Fed says U.S. economy strong enough to handle rate hike

[timosman]

Solution: end the Fed. Market interest rate. Smooth sailing.

Too late for that. I think they are going for the "minimize the impact" option.

 

[Chester Copperpot]

Generally, rates are too low if the economy is starting to overheat (usually indicated by very low unemployment and high or rising price inflation. We obviously aren't there. Rates are too high if the economy is growing too slowly (or shrinking) because costs of borrowing is too high (reducing investment into things like more equipment at businesses to increase productivity). As a Central Bank you want to tap on the brakes a bit if things are showing signs of growing too quickly. Our economic car is moving somewhat faster than it was during the recession but it is not anywhere near any dangerous speeds where we need to try to slow it down a bit. I don't think that right now we need economic brakes applied. But the Fed will be watching many numbers over the next quarter or two to try to see how things are moving along. First quarter was basically zero growth.

rates ARE ALWAYS TOO LOW. price inflation.. how about the fact that printing money prevents natural deflation from making savers richer.

wtf is wrong with everybody

 

[jclay2]

Generally, rates are too low if the economy is starting to overheat (usually indicated by very low unemployment and high or rising price inflation. We obviously aren't there. Rates are too high if the economy is growing too slowly (or shrinking) because costs of borrowing is too high (reducing investment into things like more equipment at businesses to increase productivity). As a Central Bank you want to tap on the brakes a bit if things are showing signs of growing too quickly. Our economic car is moving somewhat faster than it was during the recession but it is not anywhere near any dangerous speeds where we need to try to slow it down a bit. I don't think that right now we need economic brakes applied. But the Fed will be watching many numbers over the next quarter or two to try to see how things are moving along. First quarter was basically zero growth.

The modern econ crowd is hilarious. A bunch of phds in a gigantic circle jerk and all they can come up with is:

Economy bad - Rates Down
Economy good - Rates Up

The Phillips Curve can kiss my arse. Zippy, how do you know that your prescribed manipulation of interest rates is what will best optimize the economy? Do you think yourself a god? Are you able to forecast the implications on trillions of economic calculations and decisions? If you can fix the price of money why not try fixing the prices of commodities, labor, consumer goods? You are either disillusion or being knowingly deceitful. My guess is the latter. But of course, whats a paid troll to do....

 

[jclay2]

Too much credit. I would say its more like a failed rube goldberg machine where each step needs human assistance to get to the next point.

 

[John X]

Here's Austrian Business Cycle Theory summed up in one sentence:

There's a delayed reaction, genius!

That's at least what they're forced to say now ....Austrians in 2008 certainly weren't saying that 7+ years of decreasing unemployment and low inflation would occur alongside massive QE and 0% interest rates.

 

[Zippyjuan]

I believe they were saying something about another crash right around the corner along with hyperinflation. That stimulus won't help but just make things worse.

 

[Ronin Truth]

Ah, but is the Federal Government strong enough to handle a rate hike? Stay tuned!

 

[helmuth_hubener]

That's at least what they're forced to say now ....Austrians in 2008 certainly weren't saying that 7+ years of decreasing unemployment and low inflation would occur alongside massive QE and 0% interest rates.

No, the delayed reaction is a core element of the theory. Austrians have not been "forced" to somehow change their story, as you suggest. Way back in the 1920s the theory was the same, and Hayek and Mises were claiming that although the artificially low interest rates of the 1920s did not seem to be causing price inflation nor any other problem, it was causing higher inflation than otherwise -- a lack of price deflation in this case -- and that eventually, there would be inevitable repercussions. And that was true. And that is still just as true.

Austrian Economics is not a predictive empirical science. So while the Austrian economists as economists were not making that particular prediction in 2008, neither were they making any other. So, no bonus credit to them, but no deduction either. Making predictions simply isn't part of their discipline as they see it.

Now, individual investment advisors who see themselves as influenced by the ideas of the Austrian economists (but who are not themselves economists) certainly made various predictions and gave various investment advice. Such people include: Peter Schiff, Doug Casey, Gary North, Jim Rogers, Jim Puplava, and Chris Leithner. Like all investment advisors: to the extent they help their clients accomplish their goals by making them aware of tools, techniques, and products and making those things accessible, I believe they are useful. To the extent they put on their "guru" caps and forecast the market, I believe they are misguided, dangerous, and usually wrong.

