Kessler in WSJ: Watch out when interest rates rise. - Page 2 - TigerDroppings.com

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matthew25
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re: Kessler in WSJ: Watch out when interest rates rise.


When the rates go up, will the bond mutual funds also go up? (See end of second paragraph)





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Rantavious
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

Maybe our central bankers have figured out that low rates are what is holding back lending and hiring and growth.


Yes. My contention all along.

Watch the FFR. When it begins rising the economy will improve.

My thesis for quite some time.






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LSURussian
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

Watch the FFR. When it begins rising the economy will improve.



That's like saying 'Watch a thermometer. When it starts rising the temperature will start getting warmer."








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GFunk
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re: Kessler in WSJ: Watch out when interest rates rise.


Ruskie, I think what the real point of contention between you and Doc is a chicken/egg discussion. He thinks the increase of rates will lead to improved economic health. You think improvement will be what causes the rate to increase.


This post was edited on 3/1 at 8:36 pm


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Doc Fenton
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re: Kessler in WSJ: Watch out when interest rates rise.








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Doc Fenton
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

General Pershing drove into Tokyo Bay


Wait, what?

quote:

Instead of going at all of your post I'll just focus on this point, because this really is everything. Japan wouldn't have attacked the US in WW2 if we didn't cut their oil lines, Japan wouldn't have had to pick between the Arab world and the western world in '73 if they had oil, and Japan wouldn't have had to latch itself onto the western world for exports if they had oil.

If you have natural resources your options are more broad because you can sustain your country, if you don't you don't and you have to find different ways to stimulate exports simply to buy natural resources. The availability of domestic resources has driven every move by Japan ever since Commodore Perry steamed into Tokyo Bay in 1853, and saying the differences in the availability of natural reasources isn't a big difference is just flat out not correct. That's like saying availability of warm water ports isn't a big difference between the US and Russia.


You're really into Pacific Rim economic stuff, aren't you? Okay, that's a nice economic history lesson (which I always genuinely appreciate), but how does this affect the recent monetary situations that the U.S. & Japan haven encountered with ZIRP?

Everything you mentioned is important from either a political or an economic perspective, and even from a monetary perspective, but I don't see how it relates in a strong way to the peculiar monetary situations with respect to ZIRP.

Let's go over what the lack of domestic resources implies:

#1. Japan's lack of oil factors heavily into its foreign policy decisions, such as its aggressive push for colonial resources in the 1930s, and its positioning itself under the umbrella of American foreign policy since WWII.

#2. Japan has to import its oil, and transportation of oil costs money, so therefore energy costs more in Japan relative to other places, and thus the Japanese tend to place a much greater emphasis on cost-cutting efficiency.

#3. This also tends to lead to having a strong focus on keeping the yen strong, such that energy imports don't spike, even as manufacturing exports struggle to make enough efficiency gains to price products cheaply enough in other countries.

But that still leaves unexplained the whole ZIRP phenomenon. For example:

#4. Is this not evidence of what I've been saying all along--i.e., that ZIRP is not stimulative enough? The BOJ's discount rate was at 9% in 1980 and at 6% as late as 1992 ( LINK), but it has always been below 1% ever since the end of 1995. This caused a brief swoon in the yen during the American equities bubble buildup from 1995-1998, but it did not reverse the general trend of yen appreciation going back to 1990 ( LINK) ... or even back to the end of Bretton Woods in 1971 if you prefer ( LINK). What the Japanese ZIRP policy did do was to perpetuate zombie capitalism and fuel a cycle of enormously wasteful state-directed spending that seems politically entrenched over there to this day. The Japanese cannot summon the political will to escape their own trap, a trap that includes gross misallocation of resources on a staggering scale.

...






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Doc Fenton
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re: Kessler in WSJ: Watch out when interest rates rise.


...

#5. But--with the current ephemeral Shinzo Abe episode excepted--why can't they summon the political will? I would say it's mostly a combination of (A) the electorate's age demographics, and (B) the East Asian culture over there that stresses "relationship" banking rather than a more arms-length Anglo-Saxon approach.

