YELLENOMICS 101

They say that getting to the summit is only half the journey; you hafta’ make it back down again, too. It’s getting to be a pretty big drop.

bofa-2

How long do you think it’s gonna’ rain? Forever?

e279ce2d-0727-47ab-9377-142e9528bb39_text

And what do you think will happen when it stops?

Dow Jones Industrial Average, 1900 - August 17, 2007.
 

Dow Jones Industrial Average, 1900 - 1940.

The greatest economic mind in America (supposedly) thinks she can keep the ball rolling indefinitely. Some, including Al Bartlett (1:13:53), would disagree.

dj20k_blogcrop

Advertisements

Yellen: Make It Rain

Switzerland just said no (with 78%) to a guaranteed income (helicopter money) for all its citizens.

With an unemployment rate of about 3 1/2%, they didn’t really need it. The fear was that it would encourage immigration. That seemed to be enough of an argument for Swiss adults to decide they did not want an extra 2500 CHF (625 CHF per child) per month. The system was to replace welfare.

The practice remains more or less untested. It was first posited by economist Milton Friedman in 1969. The basic principle is that if a central bank wants to raise inflation and output in an economy that is running substantially below potential, one of the most effective tools would be simply to give everyone direct money transfers.

Canada tried it in limited amounts and found that it did decrease poverty, but at what price? Some had trouble dealing with it and feared it would push the country further towards socialism. The Canadian program is set to launch in 2016. Canada’s unemployment rate is twice that of Switzerland which means it might have more popular support.

Finland is set to begin in 2017. France, United Kingdom, and parts of the Netherlands are set to implement similar programs soon. Will the US be next?

Helicopter money indeed, but for whom? Cui bono?

.

.

image: ©laphotoshoppe [at] gmail [dot] com

Lift-off, or Splash-down?

Today is the day the Fed decides whether it will raise interest rates or not. Nobody at all is talking about this but, heck, they might even go negative. From a nominal 0.10%, if the rate is dropped 0.25%, that would turn (near) ZIRP into (full-on) NIRP.

Maybe there will be a bomb scare and the meeting will be called off. That way ISIS can be blamed, guns can be confiscated, Christmas spending won’t be affected, the Fed won’t be scrutinized, and the hike can happen in January when it won’t matter so much, if at all. Everybody will be broke by then anyway.

We will have to wait and see. In the meantime, watch for falling… uh… objects.

*Update*

No bomb scare, no NIRP (yet,) no good sense from the Fed. Today’s hike caused already over-priced markets everywhere (even Brazil) to climb even higher. Is this a good thing, or did the Fed screw up once again?

If hikes are no good, and Nirp is no good (punishes responsible savers,) what options are left? When all markets are manipulated (to paraphrase Carney,) how does this bode for the entrepreneurs who are supposed to lift us out of recession? How are they supposed to make projections? How can they justify risking investments and hiring their workforce?

Defenestration did not appear to be a significant problem.

In the end, the Fed did not surprise, and raised interest rates for the first time in almost a decade in a widely telegraphed move while signaling that the pace of subsequent increases will be “gradual” and in line with previous projections. The Federal Open Market Committee unanimously voted to set the new target range for the federal funds rate at 0.25 percent to 0.5 percent, up from zero to 0.25 percent. Policy makers separately forecast an appropriate rate of 1.375 percent at the end of 2016, the same as September, implying four quarter-point increases in the target range next year, based on the median number from 17 officials.”

.

© laphotoshoppe