The View from 30,000 feet.
I’m writing this on an early morning flight so I thought the title and content were apt. Hence, it's written in a oxygen and sleep deprived state so take with grain of salt, per usual.
1. It seems your Fed bashing is somewhat misdirected. The Fed has ONE very blunt instrument, monetary easing or tightening, for the dual goals of inflation control and full employment. (nevermind that the neo-cons are making some fairly disingenuine arguments for handcuffing the Fed’s dual mandate while complaining about a jobless recovery. But logic has never been their strong suit.)
So then it is upto fiscal policy (gasp politicians!) to redistribute the monetized wealth. The right-wingers mantra of leaving the trickle down economy to work its capitalism magic is a pipe-dream. This jobless recovery and the credit bubble of 2008 have thoroughly discredited this classical theory. The bankers are padding their bonuses while the middle and lower classes are being left out. So given that laissez-faire has failed, why not try the New Keyensian approach; yes, tax the bankers’ bonuses and spend on infrastructure and education. It will more effectively redistribute wealth and stimulate consumer demand, rather than creating more financial/asset bubbles. What are the uber rich going to do: stop lending or creating new businesses? Yeah, we’re already there. What I find most galling about this is the way conservatives are always shooting down any possible solution while providing no new alternatives. In summary, the current situation is not a failure of Monetarism, but a failure in policy and it is upto Obama to fix that.
2. One thing I find intriguing about your preoccupation with inflation is that most bond vigilantes have a vested interest in scare mongering, jawing down the market. But you don’t really invest in bonds, which makes your obsession slightly puzzling. Understanding the dynamics between bond and stock markets are fine but drinking your own koolaid may lead to some poor investing decisions.
3. Last but not least, name calling is the last resort of a debate lost. And from my biased perspective, the right seems to do that a whole lot more than the socialists.
I’m 40+ and I’m still a bleeding heart liberal… sad.
posted by Junk Bonds @ 2/08/2011 09:18:00 PM
2 Comments:
My view from the armchair critic's point of view, is that inflation will be a problem. I do agree that their tool is a very blunt instrument but still very powerful. Capital flows can wreak havoc on smaller economies! Also with said blunt instruments, they sometimes gather enough momentum that controlling them is hard to do.
I also agree that policy failure to date has unnecessarily lengthened the recovery if you can call it that. Obama and congress haven't done enough given the fact that there was a crisis. I may have a hard money bias but you'll hear no qualms from me about taxing the uber rich or even the less uber rich if that is what is necessary to rebalance a skewed society. They should have nationalized the banks and taxed away their bonuses. Instead they continue to support zombie banks and give them access to nearly free money. (Hence our investment in RY)
The failures leading to the financial crisis of 2008 cannot be solely laid on socalled 'unbridled capitalism'. We've had a long Keynesian experience since WW2, and really the lack of regulation and enforcement led to the excesses of the latest credit bubble.
I know, I know, the bond market doesn't see inflation as a problem. Where would the bond market be without QE1 and QE2? I guess I really think I'm smarter than most of the bond market!:)
I think RY earnings will suprise as they're closer to the Fed's free money than non-primary dealers. The closer you are to free money, the wealthier you get. It's the new American way. So let's see where we're at afterwards.
Also I'm calling for the market to top this spring when worries about whether the Fed continues it's blunt instrument policies or not.
My take is that commodities will continue to outperform, with gold and oil leading the way. So I like how the club is positioned here.
Nationalize banks? Lack of regulation and enforcement? tax the rich and spread the wealth?
Do we have another socialist in our midst? :)
BTW, Keynesian policies have worked since FDR's New Deal and right up until the stagflation of the mid-70's. Wiki tells me, this was mainly due to the OPEC oil embargo creating a supply side shock. Today, there's a lot more alternatives to Arab oil so the prices are subject to less manipulation.
To point out the obvious, one of the components needed for "stag-flation" is INflation. And the long bond chart over 10yr, 20yr, 30yr all show no signs of it whatsoever.
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