Three Years Behind The Curve Too Late Federal Open Market Committee (FOMC) Increases Target Federal Funds Rate to .75-1.0% — Financial Repression of Savers Slowly Continues — Videos

Posted on March 15, 2017. Filed under: American History, Articles, Banking, Blogroll, Books, Business, College, Communications, Congress, conservatives, Constitution, Corruption, Crisis, Documentary, Economics, Education, Employment, Faith, Family, Federal Government, Federal Government Budget, Fiscal Policy, Food, Foreign Policy, Freedom, government, government spending, history, History of Economic Thought, Language, liberty, Life, Links, Literacy, Macroeconomics, media, Monetary Policy, Money, Movies, Non-Fiction, People, Philosophy, Photos, Police, Politics, Radio, Rants, Raves, Raymond Thomas Pronk, Sociology, Speech, Strategy, Television, Trade Policiy, Tutorials, Video, Water, Wealth, Welfare, Wisdom, Work, Writing | Tags: , , , , , , , , , , , , , , , , , , , , , , , , |

Image result for value of us dollar since fed started

Image result for financial repression

Image result for financial repression

Image result for financial repressionImage result for near zero interest rate policy

Image result for near zero interest rate policy thorough 2017

Image result for near zero interest rate policy thorough 2017

Image result for near zero interest rate policy thorough 2017

Image result for near zero interest rate policy thorough 2017 fomc fed

Image result for near zero interest rate policy thorough 2017 fomc fed

Image result for near zero interest rate policy thorough 2017 fomc fed

Image result for near zero interest rate policy thorough february 2017 fomc fed

Image result for Core PCE inflation federal reserve

Image result for PCE federal reserve

 

Fed chair Janet Yellen announces interest rate hike

What the Fed’s interest rate hike means for the economy

Stocks rally on Fed rate hike

Fed Hikes Rates, Signals More Coming

Is the Federal Reserve behind the curve?

What The Fed Rate Hike Means For Consumers

We Are Dangerously Close to a Recession

MARC FABER World Economy Grinding to a Halt. Don’t Trade With Leverage

Marc Faber : Volatility will pick up ‘massively’ , 30.1.2017

Marc Faber Warns : The Market is on the verge of a meaningful correction

Trump, China & World War 3 – Jim Rogers

The Whole System is Riddled With Corruption – James Dale Davidson Interview

Keiser Report: Rise of the Machines (E1043)

Keiser Report: Bloodletting Among Retailers (E1044)

David Stockman Interview Trump to Face Imploding Economy in 2017

David A. Stockman’s TEARS APART Trump’s Economic Plan

The Coming Big Freeze – Jim Rickards – The Daily Reckoning – Road to Ruin

James Rickards 2017 The Fed is Tapped Out & End Result is Ice Nine for Gold

AMTV Truth Exposed Prepare For The Imminent Global Economic Collapse 2017 Stock MARKET CRA

Fed rate hike: Central bank signals faster pace in 2017

Milton Friedman – The Federal Reserve Caused Great Depression

Milton Friedman on the Great Depression, Bank Runs & the Federal Reserve

Milton Friedman – Abolish The Fed

Milton Friedman: The Future of Freedom

Milton Friedman – Why Economists Disagree

Milton Friedman – The role of government in a free society

Milton Friedman Interview with Dallas Fed President Richard W. Fisher

Ep. 228: Inflation Finally Rears Its Head

What happens when the Fed raises rates

How Interest Rates Affect the Market

When Interest Rates Rise: Winners and Losers

ECONOMIC COLLAPSE: Trump to Declare Bankruptcy on U.S.

What’s all the Yellen About? Monetary Policy and the Federal Reserve: Crash Course Economics #10

The Federal Reserve Explained in 3 Minutes

Quantitative Easing Explained

The Collapse of The American Dream Explained in Animation

Who Controls the Money Controls the World

The Story of Your Enslavement

Financial Balance

“The Bernanke” explains Financial Repression

Financial Repression

Carmen Reinhart: Financial Repression Requires A Captive Audience | McAlvany Commentary

50 YEAR OLD CARTOON PREDICTS THE FUTURE !!! NWO !!!

Yellen Calms Fears Fed’s Policy Trigger Finger Is Getting Itchy

March 15, 2017, 1:00 PM CDT March 15, 2017, 5:02 PM CDT
  • Policy makers still project three total rate hikes for 2017
  • FOMC sticks with ‘gradual’ plan for removing accommodation

Fed Raises Benchmark Lending Rate a Quarter Point

Federal Reserve Chair Janet Yellen sought to reassure investors that the central bank’s latest interest-rate increase wasn’t a paradigm shift to a trigger-happy policy driven by fears of faster inflation.

Speaking to reporters after the Fed’s quarter percentage-point move on Wednesday, Yellen said the central bank was willing to tolerate inflation temporarily overshootingits 2 percent goal and that it intended to keep its policy accommodative for “some time.”

“The simple message is the economy’s doing well. We have confidence in the robustness of the economy and its resilience to shocks,” she said.

As a result, the Fed is sticking with its policy of gradually raising interest rates, Yellen said. In their first forecasts in three months, Fed policy makers penciled in two more quarter-point rate increases this year and three in 2018, unchanged from their projections in December.

Today’s decision “does not represent a reassessment of the economic outlook or of the appropriate course for monetary policy,” the Fed chief said.

Speculation of a more aggressive Fed had mounted in recent days after a host of central bank officials, including Yellen herself, went out of their way to telegraph to financial markets that a rate hike was imminent. The expectations were further fueled by news of rising inflation.

Stocks Advance

Stocks rose and bond yields fell as investors viewed the statement from the Federal Open Market Committee and Yellen’s remarks afterward as a sign that the Fed isn’t in a hurry to remove monetary stimulus. The FOMC raised the target range for the federal funds rate to 0.75 percent to 1 percent, as expected, but Yellen’s lack of urgency to snuff out inflation was a surprise.

R.J. Gallo, a fixed-income investment manager at Federated Investors in Pittsburgh, said the chorus of Fed speakers before this meeting led investors to expect a move up in the number of projected rate hikes this year, and even upgrades by Fed officials in the levels of inflation and growth they anticipated.

None of that materialized.

“You didn’t get any of those things,” Gallo said, which explains why Treasury yields quickly dropped after the Fed released the FOMC statement and a new set of economic projections. “The expectation that Fed was getting more hawkish had to come out of the market.”

The U.S. economy has mostly met the central bank’s goals of full employment and stable prices, and may get further support if President Donald Trump delivers promised fiscal stimulus. Investor and business confidence has soared since Trump won the presidency in November, buoyed by his vows to cut taxes, lift infrastructure spending and ease regulations.

Still, the data don’t show an economy that’s heating up rapidly — a point Yellen herself made after the third rate hike since the 2007-2009 recession ended. In fact, the economy may have “more room to run,” she said.

Stronger business and consumer confidence hasn’t yet translated into increased investment and spending, said Yellen.

“It’s uncertain just how much sentiment actually impacts spending decisions, and I wouldn’t say at this point that I have seen hard evidence of any change in spending decisions,” said the Fed Chair. “Most of the business people that we’ve talked to also have a wait-and-see attitude.”

Retail sales in February grew at the slowest pace since August, a government report showed earlier Wednesday. The Atlanta Fed’s model for GDP predicts an expansion of 0.9 percent in the first quarter, less than a third the pace Trump is aiming for.

Fiscal Stimulus

Asked about the potential for a fiscal boost, Yellen made clear the Fed is still waiting for more concrete policy plans to emerge from the Trump administration before adapting monetary policy in reaction.

“There is great uncertainty about the timing, the size and the character of policy changes that may be put in place,” Yellen said. “I don’t think that’s a decision or set of decisions that we need to make until we know more about what policy changes will go into effect.”

Yellen disputed suggestions that the Fed was on a collision course with the Trump administration over its plans to foster faster economic growth through tax cuts and deregulation. “We would welcome stronger economic growth in the context of price stability,” she said.

She said she had met Trump briefly and had gotten together a couple of times with Treasury Secretary Steven Mnuchin to discuss the economy and financial regulation.

Further underscoring their lack of urgency, Fed officials repeated a commitment to maintain their balance-sheet reinvestment policy until rate increases were well under way. Yellen said officials had discussed the process of reducing the balance sheet gradually, but had made no decisions and would continue to debate the topic.

Policy makers forecast inflation will reach 1.9 percent in the fourth quarter this year, and 2 percent in both 2018 and 2019, according to quarterly median estimates released with the FOMC statement. The Fed’s preferred measure of inflation rose 1.9 percent in the 12 months through January, just shy of its target.

Yellen pointed out, though, that core inflation continues to run somewhat further below 2 percent. That rate, which strips out food and energy costs, stood at 1.7 percent in January. The Fed’s new forecast for the core rate at the end of this year edged up to 1.9 percent, from 1.8 percent in December.

“The committee will carefully monitor actual and expected inflation developments relative to its symmetric inflation goal,” the Fed said. Discussing the word symmetric in the statement, Yellen said during her press conference that the Fed was not shooting to push inflation over 2 percent but recognized that it could temporarily go above it. Two percent is a target, she reiterated, not a ceiling.

https://www.bloomberg.com/news/articles/2017-03-15/fed-raises-benchmark-rate-as-inflation-approaches-2-target

Changes in the federal funds rate will always affect the U.S. dollar. When the Federal Reserve increases the federal funds rate, it normally reduces inflationary pressure and works to appreciate the dollar.

Since June 2006, however, the Fed has maintained a federal funds rate of close to 0%. In the wake of the 2008 financial crisis, the federal funds rate fluctuated between 0-0.25%, and is now 0.75%.

The Fed used this monetary policy to help achieve maximum employment and stable prices. Now that the 2008 financial crisis has largely subsided, the Fed will look to increase interest rates to continue to achieve employment and to stabilize prices.

Inflation of the U.S. Dollar

The best way to achieve full employment and stable prices is to set the inflation rate of the dollar at 2%. In 2011, the Fed officially adopted a 2% annual increase in the price index for personal consumption expenditures as its target. When the economy is weak, inflation naturally falls; when the economy is strong, rising wages increase inflation. Keeping inflation at a growth rate of 2% helps the economy grow at a healthy rate.

Adjustments to the federal funds rate can also affect inflation in the United States. The Fed controls the economy by increasing interest rates when the economy is growing too fast. This encourages people to save more and spend less, reducing inflationary pressure. Conversely, when the economy is in a recession or growing too slowly, the Fed reduces interest rates to stimulate spending, which increases inflation.

During the 2008 financial crisis, the low federal funds rate should have increased inflation. Over this period, the federal funds rate was set near 0%, which encouraged spending and would normally increase inflation.

However, inflation is still well below the 2% target, which is contrary to the normal effects of low interest rates. The Fed cites one-off factors, such as falling oil prices and the strengthening dollar, as the reasons why inflation has remained low in a low interest environment.

The Fed believes that these factors will eventually fade and that inflation will increase above the target 2%. To prevent this eventual increase in inflation, hiking the federal funds rate reduces inflationary pressure and cause inflation of the dollar to remain around 2%.

Appreciation of the U.S. Dollar

Increases in the federal funds rate also result in a strengthening of the U.S. dollar. Other ways that the dollar can appreciate include increases in average wages and increases in overall consumption. However, although jobs are being created, wage rates are stagnant.

Without an increase in wage rates to go along with a strengthening job market, consumption won’t increase enough to sustain economic growth. Additionally, consumption remains subdued due to the fact that the labor force participation rate was close to its 35-year low in 2015. The Fed has kept interest rates low because a lower federal funds rate supports business expansions, which leads to more jobs and higher consumption. This has all worked to keep appreciation of the U.S. dollar low.