One investment advisor who absorbed the true lessons of Austrian economics better than the ones listed above was Harry Browne. He had a different approach. He rejected guru-ism and instead recommended a systematically agnostic stance. His ideas have been performing exceedingly well for over 40 years.

Anyway, Austrian economics does not tell us what specifically is going to happen to the economy in the future. It doesn't say what will happen "this time." In fact, it explicitly rejects that thinking and tells us that this time will never be the same as last time, and that next time will be different yet again. Those pesky humans are so unpredictable. You never know just what they'll do. That's Austrian economics.

So I appreciate your thoughtful skepticism and indeed rejection of what you see as Austrian economics. And in fact, I share it. But what you -- and I -- are rejecting is not Austrian economics but rather the shallow reduction of it into simplistic soundbites and ineffective advice by hucksters and self-styled gurus.

 

[Madison320]

One investment advisor who absorbed the true lessons of Austrian economics better than the ones listed above was Harry Browne. He had a different approach. He rejected guru-ism and instead recommended a systematically agnostic stance. His ideas have been performing exceedingly well for over 40 years.

Do you get paid for promoting that?

Anyway, Austrian economics does not tell us what specifically is going to happen to the economy in the future. It doesn't say what will happen "this time." In fact, it explicitly rejects that thinking and tells us that this time will never be the same as last time, and that next time will be different yet again. Those pesky humans are so unpredictable. You never know just what they'll do. That's Austrian economics.

If that's true then I don't agree with Austrian economics. My belief is in basic supply and demand. A couple years ago me and my wife were watching the news and they reported that Venezuela was going to impose price controls on food. I said "Food shortages will be coming to Venezuela". Sure enough about 6 months later they had food shortages. Seemed like simple common sense to me. Basic supply and demand.

Most of the time I agree with you that it's hard to predict the future. But every now and then an event occurs that makes a prediction fairly obvious. Earthquakes are hard to predict but if the San Andreas fault starts moving apart by a foot a day, it's pretty likely you're going to get an earthquake. We've just had what is probably the largest government stimulus in the history of mankind. Common sense should tell you that a major "hangover" or "correction" or whatever you want to call it, is due. If we just had a small stimulus then I'd agree. The "hangover" might get covered up by other unforeseen events. But this stimulus is too big. Nothing is going to happen to cover up this coming hangover. Well maybe if we discover a way to generate power with nuclear fusion and it turns out it can only be done on US soil. That might do the trick. But short of a miracle, we're going to either get a massive downturn or more stimulus and a massive dollar crash.

I have question about Browne's investment strategy. The part about 25% cash and 25% bonds. Is that all in US dollars? Or do you diversify that with foreign cash and foreign bonds?

 

[Ronin Truth]

Gasoline made without petroleum?

 

[timosman]

My belief is in basic supply and demand.

and yet, most of the food on this planet is subsidized

 

[Zippyjuan]

If it wasn't you would be paying a lot more for it.

 

[helmuth_hubener]

Do you get paid for promoting that?

Yes, obviously. I stop by Harry Browne's grave every month to pick up my check which it dispenses.

My belief is in basic supply and demand. A couple years ago me and my wife were watching the news and they reported that Venezuela was going to impose price controls on food. I said "Food shortages will be coming to Venezuela". Sure enough about 6 months later they had food shortages. Seemed like simple common sense to me. Basic supply and demand.

The principle that a price ceiling will result in less supply than demand is a sound one. However, it's hard to get more detailed than that.

The principle that creating more money will result in a lower price for money is sound. However, it's hard to get more detailed than that. So, from an investment perspective, that info not very actionable. Or rather, it is actionable but only in a particular, intelligent way. Because you don't know when things will happen, nor exactly how things will happen. The Fed was inflating from 1913. Yet, the Great Depression occurred not until 1929. There was another slowdown in 1920-21, but it fixed itself quickly. Monetary inflation causes an eventual bust, but one doesn't know whether that bust will be in 4 years or in 16 years or in 40 years. Eevveeeennnntttttuuuuaaaaalll. That's a key. Also, one doesn't know what kind of bust it will be. Will it be spread out over a decade of stagflation ala 1970s America? Or will it be sharp and painful? Will it spiral downward into economic catastrophe? Or will the economy recover and prosperity resume? There's a lot of different ways for the economic consequences of monetary inflation to manifest themselves. That's another key.

