David Kirkpatrick

July 15, 2010

Per Fed, economic recovery slowing

Filed under: Business, Politics — Tags: , , , , , , — David Kirkpatrick @ 1:40 pm

This is very easy news to believe. Things are still pretty rough out there.

From the link:

Federal Reserve policymakers, acknowledging a slowing in the economic recovery at their meeting in late June, began to consider the possibility of providing additional stimulus if growth fell sharply — a possibility that has become all the more real as signs of weakness have piled up.

June 30, 2010

Interest rates are going to stay low

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 11:56 pm

In other words, move along everyone — there’s nothing to see here

From the link:

Jitters that financial strains may derail the U.S. economic recovery mean the Federal Reserve will be in no rush to end its ultra-low interest rates, comments by officials of the U.S. central bank suggested on Wednesday.

One senior Fed official went as far as acknowledging that falling inflation could spur the central bank to further ease financial conditions, and another policy maker would not rule out additional measures to stimulate growth.

When asked whether lower inflation would prompt the Fed to try to push borrowing costs even lower, Atlanta Federal Reserve President Dennis Lockhart told a Rotary Club audience: “It’s appropriate to think about what we would do under a deflationary scenario. At this point, no specific planning in my view is occurring but discussion in all likelihood will be on the agenda.”

June 1, 2010

The recession and the unemployment benchmark

The question is did the recession push the unemployment benchmark to around seven percent, and if so will the Fed do damage to an already fragile economy by sticking with the previous benchmark of around five percent.

Certainly food for economic thought.

From the link:

Federal Reserve policy makers say full employment means a long-term jobless rate between 5 percent and 5.3 percent. Some of the most influential economists say they’re wrong.

Dean Maki at Barclays Capital, 2006 Nobel Prize-winner Edmund Phelps and Bank of America-Merrill Lynch’s Ethan Harris estimate the worst financial crisis since the Great Depression has pushed the so-called natural rate of unemployment to between 6.3 percent and 7.5 percent. Unless the Fed accepts that more Americans will be permanently out of work, the central bank may spur inflation by waiting too long to raise its benchmark rate from a record low, said Maki, Barclays’ chief U.S. economist and the most accurate forecaster in a December 2009 Bloomberg News survey.

November 12, 2009

TARP funds for deficit reduction?

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 11:35 am

Even though this move really smacks of naked politics there are far worse things TARP money could go toward than helping to drive down the outrageous deficits racked up over the last eight fiscally irresponsible years.

From the link:

The Obama administration, under pressure to show it is serious about tackling the budget deficit, is seizing on an unusual target to showcase fiscal responsibility: the $700 billion financial rescue.

The administration wants to keep some of the unspent funds available for emergencies, but is considering setting aside a chunk for debt reduction, according to people familiar with the matter. It is also expected to lower the projected long-term cost of the program — the amount it expects to lose — to as little as $200 billion from $341 billion estimated in August.

The idea is still a matter of debate within the administration and it is unclear how much impact it would have on the nation’s mounting deficit levels. Still, the potential move illustrates how the Obama administration is trying to find any way it can to bring down the deficit, which is turning into a political as well as an economic liability.

November 5, 2009

Fed sees overnight lending rates remaining around nil …

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 3:22 pm

for an “extended period.”

December 23, 2008

And now it begins …

Filed under: Business, Politics — Tags: , , , — David Kirkpatrick @ 3:05 pm

China is laying its legal case against the US in preparation for calling all its notes. Maybe not, but this does merit some attention.

Eight years of the Bush 43 regime has left the US in a very precarious position economically and militarily.

From the link:

China has asked the World Trade Organization to investigate whether the United States is illegally taxing Chinese goods such as steel pipes and off-road tires.

It’s the first time Beijing has ever sought a WTO panel in a trade dispute.

Washington delayed the panel’s establishment at a meeting of the WTO’s dispute body on Monday, but an investigation will likely be launched early next year.

The Geneva-based body can authorize trade sanctions if countries fail to comply with rules.

China says U.S. charges on some Chinese goods violate numerous trade agreements.

The U.S. says the goods are being exported at below-market value and that it is lawfully defending American manufacturers.

December 18, 2008

The Fed’s toolbox …

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 2:57 pm

isn’t totally empty, even though the overnight funds rate is now effectively zero. Of course, we can always just the printing presses running 24/7 at the mint. (Before I get it from other fiscal conservatives, just kidding there on the last one.)

From the link:

When the Federal Reserve reduced its target for the federal funds rate to virtually zero this week, it appeared to have run out of room to attempt any further monetary stimulus for the economy.