With respect to (A), in some sense the Japanese electorate can be viewed as having rationally adopted a voting preference for economic suicide because what it really desires is strong purchasing power for the pension income of older persons. In other words, the old fogeys are just keeping the unsustainable game going for as long as they can, because whenever it finally hits with full force, they'll all be dead and their children will have to clean up the mess, which is just viewed as somebody else's problem. That's a crude and cynical way to put things of course, but isn't that effectively what Japan did, and what the U.S. appears to be choosing to do now? (See, for example, the recent comments of legendary hedge fund manager Stan Druckenmiller in Bloomberg: " Druckenmiller Sees Storm Worse Than ’08 as Seniors Steal.")

With respect to (B), this is what I have always viewed as the key difference between Japan and the U.S., citing it as the reason why I thought that what occurred in Japan with its two lost decades could never happen in America. The South Koreans have their chaebol system of business conglomerates, and the Japanese have their keiretsu system of business conglomerates. (See also Italy's spaghetti-like system of banking cross-ownership relationships, but I really wouldn't even know how to begin to describe all that.) Effectively, what the Japanese have is a system of managed capitalism, which was once lauded as a bold "Third Way" between the clashing rocks of ideological socialism and free market capitalism, but which is now widely seen as the authoritarian crony capitalist dead end that it really is.

Now it may very well be that such state-managed capitalist models are optimal for certain stages and periods of economic development, but as far as being the optimal system for managing an advanced economy, it is woefully inadequate and dangerously unstable.

The main problem is the phenomenon known as zombie capitalism, when banks are politically directed to lend to zombie industrial corporations, such that new loans are provided at absurdly cheap rates in order to create an accounting trick by which older loans do not go into default. The cycle seems like it can continue almost indefinitely, but at some point the game has to end--both for Japan and China by the way, which will soon face its own economic reckoning.

In the U.S. with TARP, we faced something where we temporarily had zombie banks, but that's a whole lot better than having zombie corporations to which those banks are lending, as was the case with Japan, and is the case with China today (which is part of the reason why I love those guys at Muddy Waters LLC so damn much).

So don't get me wrong here--I'm not saying that the U.S. will ever get as bad as Japan, either demographically or economically, but hot damn, if America isn't falling straight into the same ZIRP trap that Japan fell into. It won't be as bad as Japan because the U.S. has a much more arms-length financial system, but make no mistake about it, the U.S. has moved a huge distance toward the Japanese model over the past several years.

... and finally, there is...

#6. Why would Japan pursuing a strong yen + ZIRP policy be any different than the U.S. pursuing a strong dollar + ZIRP policy? I mean, the dynamics for why this is occurring may be somewhat different in the two cases--with the yen being supported a good bit by the carry trade (as I posted here) while the dollar is being supported a good bit by the international "fear" trade and continuing global economic recession--but in terms of the peculiar monetary situation we are witnessing, the end result looks pretty damn similar, does it not?

Both produce low inflation. Both load up more state debt, going ever higher toward historically dangerous levels. Both seek to keep an unsustainable economic structure going for a few more decades for the sake of propping up politically important entitlements for aging demographics. Both result in the typically symptomatic poor growth performance that comes with the moral and systemic economic rot that defines state-managed capitalism. What's the difference then?

The way I see it, the primary differences are the culturally ingrained economic business and lending practices, along with the resulting legal structure that goes with that, and the differences in population growth and openness to free trade and immigration.

Lack of natural resources no doubt affects the situation, but in terms of relative importance, I just don't see it as being very high on the list in terms of explaining what differentiates Japanese ZIRP from American ZIRP.






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Janky
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

When the rates go up, will the bond mutual funds also go up? (See end of second paragraph)


Actually, they will go down. Unless it is bank loan/rising rate funds.






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Doc Fenton
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re: Kessler in WSJ: Watch out when interest rates rise.


P.S. -- I remember looking for the oldest merchant bank in Japan for a TD thread once, and not being able to find it. I just found it under the Mitsui keiretsu, which during the Edo/Tokugawa Period (1603 - 1868) established a money exchange in 1683, even though a formally private banking company was not officially formed until 1876.

P.P.S. -- The Dutch arrived in Japan and introduced firearms in 1543, and Francis Xavier was a Jesuit missionary there from 1547 to 1551, but after Portuguese-influenced Catholic Japanese peasants participated in the Shimabara Rebellion of 1637-1638 (which ended at the Dutch-aided siege of Hara Castle), Christianity was persecuted, resulting in Japan expelling Portuguese traders (but not their pasta!), becoming more insular, and having virtually no Christian influence on its culture from about the 1650s to the 1850s.