However, the U.S. is ahead of the other developed markets in terms of its economic recovery. Although the Fed raises rates cautiously, the U.S. could see higher interest rates before the other developed economies.

Overall, under normal economic conditions, increases in the federal funds rate reduce inflation and increase the appreciation of the U.S. dollar.

http://www.investopedia.com/articles/investing/101215/how-fed-fund-rate-hikes-affect-us-dollar.asp

Financial repression

From Wikipedia, the free encyclopedia
Not to be confused with economic repression, a type of political repression.

Financial repression refers to “policies that result in savers earning returns below the rate of inflation” in order to allow banks to “provide cheap loans to companies and governments, reducing the burden of repayments”.[1] It can be particularly effective at liquidating government debt denominated in domestic currency.[2] It can also lead to a large expansions in debt “to levels evoking comparisons with the excesses that generated Japan’s lost decade and the Asian financial crisis” in 1997.[1]

The term was introduced in 1973 by Stanford economists Edward S. Shaw and Ronald I. McKinnon[3][4] in order to “disparage growth-inhibiting policies in emerging markets“.

Mechanism

Financial repression consists of the following:[5]

  1. Explicit or indirect capping of interest rates, such as on government debt and deposit rates (e.g., Regulation Q).
  2. Government ownership or control of domestic banks and financial institutions with barriers that limit other institutions from entering the market.
  3. High reserve requirements.
  4. Creation or maintenance of a captive domestic market for government debt, achieved by requiring banks to hold government debt via capital requirements, or by prohibiting or disincentivising alternatives.
  5. Government restrictions on the transfer of assets abroad through the imposition of capital controls.

These measures allow governments to issue debt at lower interest rates. A low nominal interest rate can reduce debt servicing costs, while negative real interest rates erodes the real value of government debt.[5] Thus, financial repression is most successful in liquidating debts when accompanied by inflation and can be considered a form of taxation,[6] or alternatively a form of debasement.[7]

The size of the financial repression tax for 24 emerging markets from 1974 to 1987. Their results showed that financial repression exceeded 2% of GDP for seven countries, and greater than 3% for five countries. For five countries (India, Mexico, Pakistan, Sri Lanka, and Zimbabwe) it represented approximately 20% of tax revenue. In the case of Mexico financial repression was 6% of GDP, or 40% of tax revenue.[8]

Financial repression is categorized as “macroprudential regulation“—i.e., government efforts to “ensure the health of an entire financial system.[2]

Examples

After World War II

Financial repression “played an important role in reducing debt-to-GDP ratios after World War II” by keeping real interest rates for government debt below 1% for two-thirds of the time between 1945 and 1980, the United States was able to “inflate away” the large debt (122% of GDP) left over from the Great Depression and World War II.[2] In the UK, government debt declined from 216% of GDP in 1945 to 138% ten years later in 1955.[9]

China

China‘s economic growth has been attributed to financial repression thanks to “low returns on savings and the cheap loans that it makes possible”. This has allowed China to rely on savings-financed investments for economic growth. However, because low returns also dampens consumer spending, household expenditures account for “a smaller share of GDP in China than in any other major economy”.[1] However, as of December 2014, the People’s Bank of China “started to undo decades of financial repression” and the government now allows Chinese savers to collect up to a 3.3% return on one-year deposits. At China’s 1.6% inflation rate, this is a “high real-interest rate compared to other major economies”.[1]

After the 2008 economic recession

In a 2011 NBER working paper, Carmen Reinhart and Maria Belen Sbrancia speculate on a possible return by governments to this form of debt reduction in order to deal with high debt levels following the 2008 economic crisis.[5]

“To get access to capital, Austria has restricted capital flows to foreign subsidiaries in central and eastern Europe. Select pension funds have also been transferred to governments in France, Portugal, Ireland and Hungary, enabling them to re-allocate toward sovereign bonds.”[10]

Criticism

Critics[who?] argue that if this view was true, investors (i.e., capital-seeking parties) would be inclined to demand capital in large quantities and would be buying capital goods from this capital. This high demand for capital goods would certainly lead to inflation and thus the central banks would be forced to raise interest rates again. As a boom pepped by low interest rates fails to appear these days in industrialized countries, this is a sign that the low interest rates seem to be necessary to ensure an equilibrium on the capital market, thus to balance capital-supply—i.e., savers—on one side and capital-demand—i.e., investors and the government—on the other. This view argues that interest rates would be even lower if it were not for the high government debt ratio (i.e., capital demand from the government).

Free-market economists argue that financial repression crowds out private-sector investment, thus undermining growth. On the other hand, “postwar politicians clearly decided this was a price worth paying to cut debt and avoid outright default or draconian spending cuts. And the longer the gridlock over fiscal reform rumbles on, the greater the chance that ‘repression’ comes to be seen as the least of all evils”.[11]

Also, financial repression has been called a “stealth tax” that “rewards debtors and punishes savers—especially retirees” because their investments will no longer generate the expected return, which is income for retirees.[10][12] “One of the main goals of financial repression is to keep nominal interest rates lower than they would be in more competitive markets. Other things equal, this reduces the government’s interest expenses for a given stock of debt and contributes to deficit reduction. However, when financial repression produces negative real interest rates (nominal rates below the inflation rate), it reduces or liquidates existing debts and becomes the equivalent of a tax—a transfer from creditors (savers) to borrowers, including the government.”[2]

See also

Reform:

General:

References

  1. ^ Jump up to:a b c d “China Savers Prioritized Over Banks by PBOC”. Bloomberg. November 25, 2014.
  2. ^ Jump up to:a b c d Carmen M. Reinhart, Jacob F. Kirkegaard, and M. Belen Sbrancia, “Financial Repression Redux”, IMF Finance and Development, June 2011, p. 22-26
  3. Jump up^ Shaw, Edward S. Financial Deepening in Economic Development. New York: Oxford University Press, 1973
  4. Jump up^ McKinnon, Ronald I. Money and Capital in Economic Development. Washington, D.C.: Brookings Institution, 1973
  5. ^ Jump up to:a b c Carmen M. Reinhart and M. Belen Sbrancia, “The Liquidation of Government Debt”, IMF, 2011, p. 19
  6. Jump up^ Reinhart, Carmen M. and Rogoff, Kenneth S., This Time is Different: Eight Centuries of Financial Folly. Princeton and Oxford: Princeton University Press, 2008, p. 143
  7. Jump up^ Bill Gross, “The Caine Mutiny Part 2”, PIMCO
  8. Jump up^ Giovannini, Alberto and de Melo, Martha, “Government Revenue from Financial Repression”, The American Economic Review, Vol. 83, No. 4 Sep. 1993 (pp. 953-963)
  9. Jump up^ “The great repression”. The Economist. 16 June 2011.
  10. ^ Jump up to:a b “Financial Repression 101”. Allianz Global Investors. Retrieved 2 December 2014.
  11. Jump up^ Gillian Tett, “Policymakers learn a new and alarming catchphrase”, Financial Times, May 9, 2011
  12. Jump up^ Amerman, Daniel (September 12, 2011). “The 2nd Edge of Modern Financial Repression: Manipulating Inflation Indexes to Steal from Retirees & Public Wor

https://en.wikipedia.org/wiki/Financial_repression

Federal funds rate

From Wikipedia, the free encyclopedia

10 year treasury compared to the Federal Funds Rate

Federal funds rate and capacity utilization in manufacturing.

In the United States, the federal funds rate is the interest rate at which depository institutions (banks and credit unions) lend reserve balances to other depository institutions overnight, on an uncollateralized basis. Reserve balances are amounts held at the Federal Reserve to maintain depository institutions’ reserve requirements. Institutions with surplus balances in their accounts lend those balances to institutions in need of larger balances. The federal funds rate is an important benchmark in financial markets.[1][2]

The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions is the federal funds effective rate.

The federal funds target rate is determined by a meeting of the members of the Federal Open Market Committee which normally occurs eight times a year about seven weeks apart. The committee may also hold additional meetings and implement target rate changes outside of its normal schedule.

The Federal Reserve uses open market operations to influence the supply of money in the U.S. economy[3] to make the federal funds effective rate follow the federal funds target rate.

Mechanism

Financial Institutions are obligated by law to maintain certain levels of reserves, either as reserves with the Fed or as vault cash. The level of these reserves is determined by the outstanding assets and liabilities of each depository institution, as well as by the Fed itself, but is typically 10%[4] of the total value of the bank’s demand accounts (depending on bank size). In the range of $9.3 million to $43.9 million, for transaction deposits (checking accounts, NOWs, and other deposits that can be used to make payments) the reserve requirement in 2007-2008 was 3 percent of the end-of-the-day daily average amount held over a two-week period. Transaction deposits over $43.9 million held at the same depository institution carried a 10 percent reserve requirement.

For example, assume a particular U.S. depository institution, in the normal course of business, issues a loan. This dispenses money and decreases the ratio of bank reserves to money loaned. If its reserve ratio drops below the legally required minimum, it must add to its reserves to remain compliant with Federal Reserve regulations. The bank can borrow the requisite funds from another bank that has a surplus in its account with the Fed. The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks, and the weighted average of this rate across all such transactions is the federal funds effective rate.

The nominal rate is a target set by the governors of the Federal Reserve, which they enforce by open market operations and adjusting the interest paid on required and excess reserve balances. That nominal rate is almost always what is meant by the media referring to the Federal Reserve “changing interest rates.” The actual federal funds rate generally lies within a range of that target rate, as the Federal Reserve cannot set an exact value through open market operations.

Another way banks can borrow funds to keep up their required reserves is by taking a loan from the Federal Reserve itself at the discount window. These loans are subject to audit by the Fed, and the discount rate is usually higher than the federal funds rate. Confusion between these two kinds of loans often leads to confusion between the federal funds rate and the discount rate. Another difference is that while the Fed cannot set an exact federal funds rate, it does set the specific discount rate.

The federal funds rate target is decided by the governors at Federal Open Market Committee (FOMC) meetings. The FOMC members will either increase, decrease, or leave the rate unchanged depending on the meeting’s agenda and the economic conditions of the U.S. It is possible to infer the market expectations of the FOMC decisions at future meetings from the Chicago Board of Trade (CBOT) Fed Funds futures contracts, and these probabilities are widely reported in the financial media.

Applications

Interbank borrowing is essentially a way for banks to quickly raise money. For example, a bank may want to finance a major industrial effort but may not have the time to wait for deposits or interest (on loan payments) to come in. In such cases the bank will quickly raise this amount from other banks at an interest rate equal to or higher than the Federal funds rate.

Raising the federal funds rate will dissuade banks from taking out such inter-bank loans, which in turn will make cash that much harder to procure. Conversely, dropping the interest rates will encourage banks to borrow money and therefore invest more freely.[5] This interest rate is used as a regulatory tool to control how freely the U.S. economy operates.

By setting a higher discount rate the Federal Bank discourages banks from requisitioning funds from the Federal Bank, yet positions itself as a lender of last resort.