That’s not really the case, and it is why the Fed statement stressed the wide-ranging open market operations it will use to inject money into the economy and drive down interest rates along the entire interest-rate curve, not just at the short end. The Fed will directly buy mortgages to flood that market with much-needed liquidity, and it will buy long-term Treasury bonds to drive down yields.

But just as the absence of interbank lending has rendered the federal funds target fairly useless as a tool, so too has it robbed central bank money of much of its impact, because there is no multiplier effect. That whole credit mechanism is broken for the time being, which means central bank money is going into the economy directly, without the amplification of bank lending on the basis of fractional reserves.

December 16, 2008

Fed drifting into uncharted waters

Filed under: Business, Politics — Tags: , , , , , — David Kirkpatrick @ 11:46 am

I’ve already covered most of the issues individually looking at the ongoing financial crisis, but it is a bit daunting to see the litany listed in one place.

Whew.

From the link:

Having printed more than $1 trillion in new money since September, yet still failing to stop the economy from sinking, the Federal Reserve is expected to enter a new era of cheap money this week.

On Tuesday, policy makers are expected to lower their target for the overnight federal funds rate to 0.5 percent, a record low.

 

In itself, analysts said, the move will be anticlimactic. Because demand for interbank loans has been so low, the actual Fed rate has been close to zero for a month. The real change will be in how the Fed tries to fight the recession from here on.

After Tuesday, the Fed will have to resort to mostly untested tools for promoting growth, because it cannot reduce its benchmark interest rate below zero.

Its goal will be to drive down borrowing costs wherever credit markets remain paralyzed. But the approach is much more complicated than raising or lowering a single rate, and it could have unintended consequences.

Analysts say the current recession, which officially began a year ago, is all but certain to break the postwar record for duration, 16 months. But it could also set a record for depth.

The economy has already lost two million jobs this year. Analysts predict that unemployment, now 6.5 percent, could hit 9 percent by the end of next year.

The Fed must now turn to an approach called ”quantitative easing,” because it involves injecting money into the economy rather than aiming at an interest rate. The Fed has almost no experience with this approach.

”This is a whole new world,” said Richard Berner, chief economist at Morgan Stanley. ”You don’t have a whole lot of historical precedent for knowing how this is going to work and what the unintended consequences could be.”

June 12, 2008

Strong dollar, weak dollar — a primer

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 1:43 pm

There’s a lot of talk in the news these days about our “weak” dollar. If you haven’t taken Econ 101 (and maybe even if you have) the concept of a strong dollar, or a weak dollar may be not be all that clear.

AccountantsWorld.com has posted a nice little Q&A covering the basics of the issue. There are positives and negatives to both states for the US dollar, and either extreme is not good. The primary consequence of our current weak US dollar that most everyone is feeling and talking about is its direct relationship to the cost of gas at the pump.

From the link:

Q: What is the relationship between a weak dollar and oil and gasoline prices?

A: It is a direct one, since oil generally is bought and sold in dollars. The more the value of the greenback goes down, the more it costs to buy a barrel of oil.

Of course, there are other factors involved in today’s roughly $4-a-gallon (€0.64-a-liter) gasoline prices. They include soaring demand from China and India, political turmoil in some oil-producing regions, the inability or refusal of major oil-exporting countries to increase production, and market speculation.

The weaker dollar has been a major factor, and one that could threaten the chances of a U.S. economic recovery.

Q: How long has this been going on?

A: The dollar has been on an extended slide against other major currencies, especially the euro and the Japanese yen, for about five years, during which the U.S. trade deficit with the rest of the world generally continued to widen. That required more borrowing from abroad and further weakening the dollar. At the same time, the economies of Europe expanded, driving up the value of the euro against the dollar. And recent sharp interest cuts by the Fed to deal with the U.S. housing and credit crises also have served to push down the dollar’s value. The dollar has fallen sharply against the euro in the past year.

Q: What is the U.S. government’s position on the dollar?

A: U.S. officials, usually the treasury secretary, have long repeated the mantra that a strong dollar is in the nation’s best interest. Yet the administration did nothing to back up its assertion with action, and many policy-makers clearly welcomed the slide, mainly because it helped to keep U.S. exports expanding, a rare bright spot in a troubled economy.

During the last week, however, officials have signaled that they do not want further declines. Bush, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have issued statements backing the need for a strong dollar and expressing misgivings about the economy.

“A strong dollar is in our nation’s interests. It is in the interests of the global economy,” Bush said Monday as he embarked on a European tour.