From pp. 30-32 of Francois Gipouloux's 2011 book, " Gateways to Globalization: Asia's International Trading and Finance Centers":

quote:

During the Edo period, Osaka was the main economic center of Japan. The fundamental economic structure of the Tokugawa government was organized on the rice standard, a taxation system based on the rice productivity of an area. Under this system, all tax income from farmers was paid in actual rice. Consequently, the Tokugawa government and Han (local governments of a feudal clan) established official rice warehouses to cash their rice-based tax income in Osaka. From the middle of the 16th century, Osaka developed into a huge commercial hub in Japan, and consequently, major north or south bound trading ships called at Osaka from all over the country. As a result of this economic infrastructure, the rice exchange system came into being and boosted the commodity and financial business in Osaka. The Tokugawa government and Han had to repatriate the funds or necessary commodities to Edo or their local territory, and then exchange houses came into existence, especially in Osaka and Edo.

... Therefore, the major financial purveyors to the Tokugawa government (termed the "Ten Majors", or "Jyunin-Ryogae") were mainly Osaka merchants. They diversified their businesses from rice trading into finance, and were appointed to the position of the "Ten Majors" by the Osaka City Magistrate. With this authorization, the "Ten Majors" established a guild ("Kabu-Nakama") and handled government related remittances, lending, money market quotations and so on. Edo became a major economic center in eastern Japan, but until the Meiji period it has only a passive role secondary to Osaka.

After the Meiji restoration in 1868, Edo was renamed "Tokyo" and become the only capital city of Japan. Under the new government and new economic framework, Japan modernized its domestic financial system. The new government introduced a modern currency system (the "New Currency Ordinance" of 1871), a modern banking system (the "National Banking Ordinance" of 1872), land tax reform (1873), a stock exchange (the Tokyo Stock Exchange and the Osaka Stock Exchange were established in 1878) and a central bank (the Bank of Japan was established in 1882 and monopolized the issue of banknotes).

These reforms encouraged the formation of modern banks in Tokyo because the close relationship with central government was an important factor to running a large-scale financial business under the nation-state system. ... Mitsui diversified their business under the name of "Echigoya" (Echigoya was the biggest dealer in kimono fabric in Edo) from the Edo period and they had already opened a financial division ("Echigoya-Mitsui Exchange House") in 1683. This exchange house handled official funds from the Tokugawa government and the new Meiji government, and issued the first yen currency note in 1871. ...


Hmmm, Mitsui Hachirobe-Takatoshi's 17th century financial business seems not to have been as sophisticated as I had remembered.



EDIT: See also this brief description of " The Enterprising Spirit of Mitsui Hachirobe-Takatoshi."



This post was edited on 3/2 at 7:51 am


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JPLSU1981
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

He thinks the increase of rates will lead to improved economic health. You think improvement will be what causes the rate to increase.



I'm no economist, but I'm pretty sure it's inherent that the latter is correct. Raising the FFR is not typically a tool used to inject life into the economy, unless it is opposite day.



This post was edited on 3/3 at 11:48 am


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Doc Fenton
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re: Kessler in WSJ: Watch out when interest rates rise.


Well we're in ZIRP now, so welcome to opposite day, every day, for years.





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BennyAndTheInkJets
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re: Kessler in WSJ: Watch out when interest rates rise.


Bumping for a response later today. Was too busy this weekend to give the time needed for a response.
quote:

Commodore Perry steamed

Ah shit, good catch.






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BennyAndTheInkJets
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re: Kessler in WSJ: Watch out when interest rates rise.


Sorry it took so long to respond, Fenton. I actually forgot about this thread till we had a speaker come talk about the Japanese current situation.

So here is why natural resources are so important to the current ZIRP world for Japan. From where does ZIRP start, a huge market shock and subsequent low growth. ZIRP was created, as you have stated before and I agree with to a point, an ICU for an economy. It's supposed to help spur investment, lower the stress on consumer balance sheet, and weaken the currency to boost exports.