Comparison with LIBOR

Though the London Interbank Offered Rate (LIBOR) and the federal funds rate are concerned with the same action, i.e. interbank loans, they are distinct from one another, as follows:

  • The target federal funds rate is a target interest rate that is set by the FOMC for implementing U.S. monetary policies.
  • The (effective) federal funds rate is achieved through open market operations at the Domestic Trading Desk at the Federal Reserve Bank of New York which deals primarily in domestic securities (U.S. Treasury and federal agencies’ securities).[6]
  • LIBOR is based on a questionnaire where a selection of banks guess the rates at which they could borrow money from other banks.
  • LIBOR may or may not be used to derive business terms. It is not fixed beforehand and is not meant to have macroeconomic ramifications.[7]

Predictions by the market

Considering the wide impact a change in the federal funds rate can have on the value of the dollar and the amount of lending going to new economic activity, the Federal Reserve is closely watched by the market. The prices of Option contracts on fed funds futures (traded on the Chicago Board of Trade) can be used to infer the market’s expectations of future Fed policy changes. Based on CME Group 30-Day Fed Fund futures prices, which have long been used to express the market’s views on the likelihood of changes in U.S. monetary policy, the CME Group FedWatch tool allows market participants to view the probability of an upcoming Fed Rate hike. One set of such implied probabilities is published by the Cleveland Fed.

Historical rates

As of December 16, 2008, the most recent change the FOMC has made to the funds target rate is a 75 to 100 basis point cut from 1.0% to a range of zero to 0.25%. According to Jack A. Ablin, chief investment officer at Harris Private Bank, one reason for this unprecedented move of having a range, rather than a specific rate, was because a rate of 0% could have had problematic implications for money market funds, whose fees could then outpace yields.[8] This followed the 50 basis point cut on October 29, 2008, and the unusually large 75 basis point cut made during a special January 22, 2008 meeting, as well as a 50 basis point cut on January 30, 2008, a 75 basis point cut on March 18, 2008, and a 50 basis point cut on October 8, 2008.[9]

Federal funds rate history and recessions.png

Explanation of federal funds rate decisions

When the Federal Open Market Committee wishes to reduce interest rates they will increase the supply of money by buying government securities. When additional supply is added and everything else remains constant, price normally falls. The price here is the interest rate (cost of money) and specifically refers to the Federal Funds Rate. Conversely, when the Committee wishes to increase the Fed Funds Rate, they will instruct the Desk Manager to sell government securities, thereby taking the money they earn on the proceeds of those sales out of circulation and reducing the money supply. When supply is taken away and everything else remains constant, price (or in this case interest rates) will normally rise.[10]

The Federal Reserve has responded to a potential slow-down by lowering the target federal funds rate during recessions and other periods of lower growth. In fact, the Committee’s lowering has recently predated recessions,[9] in order to stimulate the economy and cushion the fall. Reducing the Fed Funds Rate makes money cheaper, allowing an influx of credit into the economy through all types of loans.

The charts linked below show the relation between S&P 500 and interest rates.

  • July 13, 1990 — Sept 4, 1992: 8.00%–3.00% (Includes 1990–1991 recession)[11][12]
  • Feb 1, 1995 — Nov 17, 1998: 6.00–4.75 [13][14][15]
  • May 16, 2000 — June 25, 2003: 6.50–1.00 (Includes 2001 recession)[16][17][18]
  • June 29, 2006 — (Oct. 29 2008): 5.25–1.00[19]
  • Dec 16, 2008 — 0.0–0.25[20]
  • Dec 16, 2015 — 0.25-0.50[21]
  • Dec 14, 2016 — 0.50-0.75[22]
  • Mar 15, 2017 — 0.75-1.00[23]

Bill Gross of PIMCO suggested that in the prior 15 years ending in 2007, in each instance where the fed funds rate was higher than the nominal GDP growth rate, assets such as stocks and/or housing fell.[24]

See also

References

  1. Jump up^ “Fedpoints: Federal Funds”. Federal Reserve Bank of New York. August 2007. Retrieved 2 October 2011.
  2. Jump up^ “The Implementation of Monetary Policy”. The Federal Reserve System: Purposes & Functions (PDF). Washington, D.C.: Federal Reserve Board. 24 August 2011. p. 4. Retrieved 2 October 2011.
  3. Jump up^ “Monetary Policy, Open Market Operations”. Federal Reserve Bank. 2008-01-30. Retrieved 2008-01-30.
  4. Jump up^ “Reserve Requirements”. Board of Governors of The Federal Reserve System. December 16, 2015.
  5. Jump up^ “Fed funds rate”. Bankrate, Inc. March 2016.
  6. Jump up^ Cheryl L. Edwards (November 1997). Gerard Sinzdak. “Open Market Operations in the 1990s” (PDF). Federal Reserve Bulletin (PDF).
  7. Jump up^ “BBA LIBOR – Frequently asked questions”. British Bankers’ Association. March 21, 2006. Archived from the original on 2007-02-16.
  8. Jump up^ “4:56 p.m. US-Closing Stocks”. Associated Press. December 16, 2008.[dead link]
  9. ^ Jump up to:a b “Historical Changes of the Target Federal Funds and Discount Rates, 1971 to present”. New York Federal Reserve Branch. February 19, 2010. Archived from the original on December 21, 2008.
  10. Jump up^ David Waring (2008-02-19). “An Explanation of How The Fed Moves Interest Rates”. InformedTrades.com. Archived from the original on 2015-05-05. Retrieved 2009-07-20.
  11. Jump up^ “$SPX 1990-06-12 1992-10-04 (rate drop chart)”. StockCharts.com.
  12. Jump up^ “$SPX 1992-08-04 1995-03-01 (rate rise chart)”. StockCharts.com.
  13. Jump up^ “$SPX 1995-01-01 1997-01-01 (rate drop chart)”. StockCharts.com.
  14. Jump up^ “$SPX 1996-12-01 1998-10-17 (rate drop chart)”. StockCharts.com.
  15. Jump up^ “$SPX 1998-09-17 2000-06-16 (rate rise chart)”. StockCharts.com.
  16. Jump up^ “$SPX 2000-04-16 2002-01-01 (rate drop chart)”. StockCharts.com.
  17. Jump up^ “$SPX 2002-01-01 2003-07-25 (rate drop chart)”. StockCharts.com.
  18. Jump up^ “$SPX 2003-06-25 2006-06-29 (rate rise chart)”. StockCharts.com.
  19. Jump up^ “$SPX 2006-06-29 2008-06-01 (rate drop chart)”. StockCharts.com.
  20. Jump up^ “Press Release”. Board of Governors of The Federal Reserve System. December 16, 2008.
  21. Jump up^ “Open Market Operations”. Board of Governors of The Federal Reserve System. December 16, 2015.
  22. Jump up^ “Decisions Regarding Monetary Policy Implementation”. Board of Governors of The Federal Reserve System.
  23. Jump up^ Cox, Jeff (2017-03-15). “Fed raises rates at March meeting”. CNBC. Retrieved 2017-03-15.
  24. Jump up^ Shaw, Richard (January 7, 2007). “The Bond Yield Curve as an Economic Crystal Ball”. Retrieved 3 April 2011.

External links

https://en.wikipedia.org/wiki/Federal_funds_rate

Monetary policy of the United States

From Wikipedia, the free encyclopedia
  (Redirected from U.S. monetary policy)
United States M2 money supply
% change in money supply
Money supply changes monthly basis

Monetary policy concerns the actions of a central bank or other regulatory authorities that determine the size and rate of growth of the money supply.

In the United States, the Federal Reserve is in charge of monetary policy, and implements it primarily by performing operations that influence short-term interest rates.

Money supply[edit]

Main article: Money supply

The money supply has different components, generally broken down into “narrow” and “broad” money, reflecting the different degrees of liquidity (‘spendability’) of each different type, as broader forms of money can be converted into narrow forms of money (or may be readily accepted as money by others, such as personal checks).[1]

For example, demand deposits are technically promises to pay on demand, while savings deposits are promises to pay subject to some withdrawal restrictions, and Certificates of Deposit are promises to pay only at certain specified dates; each can be converted into money, but “narrow” forms of money can be converted more readily. The Federal Reserve directly controls only the most narrow form of money, physical cash outstanding along with the reserves of banks throughout the country (known as M0 or the monetary base); the Federal Reserve indirectly influences the supply of other types of money.[1]

Broad money includes money held in deposit balances in banks and other forms created in the financial system. Basic economics also teaches that the money supply shrinks when loans are repaid;[2][3] however, the money supply will not necessarily decrease depending on the creation of new loans and other effects. Other than loans, investment activities of commercial banks and the Federal Reserve also increase and decrease the money supply.[4] Discussion of “money” often confuses the different measures and may lead to misguided commentary on monetary policy and misunderstandings of policy discussions.[5]

Structure of modern US institutions[edit]

Federal Reserve[edit]

Monetary policy in the US is determined and implemented by the US Federal Reserve System, commonly referred to as the Federal Reserve. Established in 1913 by the Federal Reserve Act to provide central banking functions,[6] the Federal Reserve System is a quasi-public institution. Ostensibly, the Federal Reserve Banks are 12 private banking corporations;[7][8][9] they are independent in their day-to-day operations, but legislatively accountable to Congress through the auspices of Federal Reserve Board of Governors.

The Board of Governors is an independent governmental agency consisting of seven officials and their support staff of over 1800 employees headquartered in Washington, D.C.[10] It is independent in the sense that the Board currently operates without official obligation to accept the requests or advice of any elected official with regard to actions on the money supply,[11]and its methods of funding also preserve independence. The Governors are nominated by the President of the United States, and nominations must be confirmed by the U.S. Senate.[12]

The presidents of the Federal Reserve Banks are nominated by each bank’s respective Board of Directors, but must also be approved by the Board of Governors of the Federal Reserve. The Chairman of the Federal Reserve Board is generally considered to have the most important position, followed by the president of the Federal Reserve Bank of New York.[12] The Federal Reserve System is primarily funded by interest collected on their portfolio of securities from the US Treasury, and the Fed has broad discretion in drafting its own budget,[13] but, historically, nearly all the interest the Federal Reserve collects is rebated to the government each year.[14]

The Federal Reserve has three main mechanisms for manipulating the money supply. It can buy or sell treasury securities. Selling securities has the effect of reducing the monetary base (because it accepts money in return for purchase of securities), taking that money out of circulation. Purchasing treasury securities increases the monetary base (because it pays out hard currency in exchange for accepting securities). Secondly, the discount rate can be changed. And finally, the Federal Reserve can adjust the reserve requirement, which can affect the money multiplier; the reserve requirement is adjusted only infrequently, and was last adjusted in 1992.[15]

In practice, the Federal Reserve uses open market operations to influence short-term interest rates, which is the primary tool of monetary policy. The federal funds rate, for which the Federal Open Market Committee announces a target on a regular basis, reflects one of the key rates for interbank lending. Open market operations change the supply of reserve balances, and the federal funds rate is sensitive to these operations.[16]

In theory, the Federal Reserve has unlimited capacity to influence this rate, and although the federal funds rate is set by banks borrowing and lending funds to each other, the federal funds rate generally stays within a limited range above and below the target (as participants are aware of the Fed’s power to influence this rate).

Assuming a closed economy, where foreign capital or trade does not affect the money supply, when money supply increases, interest rates go down. Businesses and consumers have a lower cost of capital and can increase spending and capital improvement projects. This encourages short-term growth. Conversely, when the money supply falls, interest rates go up, increasing the cost of capital and leading to more conservative spending and investment. The Federal reserve increases interest rates to combat Inflation.

