deposits and only doubling the current reserved requirement to 20% would kill the banks while doing essentially nothing to cancel the effects of the flood of printing press money that has already been created (and currently growing at 85 billion per month!).

Also to whom will the fed sell? In 2011 Fed was buyer of 61% of new treasury issue. In 2012 Fed bought ~81% of it and in 2013 will buy more than 91% of new treasury issue. People willing to pay face value for Treasury paper at current interest rates are now on the endangered species list! If Fed sells assets, it can only do so by taking a big loss, especially on the toxic trash mortgages where in most cases the loss would be more than 50% - about the same "hair cut" buyers of Greek bonds took.

Even Bernanke seems to now be admitting the Fed cannot do as Joe suggests: Sell assets to remove money (for a period, with ultimately a net increase of money printed to cover both maturity and interest costs).

Bernanke´s latest ideas is just to hold the bond assets until the mature as that avoids NOMINAL losses (but passage of time does reduce the value of funds paid at maturity) I.e. one way or another the Fed, like other recent buyers of bonds, will take deep hair cut - to the extent it resembles going bald!

 

Hogwash Billy T, where do you think the money the Fed created is sitting? Is it stuffed in mattresses or is it sitting in banks? Additionally, your notion that all the bank reserve cash is sitting in some vault and not earning anything is fiction. Banks have of two kinds of cash, vault cash which is used for operations and reserve deposits at the Fed. The Fed pays interest to the banks for reserve deposits at the Fed and the Fed loans that money to other banks in need of reserve cash. And the Fed charges interest for the cash it loans to banks. The rate charged to banks borrowing from the Fed is called the discount rate.

Frankly this is a silly question. The implication being that suddenly overnight the debt markets will disappear into quicksand, short of a Republican induced default (i.e. failure to raise debt ceiling) it is fiction. The Fed will sell securities as they always have into the debt markets. As long as Republicans in Congress don’t force The United States to default on its debt, there will always be a market for US debt.

Your rant on “toxic trash” has one big error; government including the Fed has sold off its so called toxic trash. And the “toxic trash” was only toxic because it was overpriced. The Fed doesn’t buy overpriced assets. This is a figment of your imagination. None of this is new Billy T. We have had this discussion many times before.

Additionally, you have no evidence that when the Fed decides to start selling assets they will be sold at a loss. It is all sheer speculation on your part. You don’t know the maturity of the bonds the Fed will sell and you don’t what the prevailing interest rates will be, therefore you cannot know the price the Fed will receive for the assets it sells when it decides to sell them.

And your numbers on Fed debt purchases are misleading, because the Fed Is committed to holding a certain level of US debt. Each month a certain percentage of the Fed’s debt portfolio matures. So the Fed purchases debt to replace maturing debt. So to say as you have done that all Fed purchases are new debt and accretive to existing debt is just wrong.

More hogwash Billy T.

 

NO & NO. And on first question, I have told many times that the deposits the Fed just tells some or all of its 12 "participating banks" to create in the Fed´s accounts are just like any other deposits given the bank. So the bank could lend the Fed´s thin-air money to borrowers but few banks are doing that as there is risk they may not get repaid and lending requirement are much stiffer to meet now.

Thus almost all of those deposits just buy 100% principle safe Treasury paper. As the Fed now buys about 90% of all new treasury issue now, I have in three or four posts called this the "great circle jerk." - It gives plesure to the participants, especially the particiapting banks collecting interest on treasury paper bought with the Fed´s money, but only growing debts for Joe American´s children to repay including that "bank enriching" interest. (New thin air funds goes from Fed to banks then to Treausry then back to Fed - I.e. the great circle jerk with banks collecting interest on each circle.)

I´ll skip to you final unsupported false statement calling my commments "hogwash". I.e. where I said the Fed was now thinking in terms of holding bonds to maturity, instead of the earlier plan to sell them as a means you have said would be used to remove money from the public. Fed Governer Powell, even noting as I did, that selling bonds would probably cause the Fed to take a loss.

I was correct as this just re-released and expanded in details quote from Bloomberg now shows:

If you just call well known facts you don´t like "hogwash" at least try to tell why that is a plausible, even if false, POV.

 

There was nothing new and nothing radical in the statements made by the Fed. What has changed is the economy is not growing as fast as the Fed has hoped, because Republicans in Congress continue to manufacture fiscal crises every few months. Two months ago it was the Fiscal Cliff, last month it was Sequester, this month it is the Continuing Resolution. A few months from now it will be the Debt Ceiling again. All of these Republican manufactured crises have had and will continue to have a negative effect on the economy. And the Fed keeps pushing back their exit strategy as a result. It makes horse sense. It is doesn’t mean the exit strategy won’t work.

The facts are inflation remains very modest. The facts are, economic growth remains modest. The facts are the Fed can expand the money supply and it can contract the money supply by methods that have been explained to you numerous times. The facts are that since Republicans gained control of the House, the Federal Reserve has had to do double duty in order to protect the economy from the irresponsible and harmful actions of Republicans in Congress. And to date, the Fed has done a pretty good job of it. And as long as we continue to have responsible and intelligent Fed governors there is no reason to expect that will change.

Billy T removed the 2nd copy of his post, here by accident I assume.