Now here is why we are so different than Japan when it comes to natural resources and in turn ZIRP. This is a constant, countries' must have energy to grow. We've both agreed that Japan HAS to export to grow, it's just how it is. The ugly dichotomy they have to deal with is a weak yen makes oil more expensive but boosts growth while a strong yen makes oil less expensive but strangles growth. The first side of that, although strenuous, is sustainable while the latter is not. So the end result is that since countries' MUST have energy and they HAVE to export, it kind of falls in place their path. ZIRP for Japan is just all the tools for weakening a currency put in one basket: Printing money and low interest rates to spur borrowing and not investing. Japan doesn't need foreign investors for JGB's, they have enough domestic demand it doesn't matter.

The US does not need to export to grow the same way Japan does, we can adjust interest rates and the dollar up and down depending on the current economic climate. Bernanke can (and is) slow the pedal on ZIRP, thankfully albeit cautiously, because a stronger dollar will not strangle the US like a strong yen would Japan. The reason the Japanese markets are doing so well is because this is the first time in two decades that they had a Prime Minister that pushed the conservative easing aside and said we WILL get to our inflation targets under any circumstance. Will it work, yet to be seen, but the logical premises I set in the earlier paragraph have been known by the market for a while so it's a huge relief that a Prime Minister has actually accepted it.

All your stuff on the Japanese economic system is really damn cool, thanks for that, but it is on the margin. The core issue what I said earlier that I will cliff note below.

Cliff Notes
Constant #1: Countries' need energy to grow.
Constant #2: Japan doesn't have domestic energy.
Constant #3: Japan must export to buy energy.
Constant #4: Japan must export to grow (goes with #3)

Dilemma: Strong or Weak Yen?
Solution #1: Strong Yen:
. Result: Cheap energy, low growth
Solution #2: Weak Yen:
. Result: Expensive energy, high growth

Solution #1 is unsustainable, you run out of money. Solution #2 is sustainable if growth outpaces inflation.

How do you weaken the yen?
- Print money
- Lower interest rates or keep them at 0
This is all ZIRP is.

The US does not have the same problem and we can grow a lot of different ways, our issues are not Japan's. Hence why the lack of natural resources are at the core of Japan's problems and why ZIRP will continue in Japan until new technology unhinges them from this unfortunate conclusion.






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Blakely Bimbo
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

In any case, if Chairman Bernanke is to be believed there won't be any significant rate increase until unemployment drops to 6.5%.


Russian that may come sooner than you think. I am of an age and most of my friends are retiring early because they cannot keep up the pace of the work load being thrust on salaried employees.

My son said that his company is hiring in droves because of older workers retiring. When you consider the numbers of people on disability being excluded from work force numbers, then we could reach 6.5% sooner than anyone expects. The number won't have anything to do with an economy firing on all cylinders, but more to demographics and workplace conditions.






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BennyAndTheInkJets
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

When you consider the numbers of people on disability being excluded from work force numbers, then we could reach 6.5% sooner than anyone expects.

You're ignoring the huge younger population that is not included in the labor force or is underemployed inflating the statistics, even the young to middle aged portion that are now marginally attached as discouraged workers. I seriously doubt we get to 6.5% before we hike rates, and honestly the Fed doesn't really care that much about the unemployment figure. They are much more concerned with it's composition, which is not pretty by historical standards but is more of what to expect going forward due to global convergence.

I'd actually feel pretty confident in saying we'll hike rates before that figure hits 6.5%.






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Doc Fenton
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

How do you weaken the yen?
- Print money
- Lower interest rates or keep them at 0
This is all ZIRP is.


And how much has the yen weakened since 1996?

Your argument is theoretically plausible for hypothetical Country X, but it has nothing to do with the facts regarding Japan.

If Japan has been pursuing ZIRP in order to weaken its currency for exports, then I think we can say without much hesitation that ZIRP failed miserably in this case, which is my whole point, but I'll state it again--ZIRP is insufficient to weaken the currency. To repeat, I am not arguing that ZIRP is bad because it's weakening the dollar. I am arguing that ZIRP is bad because of things totally unrelated to the value of the dollar, and that moreover, that it may not weaken the dollar quick enough to allow us to escape in time. (See Japan for Exhibit A of a country that can't seem to ween itself off the ZIRP drug habit.)

Admittedly, I'm thinking mainly of consumer prices rather than currency exchange rates, because I'm more focused on the U.S. than Japan, but the same general principle applies.