U.S. Treasury[edit]

Private commercial banks[edit]

When money is deposited in a bank, it can then be lent out to another person. If the initial deposit was $100 and the bank lends out $100 to another customer the money supply has increased by $100. However, because the depositor can ask for the money back, banks have to maintain minimum reserves to service customer needs. If the reserve requirement is 10% then, in the earlier example, the bank can lend $90 and thus the money supply increases by only $90. The reserve requirement therefore acts as a limit on this multiplier effect. Because the reserve requirement only applies to the more narrow forms of money creation (corresponding to M1), but does not apply to certain types of deposits (such as time deposits), reserve requirements play a limited role in monetary policy.[17]

Money creation[edit]

Main article: Money creation

Currently, the US government maintains over US$800 billion in cash money (primarily Federal Reserve Notes) in circulation throughout the world,[18][19] up from a sum of less than $30 billion in 1959. Below is an outline of the process which is currently used to control the amount of money in the economy. The amount of money in circulation generally increases to accommodate money demanded by the growth of the country’s production. The process of money creation usually goes as follows:

  1. Banks go through their daily transactions. Of the total money deposited at banks, significant and predictable proportions often remain deposited, and may be referred to as “core deposits.” Banks use the bulk of “non-moving” money (their stable or “core” deposit base) by loaning it out.[20] Banks have a legal obligation to keep a certain fraction of bank deposit money on-hand at all times.[21]
  2. In order to raise additional money to cover excess spending, Congress increases the size of the National Debt by issuing securities typically in the form of a Treasury Bond[22] (see United States Treasury security). It offers the Treasury security for sale, and someone pays cash to the government in exchange. Banks are often the purchasers of these securities, and these securities currently play a crucial role in the process.
  3. The 12-person Federal Open Market Committee, which consists of the heads of the Federal Reserve System (the seven Federal governors and five bank presidents), meets eight times a year to determine how they would like to influence the economy.[23] They create a plan called the country’s “monetary policy” which sets targets for things such as interest rates.[24]
  4. Every business day, the Federal Reserve System engages in Open market operations.[25] If the Federal Reserve wants to increase the money supply, it will buy securities (such as U.S. Treasury Bonds) anonymously from banks in exchange for dollars. If the Federal Reserve wants to decrease the money supply, it will sell securities to the banks in exchange for dollars, taking those dollars out of circulation.[26][27] When the Federal Reserve makes a purchase, it credits the seller’s reserve account (with the Federal Reserve). The money that it deposits into the seller’s account is not transferred from any existing funds, therefore it is at this point that the Federal Reserve has created High-powered money.
  5. By means of open market operations, the Federal Reserve affects the free reserves of commercial banks in the country.[28] Anna Schwartz explains that “if the Federal Reserve increases reserves, a single bank can make loans up to the amount of its excess reserves, creating an equal amount of deposits”.[26][27][29]
  6. Since banks have more free reserves, they may loan out the money, because holding the money would amount to accepting the cost of foregone interest[28][30] When a loan is granted, a person is generally granted the money by adding to the balance on their bank account.[31]
  7. This is how the Federal Reserve’s high-powered money is multiplied into a larger amount of broad money, through bank loans; as written in a particular case study, “as banks increase or decrease loans, the nation’s (broad) money supply increases or decreases.”[3] Once granted these additional funds, the recipient has the option to withdraw physical currency (dollar bills and coins) from the bank, which will reduce the amount of money available for further on-lending (and money creation) in the banking system.[32]
  8. In many cases, account-holders will request cash withdrawals, so banks must keep a supply of cash handy. When they believe they need more cash than they have on hand, banks can make requests for cash with the Federal Reserve. In turn, the Federal Reserve examines these requests and places an order for printed money with the US Treasury Department.[33] The Treasury Department sends these requests to the Bureau of Engraving and Printing (to make dollar bills) and the Bureau of the Mint (to stamp the coins).
  9. The U.S. Treasury sells this newly printed money to the Federal Reserve for the cost of printing.[citation needed] This is about 6 cents per bill for any denomination.[34] Aside from printing costs, the Federal Reserve must pledge collateral (typically government securities such as Treasury bonds) to put new money, which does not replace old notes, into circulation.[35]This printed cash can then be distributed to banks, as needed.

Though the Federal Reserve authorizes and distributes the currency printed by the Treasury (the primary component of the narrow monetary base), the broad money supply is primarily created by commercial banks through the money multiplier mechanism.[29][31][36][37] One textbook summarizes the process as follows:

“The Fed” controls the money supply in the United States by controlling the amount of loans made by commercial banks. New loans are usually in the form of increased checking account balances, and since checkable deposits are part of the money supply, the money supply increases when new loans are made …[38]

This type of money is convertible into cash when depositors request cash withdrawals, which will require banks to limit or reduce their lending.[39][32] The vast majority of the broad money supply throughout the world represents current outstanding loans of banks to various debtors.[38][40][41] A very small amount of U.S. currency still exists as “United States Notes“, which have no meaningful economic difference from Federal Reserve notes in their usage, although they departed significantly in their method of issuance into circulation. The currency distributed by the Federal Reserve has been given the official designation of “Federal Reserve Notes.”[42]

Significant effects[edit]

Main article: Monetary policy

In 2005, the Federal Reserve held approximately 9% of the national debt[43] as assets against the liability of printed money. In previous periods, the Federal Reserve has used other debt instruments, such as debt securities issued by private corporations. During periods when the national debt of the United States has declined significantly (such as happened in fiscal years 1999 and 2000), monetary policy and financial markets experts have studied the practical implications of having “too little” government debt: both the Federal Reserve and financial markets use the price information, yield curve and the so-called risk free rate extensively.[44]

Experts are hopeful that other assets could take the place of National Debt as the base asset to back Federal Reserve notes, and Alan Greenspan, long the head of the Federal Reserve, has been quoted as saying, “I am confident that U.S. financial markets, which are the most innovative and efficient in the world, can readily adapt to a paydown of Treasury debt by creating private alternatives with many of the attributes that market participants value in Treasury securities.”[45] In principle, the government could still issue debt securities in significant quantities while having no net debt, and significant quantities of government debt securities are also held by other government agencies.

Although the U.S. government receives income overall from seigniorage, there are costs associated with maintaining the money supply.[41][46] Leading ecological economist and steady-state theorist Herman Daly, claims that “over 95% of our [broad] money supply [in the United States] is created by the private banking system (demand deposits) and bears interest as a condition of its existence,”[41] a conclusion drawn from the Federal Reserve’s ultimate dependence on increased activity in fractional reserve lending when it exercises open market operations.[47]Economist Eric Miller criticizes Daly’s logic because money is created in the banking system in response to demand for the money,[48] which justifies cost.[citation needed]

Thus, use of expansionary open market operations typically generates more debt in the private sector of society (in the form of additional bank deposits).[49] The private banking system charges interest to borrowers as a cost to borrow the money.[3][31][50] The interest costs are borne by those that have borrowed,[3][31] and without this borrowing, open market operations would be unsuccessful in maintaining the broad money supply,[30] though alternative implementations of monetary policy could be used. Depositors of funds in the banking system are paid interest on their savings (or provided other services, such as checking account privileges or physical security for their “cash”), as compensation for “lending” their funds to the bank.

Increases (or contractions) of the money supply corresponds to growth (or contraction) in interest-bearing debt in the country.[3][30][41] The concepts involved in monetary policy may be widely misunderstood in the general public, as evidenced by the volume of literature on topics such as “Federal Reserve conspiracy” and “Federal Reserve fraud.”[51]

Uncertainties

A few of the uncertainties involved in monetary policy decision making are described by the federal reserve:[52]

  • While these policy choices seem reasonably straightforward, monetary policy makers routinely face certain notable uncertainties. First, the actual position of the economy and growth in aggregate demand at any time are only partially known, as key information on spending, production, and prices becomes available only with a lag. Therefore, policy makers must rely on estimates of these economic variables when assessing the appropriate course of policy, aware that they could act on the basis of misleading information. Second, exactly how a given adjustment in the federal funds rate will affect growth in aggregate demand—in terms of both the overall magnitude and the timing of its impact—is never certain. Economic models can provide rules of thumb for how the economy will respond, but these rules of thumb are subject to statistical error. Third, the growth in aggregate supply, often called the growth in potential output, cannot be measured with certainty.
  • In practice, as previously noted, monetary policy makers do not have up-to-the-minute information on the state of the economy and prices. Useful information is limited not only by lags in the collection and availability of key data but also by later revisions, which can alter the picture considerably. Therefore, although monetary policy makers will eventually be able to offset the effects that adverse demand shocks have on the economy, it will be some time before the shock is fully recognized and—given the lag between a policy action and the effect of the action on aggregate demand—an even longer time before it is countered. Add to this the uncertainty about how the economy will respond to an easing or tightening of policy of a given magnitude, and it is not hard to see how the economy and prices can depart from a desired path for a period of time.
  • The statutory goals of maximum employment and stable prices are easier to achieve if the public understands those goals and believes that the Federal Reserve will take effective measures to achieve them.
  • Although the goals of monetary policy are clearly spelled out in law, the means to achieve those goals are not. Changes in the FOMC’s target federal funds rate take some time to affect the economy and prices, and it is often far from obvious whether a selected level of the federal funds rate will achieve those goals.

Opinions of the Federal Reserve

The Federal Reserve is lauded by some economists, while being the target of scathing criticism by other economists, legislators, and sometimes members of the general public. The former Chairman of the Federal Reserve Board, Ben Bernanke, is one of the leading academic critics of the Federal Reserve’s policies during the Great Depression.[53]

Achievements

One of the functions of a central bank is to facilitate the transfer of funds through the economy, and the Federal Reserve System is largely responsible for the efficiency in the banking sector. There have also been specific instances which put the Federal Reserve in the spotlight of public attention. For instance, after the stock market crash in 1987, the actions of the Fed are generally believed to have aided in recovery. Also, the Federal Reserve is credited for easing tensions in the business sector with the reassurances given following the 9/11 terrorist attacks on the United States.[54]

Criticisms

The Federal Reserve has been the target of various criticisms, involving: accountability, effectiveness, opacity, inadequate banking regulation, and potential market distortion. Federal Reserve policy has also been criticized for directly and indirectly benefiting large banks instead of consumers. For example, regarding the Federal Reserve’s response to the 2007–2010 financial crisis, Nobel laureate Joseph Stiglitz explained how the U.S. Federal Reserve was implementing another monetary policy —creating currency— as a method to combat the liquidity trap.[55]

By creating $600 billion and inserting this directly into banks the Federal Reserve intended to spur banks to finance more domestic loans and refinance mortgages. However, banks instead were spending the money in more profitable areas by investing internationally in emerging markets. Banks were also investing in foreign currencies which Stiglitz and others point out may lead to currency wars while China redirects its currency holdings away from the United States.[56]

Auditing

The Federal Reserve is subject to different requirements for transparency and audits than other government agencies, which its supporters claim is another element of the Fed’s independence. Although the Federal Reserve has been required by law to publish independently audited financial statements since 1999, the Federal Reserve is not audited in the same way as other government agencies. Some confusion can arise because there are many types of audits, including: investigative or fraud audits; and financial audits, which are audits of accounting statements; there are also compliance, operational, and information system audits.