Sum up: The principle is correct, but far deeper thought on it is needed.

Common sense should tell you that a major "hangover" or "correction" or whatever you want to call it, is due.

Common sense will tell you that to have a major hangover, one must first get drunk.

Monetary inflation causes certain effects, yes. It will eventually cause a boom, which will eventually cause a bust. But has the boom even happened yet? Can you tell me that, Madison? Are we in the midst of the boom? Or are we in a mild deflationary depression? How about a combination of the two? Do you know? Does anyone? If this is a boom, it's a pretty half-hearted one, eh? We can't have the bust stage of the Austrian business cycle until after the boom plants its seeds. So, if we don't even know whether the boom has happened yet, how can we know when to expect the bust?

If we don't know whether the economy has yet gotten drunk, how can we know if it's hangover time yet?

I have a question about Browne's investment strategy. The part about 25% cash and 25% bonds. Is that all in US dollars? Or do you diversify that with foreign cash and foreign bonds?

It is all in US dollars. The strategy is diversified in terms of covering 100% of possible economic conditions (prosperity, recession, inflation, deflation, even depression) and not in terms of buying 100% of all the different assets and currencies happen to be for sale.

The cash is for liquidity, an emergency reserve, and also for recessions.

The long-term bonds are in case of a deflationary depression, or other deflation. They proved that they perform their function well in 2008 when a major deflationary panic event finally occurred.

 

[Madison320]

Monetary inflation causes certain effects, yes. It will eventually cause a boom, which will eventually cause a bust. But has the boom even happened yet? Can you tell me that, Madison? Are we in the midst of the boom? Or are we in a mild deflationary depression? How about a combination of the two? Do you know? Does anyone? If this is a boom, it's a pretty half-hearted one, eh? We can't have the bust stage of the Austrian business cycle until after the boom plants its seeds. So, if we don't even know whether the boom has happened yet, how can we know when to expect the bust?

If we don't know whether the economy has yet gotten drunk, how can we know if it's hangover time yet?

It is all in US dollars. The strategy is diversified in terms of covering 100% of possible economic conditions (prosperity, recession, inflation, deflation, even depression) and not in terms of buying 100% of all the different assets and currencies happen to be for sale.

The cash is for liquidity, an emergency reserve, and also for recessions.

The long-term bonds are in case of a deflationary depression, or other deflation. They proved that they perform their function well in 2008 when a major deflationary panic event finally occurred.

I don't think you need to seeing the effects of the alcohol. The fact that it was consumed is all that matters.

Having 50% in dollars doesn't seem like a good investment strategy. It's worked so far, but the dollar has never crashed.

 

[helmuth_hubener]

I don't think you need to seeing the effects of the alcohol. The fact that it was consumed is all that matters.

Has it been consumed? Or is it all just sitting there as excess reserves, a ticking time bomb?

Having 50% in dollars doesn't seem like a good investment strategy. It's worked so far, but the dollar has never crashed.

That's just because you haven't thought it through! You haven't thought in any serious way what would actually happen if the dollar crashed.

The Permanent Portfolio is not making a bet for the dollar, but neither is it making a bet against it. It is neutral. For someone completely sure that the dollar is going to crash very soon (someone, that is, like yourself), this is a very frustrating position to encounter. You can't rail against me as a clueless boobus or deluded Keynesian, because I accept the very real likelihood that the dollar will eventually have high inflation again, and may even crash and burn, as so many currencies have over the years and centuries. But yet you can't really embrace me as a brother cultist either, because I am not on the street corner with my End Is Near placard. I am the infuriating middle.

In politics, I go for the radical, principled positions. I am probably far more extreme than you in my views. But in investing... it's a different ball game. What matters -- at least to me; your investing goals may be different -- what matters is to keep the money I've worked so hard for safe and secure. And ideally, to be able to get some return from it.