Besides, all the import and export stuff is just short-term Keynesian style manipulations that should have no long term effect. You get cheaper energy and expensive prices for your exports if you go strong currency, and you get expensive energy and cheaper prices for your exports if you go weak currency. In terms of real economic growth, it should all cancel out provided that volatility is disrupting supply chains.

That's why all the domestic legal-cultural stuff and domestic consumer price pressures are so much more important than all the export-import stuff ... even for Japan.

That's why I made the argument for why there are certain political constituencies in Japan, due to its terrible demographics, who are essentially lobbying for policies that keep the yen strong, even when this is killing the country.

You seem to be arguing the opposite--that somehow Japan stuck with ZIRP over the last two decades as a means for pursuing a weak yen policy. Regarding that hypothesis, I just don't think the facts bear that out.






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Doc Fenton
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

we could reach 6.5% sooner than anyone expects


Define "sooner than anyone expects."






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BennyAndTheInkJets
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

You seem to be arguing the opposite--that somehow Japan stuck with ZIRP over the last two decades as a means for pursuing a weak yen policy. Regarding that hypothesis, I just don't think the facts bear that out

Even though the name kind of insinuates that ZIRP only refers to interest rates, that is not the case at all. Japan has kept zero interest over this time but the printing mechanism has not been there, specifically for this reason you stated here:
quote:

That's why I made the argument for why there are certain political constituencies in Japan, due to its terrible demographics, who are essentially lobbying for policies that keep the yen strong, even when this is killing the country.

It's not that ZIRP hasn't worked for them, it's that they haven't done enough of the second portion, the stronger portion, of ZIRP that is so vitally important, print while interest rates are at zero. When you raise rates and print they will essentially cancel each other's effects out, certeris paribus. It's not that they haven't been doing ZIRP, they've just been doing a shitty job. Essentially they did the same thing we did in Afghanistan in the 80's, fricked up the end game. You can't have all these policies that stress lenders then stress borrowers as well from conservative printing policies, that's not having your cake and shitting on it too. If you're going in with the pre-existing conditions that Japan had, you better fricking go all in. That was at the heart of Bernanke's speech in '03 with his paper on Japan. I firmly believe he was right then with Japan and he's right now with the US. He was even asked in a press conference about how his '03 Japan paper kind of contradicted what he was doing today, which he answered "Our conditions are different that Japan's, and I'm also a little more sympathetic to central bankers than I was 7 years ago".

His allusions in that answer were to the fact of needing to spur exports in the first portion and (partially) the political influences over central bankers in the second, which you have alluded to. The main conclusion I have is that their domestic conditions forced them into this policy after their enormous assset bubble burst, and the uneffectiveness of it isn't because they went into the policy, they just did a really shitty job of going through with it. The beautiful part of it is here, now Shinzo has made it very clear they are reaching 2% inflation no matter what. We will see very quickly if they are doomed in ZIRP world no matter how aggressive their policy is.



This post was edited on 3/26 at 3:14 pm


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Doc Fenton
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

having your cake and shitting on it too




quote:

When you raise rates and print they will essentially cancel each other's effects out, certeris paribus.


This is just what I want. This is why I advocate "crazy" ideas like having the Treasury department cut taxes and make up the difference by having the federal government print money to itself.

quote:

We will see very quickly if they are doomed in ZIRP world no matter how aggressive their policy is.


Yeah, I suppose so.

I'm skeptical of the ability of the Fed to "print" very much (at least in a meaningful way that significantly affects consumer price levels) that doesn't rely on interest rate or reserve ratio policy. Sure, the Fed can buy a bunch of MBS, but that just seems to inflate assets without having much of an effect on CPI or employment.

I'd like to think Bernanke is on the ball here, but if he were really avoiding the Japanese trap by going "all in" and doing more printing, then shouldn't we have expected more inflation to have materialized by now? Just saying.

I mean, asset prices and employment figures had more or less bottomed in the winter of '09-'10, and yet here we are, three years later, with ever more ZIRP and printing, inflated asset prices, and yet no economic traction or CPI inflation. It's worrying.

I keep hoping that we see some consumer price inflation in the U.S. (hence the inflation watch thread), so we can get off ZIRP sooner rather than later. And you can blame this on fiscal and regulatory policy all you want, and you would be right to do so, but at some point the monetary policy starts to make it harder to exit bad fiscal policy, and starts becoming a source of economic deterioration in and of itself.