The Federal Reserve’s annual financial statements are audited by an outside auditor. Similar to other government agencies, the Federal Reserve maintains an Office of the Inspector General, whose mandate includes conducting and supervising “independent and objective audits, investigations, inspections, evaluations, and other reviews of Board programs and operations.”[57] The Inspector General’s audits and reviews are available on the Federal Reserve’s website.[58][59]

The Government Accountability Office (GAO) has the power to conduct audits, subject to certain areas of operations that are excluded from GAO audits; other areas may be audited at specific Congressional request, and have included bank supervision, government securities activities, and payment system activities.[60][61] The GAO is specifically restricted any authority over monetary policy transactions;[60] the New York Times reported in 1989 that “such transactions are now shielded from outside audit, although the Fed influences interest rates through the purchase of hundreds of billions of dollars in Treasury securities.”[62] As mentioned above, it was in 1999 that the law governing the Federal Reserve was amended to formalize the already-existing annual practice of ordering independent audits of financial statements for the Federal Reserve Banks and the Board;[63] the GAO’s restrictions on auditing monetary policy continued, however.[61]

Congressional oversight on monetary policy operations, foreign transactions, and the FOMC operations is exercised through the requirement for reports and through semi-annual monetary policy hearings.[61] Scholars have conceded that the hearings did not prove an effective means of increasing oversight of the Federal Reserve, perhaps because “Congresspersons prefer to bash an autonomous and secretive Fed for economic misfortune rather than to share the responsibility for that misfortune with a fully accountable Central Bank,” although the Federal Reserve has also consistently lobbied to maintain its independence and freedom of operation.[64]

Fulfillment of wider economic goals

By law, the goals of the Fed’s monetary policy are: high employment, sustainable growth, and stable prices.[65]

Critics say that monetary policy in the United States has not achieved consistent success in meeting the goals that have been delegated to the Federal Reserve System by Congress. Congress began to review more options with regard to macroeconomic influence beginning in 1946 (after World War II), with the Federal Reserve receiving specific mandates in 1977 (after the country suffered a period of stagflation).

Throughout the period of the Federal Reserve following the mandates, the relative weight given to each of these goals has changed, depending on political developments.[citation needed] In particular, the theories of Keynesianism and monetarism have had great influence on both the theory and implementation of monetary policy, and the “prevailing wisdom” or consensus view of the economic and financial communities has changed over the years.[66]

  • Elastic currency (magnitude of the money multiplier): the success of monetary policy is dependent on the ability to strongly influence the supply of money available to the citizens. If a currency is highly “elastic” (that is, has a higher money multiplier, corresponding to a tendency of the financial system to create more broad money for a given quantity of base money), plans to expand the money supply and accommodate growth are easier to implement. Low elasticity was one of many factors that contributed to the depth of the Great Depression: as banks cut lending, the money multiplier fell, and at the same time the Federal Reserve constricted the monetary base. The depression of the late 1920s is generally regarded as being the worst in the country’s history, and the Federal Reserve has been criticized for monetary policy which worsened the depression.[67] Partly to alleviate problems related to the depression, the United States transitioned from a gold standard and now uses a fiat currency; elasticity is believed to have been increased greatly.[68]

The value of $1 over time, in 1776 dollars.[70]

  • Stable prices – While some economists would regard any consistent inflation as a sign of unstable prices,[71] policymakers could be satisfied with 1 or 2%;[72] the consensus of “price stability” constituting long-run inflation of 1-2% is, however, a relatively recent development, and a change that has occurred at other central banks throughout the world. Inflation has averaged a 4.22% increase annually following the mandates applied in 1977; historic inflation since the establishment of the Federal Reserve in 1913 has averaged 3.4%.[73] In contrast, some research indicates that average inflation for the 250 years before the system was near zero percent, though there were likely sharper upward and downward spikes in that timeframe as compared with more recent times.[74] Central banks in some other countries, notably the German Bundesbank, had considerably better records of achieving price stability drawing on experience from the two episodes of hyperinflation and economic collapse under the country’s previous central bank.

Inflation worldwide has fallen significantly since former Federal Reserve Chairman Paul Volcker began his tenure in 1979, a period which has been called the Great Moderation; some commentators attribute this to improved monetary policy worldwide, particularly in the Organisation for Economic Co-operation and Development.[75][76]BusinessWeek notes that inflation has been relatively low since mid-1980s[77] and it was during this time that Volcker wrote (in 1995), “It is a sobering fact that the prominence of central banks [such as the Federal Reserve] in this century has coincided with a general tendency towards more inflation, not less. By and large, if the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with ‘free banking.'”.

  • Sustainable growth – The growth of the economy may not be sustainable as the ability for households to save money has been on an overall decline[78] and household debt is consistently rising.[79]

Cause of The Great Depression

Money supply decreased significantly between Black Tuesday and the Bank Holiday in March 1933 when there were massive bank runs

Monetarists who believe that the Great Depression started as an ordinary recession but significant policy mistakes by monetary authorities (especially the Federal Reserve) caused a shrinking of the money supply which greatly exacerbated the economic situation, causing a recession to descend into the Great Depression.

Public confusion

The Federal Reserve has established a library of information on their websites, however, many experts have spoken about the general level of public confusion that still exists on the subject of the economy; this lack of understanding of macroeconomic questions and monetary policy, however, exists in other countries as well. Critics of the Fed widely regard the system as being “opaque“, and one of the Fed’s most vehement opponents of his time, Congressman Louis T. McFadden, even went so far as to say that “Every effort has been made by the Federal Reserve Board to conceal its powers….”[80]

There are, on the other hand, many economists who support the need for an independent central banking authority, and some have established websites that aim to clear up confusion about the economy and the Federal Reserve’s operations. The Federal Reserve website itself publishes various information and instructional materials for a variety of audiences.

Criticism of government interference

Some economists, especially those belonging to the heterodox Austrian School, criticize the idea of even establishing monetary policy, believing that it distorts investment. Friedrich Hayek won the Nobel Prize for his elaboration of the Austrian business cycle theory.

Briefly, the theory holds that an artificial injection of credit, from a source such as a central bank like the Federal Reserve, sends false signals to entrepreneurs to engage in long-term investments due to a favorably low interest rate. However, the surge of investments undertaken represents an artificial boom, or bubble, because the low interest rate was achieved by an artificial expansion of the money supply and not by savings. Hence, the pool of real savings and resources have not increased and do not justify the investments undertaken.

These investments, which are more appropriately called “malinvestments”, are realized to be unsustainable when the artificial credit spigot is shut off and interest rates rise. The malinvestments and unsustainable projects are liquidated, which is the recession. The theory demonstrates that the problem is the artificial boom which causes the malinvestments in the first place, made possible by an artificial injection of credit not from savings.

According to Austrian economics, without government intervention, interest rates will always be an equilibrium between the time-preferences of borrowers and savers, and this equilibrium is simply distorted by government intervention. This distortion, in their view, is the cause of the business cycle. Some Austrian economists—but by no means all—also support full reserve banking, a hypothetical financial/banking system where banks may not lend deposits. Others may advocate free banking, whereby the government abstains from any interference in what individuals may choose to use as money or the extent to which banks create money through the deposit and lending cycle.

Reserve requirement

The Federal Reserve regulates banking, and one regulation under its direct control is the reserve requirement which dictates how much money banks must keep in reserves, as compared to its demand deposits. Banks use their observation that the majority of deposits are not requested by the account holders at the same time.

Currently, the Federal Reserve requires that banks keep 10% of their deposits on hand.[81] Some countries have no nationally mandated reserve requirements—banks use their own resources to determine what to hold in reserve, however their lending is typically constrained by other regulations.[82] Other factors being equal, lower reserve percentages increases the possibility of Bank runs, such as the widespread runs of 1931. Low reserve requirements also allow for larger expansions of the money supply by actions of commercial banks—currently the private banking system has created much of the broad money supply of US dollars through lending activity. Monetary policy reform calling for 100% reserves has been advocated by economists such as: Irving Fisher,[83] Frank Knight,[84] many ecological economists along with economists of the Chicago School and Austrian School. Despite calls for reform, the nearly universal practice of fractional-reserve banking has remained in the United States.

Criticism of private sector involvement

Historically and to the present day, various social and political movements (such as social credit) have criticized the involvement of the private sector in “creating money”, claiming that only the government should have the power to “make money”. Some proponents also support full reserve banking or other non-orthodox approaches to monetary policy. Various terminology may be used, including “debt money”, which may have emotive or political connotations. These are generally considered to be akin to conspiracy theories by mainstream economists and ignored in academic literature on monetary policy.

See also

https://en.wikipedia.org/wiki/Monetary_policy_of_the_United_States

Read Full Post | Make a Comment ( None so far )

The Red Pill or The Blue Pill–Name Your Poison–Obama or Romney–It’s A Big Club and You Ain’t In It–Videos

Posted on October 23, 2012. Filed under: American History, Business, Climate, College, Communications, Cult, Culture, Economics, Education, Employment, Energy, Entertainment, European History, Federal Government, Federal Government Budget, Fiscal Policy, Foreign Policy, government, government spending, Health Care, history, Inflation, Investments, Language, Law, Life, Links, media, Narcissism, Natural Gas, People, Philosophy, Politics, Psychology, Public Sector, Radio, Raves, Regulations, Resources, Taxes, Technology, Unemployment, Video, War, Weapons, Weather, Wisdom | Tags: , , , , , , , |

Red-pill/Blue Pill

LEW ROCKWELL: A Return to Totalitarianism (10/22/2012)

George Carlin – It’s a big club and you ain’t in it

George Carlin: Voting

Read Full Post | Make a Comment ( None so far )

Herman Cain–The Tea Party Movement Candidate–Running On Cutting Spending, Opposing Higher Debt Ceiling, Enforcing Immigration Laws, Defunding Planned Parenthood, Nominating Pro Life Judges, And Passing The FairTax–Common Sense Solutions!–Videos

Posted on May 23, 2011. Filed under: American History, Banking, Biology, Blogroll, Business, Chemistry, Communications, Culture, Demographics, Economics, Education, Employment, Energy, European History, Federal Government, Fiscal Policy, Foreign Policy, government, government spending, Health Care, history, Immigration, Investments, Language, Law, liberty, Life, Links, Microeconomics, Monetary Policy, Money, People, Philosophy, Physics, Politics, Private Sector, Public Sector, Rants, Raves, Science, Strategy, Talk Radio, Taxes, Technology, Unions, Video, War, Wealth, Wisdom | Tags: , , , , , , , , , , , , , , , |

Pronk Pops Show 29:May 26, 2011  

 

Who is Herman Cain ?

Herman Cain : We the People

 

Cain

 

Herman Cain on Taxes

 

Herman Cain on Jack Kemp

 

Herman Cain on ABC This Week panel June 5, 2011

 

Herman Cain 2012 Event! 1 of 3

 

 

2011 NRA Annual Meetings – Herman Cain – Celebration of American Values Leadership Forum

 

Herman Cain: “Priorities”

Herman Cain on America Live

 

 Herman Cain on Sean Hannity – 5/23/11

 

 

Fox News Sunday – Exclusive With Herman Cain May 22 2011

 

Just Herman Cain’s Answers in First Republican Debate for 2012

 

All Ron Paul 2012 Presidential debate answers full HQ

 

Frank Luntz Focus Group Picks Winner of First GOP Debate!

 

Herman Cain: We Need to Secure the Border With Technology and Guns

 

Herman Cain – Immigration

 

Herman Cain Explains the Fair Tax

 

Herman Cain Discusses Fair Tax with Neil Cavuto

 

Herman Cain on Second Amendment and Abortion

 

 

Herman Cain Talks Social Issues

 

Herman Cain says if he runs for President he would defund Planned Parenthood

 

America Loves Herman Cain!

 

Herman Cain – We need to return to Gold Standard and Eliminate the Debt

 

 

Herman Cain : We the People

 

Is America Ready for Common Sense Solutions?

Herman Cain to Obama at CPAC: “U.S. Will Not Become U.S. of Europe on our Watch”

 

My favorites candidates for the office of President of The United States are Ron Paul, Michele Bachmann and Herman Cain.