So a dogmatic hyperinflation enthusiast like yourself would say that 100% of my portfolio should be in gold, mining company stock, and silver. Those are the things guaranteed to do well in a hyperinflation, supposedly. Actually, mining companies are not sure to do well, they very likely will suffer along with all other business enterprises due to the problems of hyperinflation, and actually silver is primarily an industrial metal today and should the economy collapse the demand for silver will collapse, but, well, who am I to call into question dogma? Anyway, you yourself probably do not follow this advice; you probably do not have 100% of your savings in gold, miners, and silver. I probably have more gold than you. I may even have more silver than you, despite having a very small amount, relatively. But that doesn't matter to you, that's not enough for cult membership. What really twerks you off is that I'd hold those hated, evil dollars. No matter how much gold I have, if I have dollars, I'm a pariah. No matter that you yourself are probably just full of hot air and actually have much of your savings in a standard, US-dollar-denominated savings account. No, reality doesn't matter, actual actions don't matter, returns certainly don't matter, nothing matters except mouthing the right formulaic soundbites.

I'm just not going to do that. So, sorry. Sorry I can actually think for myself.

 

[Madison320]

Has it been consumed? Or is it all just sitting there as excess reserves, a ticking time bomb?


That's just because you haven't thought it through! You haven't thought in any serious way what would actually happen if the dollar crashed.

The Permanent Portfolio is not making a bet for the dollar, but neither is it making a bet against it. It is neutral. For someone completely sure that the dollar is going to crash very soon (someone, that is, like yourself), this is a very frustrating position to encounter. You can't rail against me as a clueless boobus or deluded Keynesian, because I accept the very real likelihood that the dollar will eventually have high inflation again, and may even crash and burn, as so many currencies have over the years and centuries. But yet you can't really embrace me as a brother cultist either, because I am not on the street corner with my End Is Near placard. I am the infuriating middle.

In politics, I go for the radical, principled positions. I am probably far more extreme than you in my views. But in investing... it's a different ball game. What matters -- at least to me; your investing goals may be different -- what matters is to keep the money I've worked so hard for safe and secure. And ideally, to be able to get some return from it.

So a dogmatic hyperinflation enthusiast like yourself would say that 100% of my portfolio should be in gold, mining company stock, and silver. Those are the things guaranteed to do well in a hyperinflation, supposedly. Actually, mining companies are not sure to do well, they very likely will suffer along with all other business enterprises due to the problems of hyperinflation, and actually silver is primarily an industrial metal today and should the economy collapse the demand for silver will collapse, but, well, who am I to call into question dogma? Anyway, you yourself probably do not follow this advice; you probably do not have 100% of your savings in gold, miners, and silver. I probably have more gold than you. I may even have more silver than you, despite having a very small amount, relatively. But that doesn't matter to you, that's not enough for cult membership. What really twerks you off is that I'd hold those hated, evil dollars. No matter how much gold I have, if I have dollars, I'm a pariah. No matter that you yourself are probably just full of hot air and actually have much of your savings in a standard, US-dollar-denominated savings account. No, reality doesn't matter, actual actions don't matter, returns certainly don't matter, nothing matters except mouthing the right formulaic soundbites.

I'm just not going to do that. So, sorry. Sorry I can actually think for myself.

WTF???

Never mind.

 

[helmuth_hubener]

WTF???

Never mind.

I have the sense that the main reason you hate me and think you disagree with me so much is that 80-90% of the time, you haven't the foggiest idea what I'm talking about. This tends to confirm that impression. I could be wrong.

 

[John X]

Austrian Economics is not a predictive empirical science. So while the Austrian economists as economists were not making that particular prediction in 2008, neither were they making any other. So, no bonus credit to them, but no deduction either. Making predictions simply isn't part of their discipline as they see it.

This is simply false. Actual published "Austrian Economists" like bob murphy made tons of predictions (and even well defined bets in some cases) that ended up being wrong. You can claim some sort of "No True Austrian" but that wouldn't be very convincing. I agree that Austrian Economics is largely useless in telling you anything about the real world.....but I imagine actual austrians will disagree.

 

[angelatc]

Negative interest rates are fine. Zero does not have any special meaning. All we have to do is eliminate cash.
http://www.bis.org/review/r150512a.htm

Negative interest rates take away any incentive to save.

 

[TheTexan]

Fed should be truly innovative, push the boundaries of how low interest rates can go.

-10% perhaps? It would be great for the economy.