In fact, there's no doubt that this occurs; it's just a question of to what extent it occurs, and whether or not it's dominated by expansionary counter-effects. Then of course there's the additional issue raised by Mr. Kessler, that all of this current policy must necessarily come at a price that must in some way be paid further down the road.






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BennyAndTheInkJets
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re: Kessler in WSJ: Watch out when interest rates rise.


quote:

This is just what I want. This is why I advocate "crazy" ideas like having the Treasury department cut taxes and make up the difference by having the federal government print money to itself. I'd like to think Bernanke is on the ball here, but if he were really avoiding the Japanese trap by going "all in" and doing more printing, then shouldn't we have expected more inflation to have materialized by now? Just saying.
I mean, asset prices and employment figures had more or less bottomed in the winter of '09-'10, and yet here we are, three years later, with ever more ZIRP and printing, inflated asset prices, and yet no economic traction or CPI inflation. It's worrying.
I keep hoping that we see some consumer price inflation in the U.S. (hence the inflation watch thread), so we can get off ZIRP sooner rather than later

The Federal Reserve isn't the federal government, did you mean the Fed make up the difference? If so, I mean if we cut taxes we're already there.
quote:

I'm skeptical of the ability of the Fed to "print" very much (at least in a meaningful way that significantly affects consumer price levels) that doesn't rely on interest rate or reserve ratio policy. Sure, the Fed can buy a bunch of MBS, but that just seems to inflate assets without having much of an effect on CPI or employment.

I disagree that we haven't seen economic traction, we're in a better place than '09-'12. From a labor standpoint we haven't come back but I've stated many times that the unemployment issue is structural due to our current education system. In terms of CPI, you have to understand that almost all of the liquidity is in bank reserves and that the Fed can directly control all of it while it is still in the Fed system. Until banks lend you won't see price inflation, and banks won't lend until rates rise a little bit more.

I'll get more into that the next paragraph but there is one idea I'd like you to think of: What is the escape velocity for inflation. The Fed thinks about this as well as many managers, where is the sweet spot where rates are low enough to entice borrowers, high enough to entice lenders, and animal spirits are swinging up. At that point, money will enter the system and there is nothing the Fed can do at that point to point to directly control it, only indirectly through interest rates which is when the basic definition of ZIRP will end, even though remnants of ZIRP will remain in the system for likely the rest of our lives.

The process of ZIRP to spur borrowing/lending isn't just a one part process where you drop rates to zero and watch the lending happen. This is why I defended ZIRP in your thread because it's not just cut and dry 0 interest rates. If we hiked rates at these tight levels it would make '94 seem like a rosy day in the park for managers. I talk with commercial bankers pretty often and they all say that can't justify lending a 3-3.5% 30-year mortgage. The Fed knows this, which is why their communication has been more hawkish recently (another stint of Open Mouth Operations) which has worked in terms of raising rates. We will still be range bound with rates until the big player stops playing, but the big player can adjust the range. The Fed can do a lot of things to affect interest rates without changing the FFR.
quote:

And you can blame this on fiscal and regulatory policy all you want, and you would be right to do so, but at some point the monetary policy starts to make it harder to exit bad fiscal policy, and starts becoming a source of economic deterioration in and of itself. In fact, there's no doubt that this occurs; it's just a question of to what extent it occurs, and whether or not it's dominated by expansionary counter-effects. Then of course there's the additional issue raised by Mr. Kessler, that all of this current policy must necessarily come at a price that must in some way be paid further down the road.


Every policy has costs, there is no such thing as a silver bullet in a finite world where everyone wins. Just basic math, adjusting everything the same per their magnitude leaves you in the exact same situation. If we stayed in ZIRP/QE for another couple years then yes, it would deteriorate the economy a large amount. But we likely won't, the Fed will start tapering off their purchases early next year and possibly hike rates in an intermediate future past that as inflation will likely start picking up next year. I seriously doubt the Fed will ever sell any of the securities off their balance sheet, why would they? They can just let them roll off and mature over time, hence my remnants of ZIRP for our lifetime statement.

Thankfully we are in the position to have these options, while Japan does not.






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