The one thing all three have in common is character and integrity.

The one thing all three do not have is the support of the Republican Party establishment in Washington, D.C.

All three are pro life and would defund Planned Parenthood, all three want Federal Government spending cut with no increase in the National debt ceiling, and all three favor lower taxation and comprehensive income tax reform such as the FairTax

All three would make an outstanding President of the United States.

While my dream ticket is Ron Paul as the  candidate for President and Michele Bachmann as the candidate for Vice-President on the Republican Party ticket, Herman Cain would make an excellent Secretary of the Treasury Department or Chairman of the Republican Party.

Let the American people decide for themselves who is the best candidate.

 

Background Articles and Videos

Rush Limbaugh – Herman Cain Is Serious Snerdley

 

Herman Cain versus Bill Clinton

 

Herman Cain – Bill Bennett – May 11, 2011

 

Glenn Beck Loves Herman Cain

 

 

Mark Levin Interviews Herman Cain

 

Herman Cain – Laura Ingraham

 

Herman Cain – Thomas Jefferson Comes to Dinner Part 1

 

Herman Cain – Thomas Jefferson Comes to Dinner Part 2

 

Herman Cain

“…Herman Cain (born December 13, 1945) is an American businessman, political activist, columnist, and radio host from Georgia. He is best known as the former chairman and CEO of Godfather’s Pizza. He is a former deputy chairman (1992–94) and chairman (1995–96) of the civilian board of directors to the Federal Reserve Bank of Kansas City. Before his business and economics career he worked as a mathematician in ballistics for the United States Navy.[2] Cain’s newspaper column is distributed by North Star Writers Group. He lives in the Atlanta suburbs.

In January 2011, Cain announced he had formed an exploratory committee for a potential presidential campaign for the Republican presidential nomination in 2012, and on May 21, 2011, Cain officially announced his candidacy.[3]

Background

Cain was born in Memphis, Tennessee on December 13, 1945, the son of Lenora (née Davis) and Luther Cain, Jr.[4][5] His mother was a cleaner and his father was a chauffeur.[2] He was raised in Georgia.[6] He graduated from Morehouse College in 1967 with a Bachelor of Arts degree in mathematics and received a Master of Science degree in computer science from Purdue University in 1971,[7] while he was also working full-time in ballistics for the U.S. Department of the Navy. Cain has authored four books: Leadership is Common Sense (1997), Speak as a Leader (1999), CEO of SELF (October 2001), and They Think You’re Stupid (May 2005).

Business career

After completing his master’s degree from Purdue, Cain left the Department of the Navy and began working for The Coca-Cola Company as a business analyst. In 1977, he joined Pillsbury where he rose to the position of vice president by the early 1980s. He left his executive post to work for Burger King – a Pillsbury subsidiary at the time – managing 400 stores in the Philadelphia area. Under Cain’s leadership, his region went from the least profitable for Burger King to the most profitable in three years. This prompted Pillsbury to appoint him president and CEO of Godfather’s Pizza, another of their then-subsidiaries. Within 14 months, Cain had returned Godfather’s to profitability. In 1988, Cain and a group of investors bought Godfather’s from Pillsbury. Cain continued as CEO until 1996, when he resigned to become CEO of the National Restaurant Association – a trade group and lobby organization for the restaurant industry – where he had previously been chairman concurrently with his role at Godfather’s.[8]

Cain became a member of the board of directors to the Federal Reserve Bank of Kansas City in 1992 and served as its chairman from January 1995 to August 1996, when he resigned to become active in national politics.[9] Cain was a 1996 recipient of the Horatio Alger Award.[10]

Media work

Cain hosted The Herman Cain Show on Atlanta talk radio station News Talk 750 WSB, a Cox Radio affiliate until February 2011 and serves as a commentator for Fox Business and a syndicated columnist distributed by the North Star Writers Group. In 2009, Cain founded “Hermanator’s Intelligent Thinkers Movement” (HITM), aimed at organizing 100,000 activists in every congressional district in the United States in support of a strong national defense, the FairTax, tax cuts, energy independence, capping government spending, and Restructuring Social Security.[11]

Political activities

 Role in the defeat of the Clinton health care plan

Cain publicly opposed the 1993/1994 health care plan of President Bill Clinton and First Lady Hillary Rodham Clinton. While president-elect of the National Restaurant Association he challenged Bill Clinton on the costs of the employer mandate contained within the bill, criticizing its effect on small businesses. Cain has been described as one of the primary “saboteurs” of the plan:

The Clintons would later blame “Harry and Louise,” the fictional couple in the ads aired by the insurance industry, for undermining health reform. But the real saboteurs are named Herman and John. Herman Cain is the president of Godfather’s Pizza and president-elect of the National Restaurant Association. An articulate black entrepreneur, Cain transformed the debate when he challenged Clinton at a town meeting in Kansas City, Mo., last April. Cain asked the president what he was supposed to say to the workers he would have to lay off because of the cost of the “employer mandate.” Clinton responded that there would be plenty of subsidies for small businessmen, but Cain persisted. “Quite honestly, your calculation is inaccurate,” he told the president. “In the competitive marketplace it simply doesn’t work that way.”[12]

Joshua Green of The Atlantic has called Cain’s exchange with Clinton his “auspicious debut on the national political stage.”[13]

1996 Senior Adviser of Dole/Kemp Campaign

Cain was a senior economic adviser to the Dole/ Kemp presidential campaign in 1996.[14]

2004 U.S. Senate candidacy

Main article: United States Senate election in Georgia, 2004

In 2004, Cain ran for the U.S. Senate in Georgia, pursuing the seat that came open with the retirement of Democrat Zell Miller. Cain sought the Republican nomination, facing congressmen Johnny Isakson and Mac Collins in the primary. Cain and Collins both hoped to deny Isakson a majority on primary day in order to force him into a runoff.[citation needed] Collins tried to paint Cain as a moderate,[15] citing Cain’s support for affirmative action programs, while Cain argued that he was a conservative, noting that he opposed the legality of abortion even in cases of rape and incest.[16] Cain finished second in the primary with 26.2% of the vote, ahead of Collins, who won 20.6%, but because Isakson won 53.2% of the vote, Isakson was able to avoid a runoff.[17]

 2012 presidential candidacy

Main article: Herman Cain presidential campaign, 2012

In 2010, “Cain addressed more than 40 Tea Party rallies, hit all the early presidential states, and became a YouTube sensation.”[6] In April, he teased the audience at the Southern Republican Leadership Conference about his being a possible 2012 presidential candidate by saying that there may be a “dark horse candidate.”[18][19] On September 24, 2010, Cain announced that he was considering a run for president in 2012 on the Republican Party ticket.[20] “In December, he was the surprise choice for 2012 GOP nominee in a reader poll on the conservative Web site RedState.com, narrowly edging out Palin.”[6]

Cain announced the formation of a presidential exploratory committee on January 12, 2011 on the Fox News Channel program Your World with Neil Cavuto.[21] [22]

Cain supports a non-federally subsidized efficient economic stimulus, saying: “We could grow this economy faster if we had bolder, more direct stimulus policies,” criticizing President Barack Obama’s stimulus plan as simply a “spending bill” instead of meaningful stimulus through permanent tax cuts.[23]

In December 2010, Jonah Goldberg of the National Review wrote of Cain: “it’s hard to imagine him amounting to more than an exciting also-ran.”[24]

In February 2011, Cain addressed the Conservative Political Action Conference (CPAC).[25] Ed Morrisey of the conservative website Hot Air said he “stole the show” and that some attendees were moved to tears by the speech.[26] In contrast, liberal website AlterNet accused Cain of pandering to white conservatives and referred to him and other black conservatives as “garbage pail kids”. Cain called the news website’s attacks racist and condemned its “shameful behavior”.[27]

Following a number of comments made by Cain regarding his attitudes toward Muslim people, he was asked in March 2011 if he would feel comfortable appointing a Muslim to his administration or as a Judge. Cain said “No, I will not … There’s this creeping attempt, there’s this attempt, to gradually ease Shariah Law, and the Muslim faith into our government. It does not belong in our government”[28][29] and he went on to cite court cases in Oklahoma[30] and New Jersey as evidence.[31] This led to criticisms of “bigotry” and “muslim bashing” from CAIR, whose spokesperson stated “It would be laughable if it weren’t having such a negative impact on the lives of Muslim Americans”.[32][33]

On May 5, 2011 Fox News presented a presidential campaign debate. Cain was one of five potential candidates who participated. (The others were Tim Pawlenty, Ron Paul, Gary E. Johnson and Rick Santorum as the higher-profile candidates declined Fox’s invitation.) Cain was declared the winner by pollster Frank Luntz after a show of hands among 29 debate witnesses who were chosen by Fox to act as a post-performance focus group.[34][35] …”

http://en.wikipedia.org/wiki/Herman_Cain

 

 

Herman Cain to Obama at CPAC: “U.S. Will Not Become U.S. of Europe on our Watch”

 

 

Herman Cain: Liberals ‘Don’t Want People to Know the Truth’

 

 

Related Posts On Pronk Palisades

 

Read Full Post | Make a Comment ( None so far )

The Obama Depression (OD) Starts July 4, 2009–30 Million Americans March To Tea Parties In Washington D.C. and Over 1,000 Cities and Towns Across America!

Posted on June 5, 2009. Filed under: Blogroll, Economics, Employment, Life, Links, Politics, Quotations, Rants, Raves, Taxes, Video | Tags: , , , , , , , , , , , , |

fireworkd.jpt

The official unemployment rate as measured by U-3 (see unemployment article below) for May, 2009 was higher than expected, hitting a twenty-five year high of 9.4% or over 14.5 million Americans seeking full time jobs.

The real unemployment rate as measured by U-6 (see unmployment article  below) for May, 2009  hit 16.4% or over 25 million Americans seeking full time jobs.

http://www.bls.gov/news.release/empsit.t12.htm

On July 4, 2009 the Bush recession of 2008 turns into the Obama Depression of 2009.

By July 4, 2009 the official unemployment rate as measured by U-3 will  be over 10% with over 15 million Americans seeking full time employment.

By July 4, 2009 the real unemployment rate as measured by U-6 will be over 17.5% or over 26 million Americans seeking full time jobs.

These unemployment rates will be the highest official and total unemployment rates in over seventy years!

What is not being hightlighted and talked about by big media is that in 1933 at the height of the Great Depression with an unemployment rate of 24.9% the number of unemployed Americans was 12,830,000.

More Americans are now unemployed, 14,511,000, than were in 1933!

The Great Depression: A Brief Overview

Year Unemployment (% labor force)
1933 24.9
1934 21.7
1935 20.1
1936 16.9
1937 14.3
1938 19.0
1939 17.2
1940 14.6
1941 9.9
1942 4.7
1943 1.9
1944 1.2
1945 1.9

source: Historical Statistics US (1976) series D-86

This will be followed in late 2010 and early 2011 with double digit inflation rates!

Monetary Policy By Federal Reserve Will Cause “Double Digit” Inflation

Peter Schiff – CNBC Jun 8, 2009

Jim Rogers: They’re Printing So Much Money That Stocks Will Go To 30,000

Jim Rogers – An Even Greater Depression is Coming – March 1st, 2009

Inside Look – How Long Will the Recession Last? – Bloomberg

Dr. Nouriel Roubini

President Obama’s economic approach of massive bailouts to failing businesses and stimulus bills that are largely payoffs to his campaign contributors (mainly unions and Wall Street banks) combined with the Federal Reserve’s wildly expansionary monetary policy to accommodate the bailouts and huge budgetary deficits are the problem not the solution.

Businesses and consumers have lost confidence in President Obama’s economic policies that are wrecking the American economy and destroying jobs.

Until small and medium size businesses that create most of the new jobs have confidence in President Obama’s and the Federal Reserve’s economic policies, the unemployment rate will continue to grow and the recession will last longer.

I fully expect the official unemployment rate will hit 13% by the end of the year and the real total unemployment rate will hit 21%.

The recession/depression will last at least 30 months or until the middle of 2010 provided both the proposed cap and trade energy tax and national health care bills are defeated.

The Obama Depression will be the longest recession/depression since the Great Depression of 1929-1933 of 43 months.

President Obama’s proposed hidden cap and trade energy tax and the proposed national health care bills if passed will destroy even more jobs and result in an even longer recession if not depression.

Both bills are job and investment killers and are fiscally irresponsible given the huge current and future liabilities of existing entitlement programs, namely Social Security and Medicare. These programs need to be put on a financial sound footing before even considering another new entitlement programs.

President Obama’s incompetent economic policies and radical socialist proposals are the problem not the solution.

Trying to pass the blame to President Bush and lying about the causes will increasingly not work as the American people wake-up to tens of millions unemployed Americans

The American people will demand that all illegal aliens working in the United States be removed from the workplace and deported and American citizens replace them.

The American people will demand that no new taxes be enacted and the FairTax be passed to replace all existing business and individual income, payroll, estate and gift taxes.

The American people will demand a six month tax holiday to restore their confidence in the economy and encourage consumer spending and business investment.

The American people will demand that all bailouts be banned and all budgets be balanced.

The American people will demand that both the  Social Security and Medicare  programs be saved before entertaining any new entitlement program such as national health care.

Look before you leap!

US Federal Government Deficits

federal_spending

Stop Spending Our Future – The Crisis

Joe Stiglitz …explains how we got robbed by tarp 2

Inside Look – How Not to Fix the Financial System – Bloomberg

Dr. Nouriel Roubini

Glenn Beck Interviews Stuart Varney,Conservatives Take Control Of Parliament

Out of control fear

On July 4, 2009 Independence Day over 30 million Americans will march and attend ice tea parties in over 1,000 cities and towns including Washington D.C.  celebrating the Second American Revolution.

You are invited to attend a Tea Party on Saturday, July 4, 2009, Independence Day!

Happy_July_4

Join the Second American Revolution

we_the_people

The Meaning of Independence Day

Ayn Rand Center for Individual Rights

Second American Revolution–Tea Party Celebrations–Washington Fair–July 4, 2009–An Open Invitation To The American People

American People’s Plan = 6 Month Tax Holiday + FairTax = Real Hope + Real Change!–Millions To March On Washington D.C. Saturday, July 4, 2009!

Independents Lead The The Second American Revolution Surge–Independence Day–Saturday July 4, 2009 In Washington D.C.–Tea Party Time–On To Washington–Dare You To Move!

Please Spread The Message of Liberty

liberty_bell1

Proclaim liberty throughout the land to all its inhabitants.”

Let Freedom Ring

Thomas Paine on to Washington

switchfoot-dare you to move(live)

God Bless the USA – Lee Greenwood

Background Articles and Videos

THE EMPLOYMENT SITUATION: MAY 2009

Nonfarm payroll employment fell by 345,000 in May, about half the
average monthly decline for the prior 6 months, the Bureau of Labor
Statistics of the U.S. Department of Labor reported today. The unem-
ployment rate continued to rise, increasing from 8.9 to 9.4 percent.
Steep job losses continued in manufacturing, while declines moderated
in construction and several service-providing industries.

Unemployment (Household Survey Data)

The number of unemployed persons increased by 787,000 to 14.5 million in May, and the unemployment rate rose to 9.4 percent. Since the start of the recession in December 2007, the number of unemployed persons has risen by 7.0 million, and the unemployment rate has grown by 4.5 percent-age points. (See table A-1.)

Unemployment rates rose in May for adult men (9.8 percent), adult
women (7.5 percent), whites (8.6 percent), and Hispanics (12.7 percent). The jobless rates for teenagers (22.7 percent) and blacks (14.9 percent) were little changed over the month. The unemployment rate for Asians was 6.7 percent in May, not seasonally adjusted, up from 3.8 percent a year earlier. (See tables A-1, A-2, and A-3.)

Among the unemployed, the number of job losers and persons who completed temporary jobs rose by 732,000 in May to 9.5 million. This group has increased by 5.8 million since the start of the recession. (See table A-8.)

The number of long-term unemployed (those jobless for 27 weeks or more) increased by 268,000 over the month to 3.9 million and has tripled since the start of the recession. (See table A-9.)

unemployment_bar

US_Unemployment_1890-2008

US  Annual

Unemployment

Rate

Year Annual Rate
1948 3.8
1949 5.9
1950 5.3
1951 3.3
1952 3.0
1953 2.9
1954 5.5
1955 4.4
1956 4.1
1957 4.3
1958 6.8
1959 5.5
1960 5.5
1961 6.7
1962 5.5
1963 5.7
1964 5.2
1965 4.5
1966 3.8
1967 3.8
1968 3.6
1969 3.5
1970 4.9
1971 5.9
1972 5.6
1973 4.9
1974 5.6
1975 8.5
1976 7.7
977 7.1
1978 6.1
1979 5.8
1980 7.1
1981 7.6
1982 9.7
1983 9.6
1984 7.5
1985 7.2
1986 7.0
1987 6.2
1988 5.5
1989 5.3
1990 5.6
1991 6.8
1992 7.5
1993 6.9
1994 6.1
1995 5.6
1996 5.4
1997 4.9
1998 4.5
1999 4.2
2000 4.0
2001 4.7
2002 5.8
2003 6.0
2004 5.5
2005 5.1
2006 4.6
2007 4.6
008 5.8

Unemployment

“…Unemployment occurs when a person is available to work and seeking work but currently without work.[1] The prevalence of unemployment is usually measured using the unemployment rate, which is defined as the percentage of those in the labor force who are unemployed. The unemployment rate is also used in economic studies and economic indexes such as the United States’ Conference Board’s Index of Leading Indicators as a measure of the state of the macroeconomics.

Most economic schools of thought agree that the cause of involuntary unemployment is that wages are above the market clearing rate. However, there are disagreements as to why this would be the case: the economists argue that in a downturn, wages stay high because they are naturally ‘sticky’, whilst others argue that minimum wages and union activity keep them high. Keynesian economics emphasizes unemployment resulting from insufficient effective demand for goods and services in the economy (cyclical unemployment). Others point to structural problems, inefficiencies, inherent in labour markets (structural unemployment). Classical or neoclassical economics tends to reject these explanations, and focuses more on rigidities imposed on the labor market from the outside, such as minimum wage laws, taxes, and other regulations that may discourage the hiring of workers (classical unemployment). Yet others see unemployment as largely due to voluntary choices by the unemployed (frictional unemployment). Alternatively, some blame unemployment on Globalisation. There is also disagreement on how exactly to measure unemployment. Different countries experience different levels of unemployment; traditionally, the USA experiences lower unemployment levels than countires in the European Union,[2] although there is variet there, with countries like the UK and Denmark outpreforming Italy and France and it also changes over time (e.g. the Great depression) throughout economic cycles …”

“…The Bureau of Labor Statistics measures employment and unemployment (of those over 15 years of age) using two different labor force surveys[32] conducted by the United States Census Bureau (within the United States Department of Commerce) and/or the Bureau of Labor Statistics (within the United States Department of Labor) that gather employment statistics monthly. The Current Population Survey (CPS), or “Household Survey”, conducts a survey based on a sample of 60,000 households. This Survey measures the unemployment rate based on the ILO definition.[33] The data is also used to calculate 5 alternate measures of unemployment as a percentage of the labor force based on different definitions noted as U1 through U6:[34]

  • U1: Percentage of labor force unemployed 15 weeks or longer.
  • U2: Percentage of labor force who lost jobs or completed temporary work.
  • U3: Official unemployment rate per ILO definition.
  • U4: U3 + “discouraged workers”, or those who have stopped looking for work because current economic conditions make them believe that no work is available for them.
  • U5: U4 + other “marginally attached workers”, or those who “would like” and are able to work, but have not looked for work recently.
  • U6: U5 + Part time workers who want to work full time, but can not due to economic reasons.

Note: “Marginally attached workers” are added to the total labor force for unemployment rate calculation for U4, U5, and U6. The BLS revised the CPS in 1994 and among the changes the measure representing the official unemployment rate was renamed U3 instead of U5.[35]

http://en.wikipedia.org/wiki/Unemployment

Inflation is looming on America’s horizon

By Martin Feldstein

Published: April 19 2009 18:54 | Last updated: April 19 2009 18:54

“…The money supply consists largely of government-insured bank deposits that households and businesses are holding because of a concern about the liquidity and safety of other forms of investment. But this could change when conditions improve, turning these money balances into sources of inflation.

The link between fiscal deficits and money growth is about to be exacerbated by “quantitative easing”, in which the Fed will buy long-dated government bonds. While this may look like just a modified form of the Fed’s traditional open market operations, it cannot be distinguished from a policy of directly monetising some of the government’s newly created debt. Fortunately, the amount of debt being purchased in this way is still small relative to the total government borrowing.

The Fed is also creating a massive increase in liquidity by its policy of supplying credit directly to private borrowers. Although these credit transactions do not add to the measured fiscal deficit, the unprecedented Fed purchases of more than $1,000bn of private securities have led to the enormous $700bn increase in the excess reserves of the commercial banks. The banks now hold these as interest-bearing deposits at the Fed. But when the economy begins to recover, these reserves can be converted into new loans and faster money growth.

The deep recession means that there is no immediate risk of inflation. The aggregate demand for labour and goods and services is much less than the potential supply. But when the economy begins to recover, the Fed will have to reduce the excessive stock of money and, more critically, prevent the large volume of excess reserves in the banks from causing an inflationary explosion of money and credit. …”

http://www.ft.com/cms/s/0/ae436dbc-2d09-11de-8710-00144feabdc0.html

Great Depression

by Gene Smiley

“A worldwide depression struck countries with market economies at the end of the 1920s. Although the Great Depression was relatively mild in some countries, it was severe in others, particularly in the United States, where, at its nadir in 1933, 25 percent of all workers and 37 percent of all nonfarm workers were completely out of work. Some people starved; many others lost their farms and homes. Homeless vagabonds sneaked aboard the freight trains that crossed the nation. Dispossessed cotton farmers, the “Okies,” stuffed their possessions into dilapidated Model Ts and migrated to California in the false hope that the posters about plentiful jobs were true. Although the U.S. economy began to recover in the second quarter of 1933, the recovery largely stalled for most of 1934 and 1935. A more vigorous recovery commenced in late 1935 and continued into 1937, when a new depression occurred. The American economy had yet to fully recover from the Great Depression when the United States was drawn into World War II in December 1941. Because of this agonizingly slow recovery, the entire decade of the 1930s in the United States is often referred to as the Great Depression. …”

http://www.econlib.org/library/Enc/GreatDepression.html

List of recessions in the United States

“…This is a list of recessions that have affected the United States. Though a recession is popularly defined as two quarters of negative GDP growth, the beginning and ending dates of U.S. recessions are officially determined by the National Bureau of Economic Research (NBER).[2] The NBER defines a recession as, “…a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”[3] From 1945-2007 the NBER has identified 11 recessions;[4] their average duration was 10 months (peak to trough).[5]

Most of the recessions listed here have affected economies on a worldwide scale; some of them are the Great Depression, the late 1980s recession, and the early 2000s recession. Recessions in one country are often grouped together with recessions in other countries that are related, and they commonly share a focal point as the cause of the recession.[6]

Note that before detailed economic statistics began to be gathered in the nineteenth century, it was difficult to tell when recessions occurred.[7] In spite of this, it is possible to estimate when economic recessions began because they were typically caused by external actions on the economic system such as wars and variations in the weather.[8]

Recessions and other Economic Crises

Name  ↓ Dates  ↓ Duration  ↓ Time since start of previous entry  ↓ Causes References
Panic of 1797 1797–1800 &0000000000000003.0000003 years The effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States and the Caribbean. Britain‘s economy was greatly affected by developing disflationary repercussions because it was fighting France in the French Revolutionary Wars at the time. [9] [5]
Depression of 1807 1807–1814 &0000000000000007.0000007 years &0000000000000010.00000010 years The Embargo Act of 1807 was passed by the United States Congress under President Thomas Jefferson. It devastated shipping-related industries. The Federalists fought the embargo and allowed smuggling to take place in New England. [10][11][5]
Panic of 1819 1819–1824 &0000000000000005.0000005 years &0000000000000012.00000012 years The first major financial crisis in the United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. It also marked the end of the economic expansion that followed the War of 1812. [12][13][5]
Panic of 1837 1837–1843 &0000000000000006.0000006 years &0000000000000018.00000018 years A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage). [14][5]
Panic of 1857 1857–1860 &0000000000000003.0000003 years &0000000000000020.00000020 years Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of confidence in American banks. Over 5,000 businesses failed within the first year of the Panic, and unemployment was accompanied by protest meetings in urban areas. [15][5]
Panic of 1873 1873–1879 &0000000000000006.0000006 years &0000000000000016.00000016 years Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States, which burst the post-Civil War speculative bubble. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests. [16][5]
Long Depression 1873–1896 &0000000000000023.00000023 years The collapse of the Vienna Stock Exchange caused a depression that spread throughout the world. It is important to note that during this period, the global industrial production greatly increased. In the United States, for example, industrial output increased fourfold. [17][5]
Panic of 1893 1893–1896 &0000000000000003.0000003 years &0000000000000020.00000020 years Failure of the United States Reading Railroad and withdrawal of European investment led to a stock market and banking collapse. This Panic was also precipitated in part by a run on the gold supply. [18][5]
Panic of 1907 1907–1908 &0000000000000001.0000001 year &0000000000000014.00000014 years A run on Knickerbocker Trust Company deposits on October 22, 1907, set events in motion that would lead to a severe monetary contraction. [19][5]
Post-World War I recession 1918–1921 &0000000000000003.0000003 years &0000000000000011.00000011 years Severe hyperinflation in Europe took place over production in North America. It was a brief but very sharp recession and was caused by the end of wartime production, along with an influx of labor from returning troops. This in turn caused high unemployment. [20][5]
Great Depression 1929–1933 &0000000000000043.00000043 months &0000000000000021.00000021 months Stock markets crashed worldwide, and a banking collapse took place in the United States. Although sometimes dated as lasting until the Second World War, the US economy was growing again by 1933, and technically the U.S. was not in recession from 1933 to 1937 [21][5]
Recession of 1937 1937–1938 &0000000000000013.00000013 months &0000000000000050.00000050 months The Recession of 1937 is only considered minor when compared to the Great Depression, but is otherwise among the worst recessions of the 20th century. [22]
Recession of 1945 Feb-Oct 1945 &0000000000000008.0000008 months &0000000000000080.00000080 months The decline in government spending at the end of World War II led to an enormous drop in Gross Domestic Product making this technically a recession. The Post War years were unusual in a number of ways and this era has little in common with other recessions. [23]
Recession of 1948 Nov 1948–Oct 1949 &0000000000000011.00000011 months &0000000000000037.00000037 months The 1948 recession was a relatively brief cyclical economic downturn, the mildness of which led to confidence in the notion that the Post War-era would be a period of stronger growth. [24]
Recession of 1953 July 1953–May 1954 &0000000000000010.00000010 months &0000000000000045.00000045 months After a post-Korean War inflationary period, more funds were transferred into national security. The Federal Reserve changed monetary policy to be more restrictive in 1952 due to fears of further inflation. [25][26][5]
Recession of 1958 Aug 1957–April 1958 &0000000000000008.0000008 months &0000000000000039.00000039 months Monetary policy was tightened during the two years preceding 1957, followed by an easing of policy at the end of 1957. The budget balance resulted in a change in budget surplus of 0.8% of GDP in 1957 to a budget deficit of 0.6% of GDP in 1958, and then to 2.6% of GDP in 1959. [27][5]
Recession of 1960-1 April 1960–Feb 1961 &0000000000000010.00000010 months &0000000000000024.00000024 months After President Kennedy’s 30 January 1961 call for increased government spending to improve the Gross National Product and to reduce unemployment, the 1960-61 recession ended in February.[28]
Recession of 1969-70 Dec 1969–Nov 1970 &0000000000000011.00000011 months &0000000000000106.000000106 months The relatively mild 1969 recession is thought to have been mostly caused by the Federal Reserve raising interest rates to hold down inflation. [5]
1973 oil crisis1973–1974 stock market crash Nov. 1973– March 1975 &0000000000000016.00000016 months &0000000000000036.00000036 months A quadrupling of oil prices by OPEC coupled with high government spending due to the Vietnam War led to stagflation in the United States. [29][5]
1980 recession Jan-July 1980 &0000000000000006.0000006 months &0000000000000058.00000058 months The NBER considers a short recession to have occurred in 1980, followed by a short period of growth and then a deep recession. Unemployment remained relatively elevated inbetween recessions. The early ’80s are sometimes referred to as a “double dip” or “w-shaped” recession. [5]
Early 1980s recession July 1981–Nov 1982 &0000000000000016.00000016 months &0000000000000012.00000012 months The Iranian Revolution sharply increased the price of oil around the world in 1979, causing the 1979 energy crisis. This was caused by the new regime in power in Iran, which exported oil at inconsistent intervals and at a lower volume, forcing prices to go up. Tight monetary policy in the United States to control inflation led to another recession. The changes were made largely because of inflation that was carried over from the previous decade due to the 1973 oil crisis and the 1979 energy crisis. [30][31][5]
Early 1990s recession July 1990–March 1991 &0000000000000008.0000008 months &0000000000000092.00000092 months Industrial production and manufacturing-trade sales increased in early 1991. [32][5]
Early 2000s recession Mar-Nov 2001 &0000000000000008.0000008 months &0000000000000120.000000120 months The collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy. [33][5]
Late 2000s recession Dec 2007-current ongoing &0000000000000073.00000073 months The collapse of the housing market led to bank collapses in the US and Europe, causing the amount of available credit to be sharply curtailed, resulting in huge liquidity and solvency crises. In addition, record oil prices and food prices, stock markets crashed globally, and several high profile banking and manufacturing giants collapsed in the United States [34][35]

http://en.wikipedia.org/wiki/List_of_recessions

Mobilizing against Obamacare

By Michelle Malkin

teaparty

“…Liberty Belle blogger Keli Carender, who organized the first porkulus protest in Seattle back in February that presaged the Tea Party movement, is mobilizing grass-roots activists against the Obama health care takeover.

The Funeral for Health Care will be held on May 30.

More info here.

What are you doing in your neighborhood?

Noteworthy: Seattle was ground zero during the 1994 grass-roots revolt against Hillarycare.

Let history repeat. …”

http://michellemalkin.com/2009/05/21/mobilizing-against-obamacare/
JIM ROGERS CNBC JUNE 4, 2009 PART 1 OF 4

Obama Strong Approval Ratings Equal Obama Strong Disapproval

JIM ROGERS CNBC JUNE 4, 2009 PART 2 OF 4

JIM ROGERS CNBC JUNE 4, 2009 PART 3 OF 4

JIM ROGERS CNBC JUNE 4, 2009 PART 4 OF 4

Related Posts On Pronk Palisades

President Obama–Killer of The American Dream and Market Capitalism–Stop The Radical Socialists Before They Kill You!

Living The American Dream and Defending The American Dream

US Federal Government Fails Stress Test–Insolvent: Time Has Arrived For Downsizing–Departments and Subsidies To Be Eliminated!

Independents Lead The The Second American Revolution Surge–Independence Day–Saturday July 4, 2009 In Washington D.C.–Tea Party Time–On To Washington–Dare You To Move!

American People’s Plan = 6 Month Tax Holiday + FairTax = Real Hope + Real Change!–Millions To March On Washington D.C. Saturday, July 4, 2009!

Second American Revolution–Tea Party Celebrations–Washington Fair–July 4, 2009–An Open Invitation To The American People

 

Read Full Post | Make a Comment ( 20 so far )

Living The American Dream and Defending The American Dream

Posted on June 5, 2009. Filed under: Blogroll, Communications, Computers, Economics, Education, Employment, Energy, Health Care, Homes, Investments, Law, liberty, Links, People, Philosophy, Politics, Quotations, Raves, Regulations, Strategy, Talk Radio, Taxes, Technology, Video, Wisdom | Tags: , , |

Living The American Dream

“You can’t put a price tag on the American Dream. That dream is the heart and soul of America; it’s the promise that keeps our nation forever good and generous, a model and hope to the world.”

~President Ronald Reagan, October 22, 1986

 

Defending The American Dream

“This is not the time for political fun and games. This is the time for a new beginning. I ask you now to put aside any feelings of frustration or helplessness about our political institutions and join me in this dramatic but responsible plan to reduce the enormous burden of Federal taxation on you and your family.”

~President Ronald Reagan, July 27, 1981

 

You are invited to attend a Tea Party on July 4, 2009, Independence Day!

 

Join the Second American Revolution

 

we_the_people

The Meaning of Independence Day

Ayn Rand Center for Individual Rights

 

Second American Revolution–Tea Party Celebrations–Washington Fair–July 4, 2009–An Open Invitation To The American People 

American People’s Plan = 6 Month Tax Holiday + FairTax = Real Hope + Real Change!–Millions To March On Washington D.C. Saturday, July 4, 2009!

Millions of Rightwing Extremists To March On Washington D.C. Fair–Celebrating Independence Day Tea Parties and Chanting “Extremism in the defense of liberty is no vice!” 

Independents Lead The The Second American Revolution Surge–Independence Day–Saturday July 4, 2009 In Washington D.C.–Tea Party Time–On To Washington–Dare You To Move!

 

Please Spread The Message of Liberty

liberty_bell1

 “Proclaim liberty throughout the land to all its inhabitants.”

 

 Let Freedom Ring  

 

 

 

Thomas Paine on to Washington

 

switchfoot-dare you to move(live)

 

Background Articles and Videos

Mobilizing against Obamacare

By Michelle Malkin  

teaparty

 

 

 

 

 

“…Liberty Belle blogger Keli Carender, who organized the first porkulus protest in Seattle back in February that presaged the Tea Party movement, is mobilizing grass-roots activists against the Obama health care takeover.

The Funeral for Health Care will be held on May 30.

More info here.

What are you doing in your neighborhood?

Noteworthy: Seattle was ground zero during the 1994 grass-roots revolt against Hillarycare.

Let history repeat. …”

http://michellemalkin.com/2009/05/21/mobilizing-against-obamacare/

Read Full Post | Make a Comment ( 10 so far )

Liked it here?
Why not try sites on the blogroll...