Federal Reservations

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the Fed’s interest rate announcement, the divided cultural experiences of America’s upper and lower class, and whether or not “the American way of life” still exists.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

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Originally from Big Government

The Fed probably won't do a third round of quantitative easing as it would be difficult for the central bank's open market committee, which is "balanced but divided," said Bill Gross, manager of the world's largest bond fund.

Originally from All News, Video and Posts related to TOPIC: Federal Reserve

Occasionally, we see an official attempt at a serious discussion of what Federal Reserve System economists would like the public to believe is safe banking. This means safe fractional reserve banking. This means fraudulent safe banking. This means fantasy banking. All fractional reserve banking rests on a legal promise: you can get your money out at any time. Yet the money that you deposit is loaned out by the bank. This means that your money is gone. Then how can you withdraw it at any time? Only if (1) the money is loaned out on a "repay instantly on demand" basis, or (2) hardly anyone will demand withdrawal at the same time. The bank will pay you out of its tiny slush fund for withdrawals. The first option assumes that the debtor is always in a position to repay at any time, which is of course ludicrous for most corporate and business borrowers. They will not agree to such terms. The second option is equally ludicrous during a banking crisis.

Originally from The Market Oracle

The political class and their mouthpieces in the corporate controlled mainstream media are desperately trying to spin the oil price surge as a temporary inconvenience that will not derail their phony recovery story. Brent crude closed at $116 per barrel yesterday. West Texas crude closed at $104 per barrel. Unleaded gas has risen by 22% in the last month and 60% since September 1, 2010. I’m sure this slight increase hasn’t impacted Ben Bernanke or Lloyd Blankfein. Their limo drivers just charge it to their unlimited expense accounts. Joe Sixpack, driving his 15 mpg Dodge RAM pickup, is now forking over an extra $1,200 per year in gas expenditures, not to mention more for everything impacted by oil such as food, utilities, and anything transported to their local Wal-Mart by truck (everything). Luckily, the Federal Reserve and crooked politicians only care about their comrades in the top 1% elitist society, for whom oil is an investment, not an expense.  

Originally from The Market Oracle

For those critical of Ben Bernanke and his massive bubble inducing, asset inflating quantitative easing program, Ben and his Federal Reserve friends have something to say to you. What wisdom do these banking behemoths have to share? Are you sitting down? In so many words, Bernanke and company offered that ‘if you think we’re bad, you should really focus on the clowns who have run up the out of control federal deficit.’
Wow!
Do two wrongs make a right? Does digging one hole get us out of … [visit site to read more] or compare Best Credit Cards and Best CD Rates

Originally from DailyMarkets.com

Bernanke last week warned of "catastrophic" default for the U.S. if Congress failed to raise the government's borrowing limit. By wading into the debt debate, the Fed Chairman is touching two hot buttons — fiscal policy and divisive politics.

Originally from All News, Video and Posts related to TOPIC: Federal Reserve

For some nine years I have been predicting that the economy is going to a recession morphing into a depression, using a purely theoretical argument. The essence of my argument is that the open market operations of the Fed cause a protracted decline in interest rates which is responsible for the hard-to-detect capital destruction affecting the financial sector no less than the productive sector. The immediate cause of the depression is the destruction of capital. The ultimate cause is the monetary policy of open market operations. The chain of causation is as follows.

Originally from The Market Oracle

And one of the best rules is that, to determine the value of all the variables, you need as many equations as you have variables. So let's combine a couple of recent articles (h/t Mark Thoma for the first, Digby for the second.)

Richard Florida finds three studies of State Government Spending Multipliers. The three studies find multipliers of 1.5, 1.7, and 2.12. Let's be nice (in context) and use the lower one. StateMultiplier = 1.5

David Dayden notes that budget cuts in just two (large) states can be matched against the Fed's "stimulus" monies. Let's see how much, putting the best face possible on the data (i.e., taking the most optimistic projections). CADeficit (ignoring "reserve"): $26.4B (12.5 12 1.9). ILDeficit: $19B (13 6).

That gives us a CA-ILEconomyCost of (26.4 19)*1.5 = US$68.1B

The Federal Stimulus is $55-60B. Again, let's be optimists and say $60B. The required multiplier is then:

FedMultiplier * FedStim = CA-ILEconomyCost

FedMultiplier * $60B = $68.1B

FedMultiplier = 1.135

That's the minimum multiplier needed just to counter those two states. Add in Texas (whose shortfall appears to be on par with California's, and is larger than Illinois)and you're at 1.77.

Only 47 states to go.

The maximum multiplier needed just to solve the CA-IL gap is 1.71. Add in TX and you're at 2.63 with 47 states to go.

The Right-Leaning Econ Bloggers (e.g., Tyler Cowen and Greg Mankiw; I apologize to the former for linking him to the latter) argued in 2008-2009 that Federal Stimulus has a multiplier of 1.3 or less.*

1.3 would put the economy at neutral if the multiplier is 1.7 (median estimate) and most but not all of the CA ambiguities break the wrong way.

And that's just eliminating the effect of those two states. Add in TX and the multiplier goes to 2.64—rather close to Christina Romer's 3.0 that was attacked continually by Mankiw et al.

Repeat after me: There was No "Second Stimulus." If the economy is going to go into full recovery—i.e., can I have jobs with that?—it will have to be from Private Sector Investment, which has been (let's be nice) on the sidelines so far,* and really doesn't appear to be warming up to replace TARP.

*Strangely, this was not argued by them as an argument that the initial "stimulus" was too small for the even-then-obvious shortfalls in C and I; I can't believe they thought MX was going to cover the difference, but that's a side discussion, perhaps.

*We can quibble over whether that was and remains the correct decision. As has often been noted here, a lack of demand is not exactly an incentive to expand, unless you think that will be changing soon. A true recovery should have convinced firms that a change is gonna come.

Originally from Angry Bear

For months, we have been told that ShoreBank deserves a bailout because it serves poor communities. We have been assured by ShoreBank’s patrons, such as Rep. Jan Schakowsky (D-IL), that allowing the federal government to take over the bank will put borrowers in those communities at risk.

Now, as the truth has begun to emerge, it is becoming clear that ShoreBank’s troubles did not begin in poor communities at all.

Robin Sidel of the Wall Street Journal reports that ShoreBank’s financial problems may partly stem from loans made to condominium developers and builders in parts of town beyond its traditional focus on the city’s South Side.

If ShoreBank deserves help because it is the “iconic community development bank,” as Schakowsky recently claimed, what was it doing lending money to condo kings, and why should taxpayers bail it out?

If the ShoreBank is taken over, Schakowsky claims, “the losers will be these low-income communities and the businesses and the homeowners that they serve.”

That was never true.

The businesses and homeowners will be protected, as they are in every federal takeover. Rather, those with the most to lose from ShoreBank’s failure will be its board, its political patrons, and the developers who hoped to profit from its “iconic” status.

This is not the first time that property developers have played a key role in a Chicago political scandal.

Property developer Tony Rezko, a fundraiser for both Barack Obama and former governor Rod Blagojevich, is currently in federal prison on corruption-related charges. During his career, he was involved in many condominium projects in the city, including one that Obama helped him build by urging state funding for the project.

The plot thickens. At the ongoing Blagojevich trial, Ali Ata, the former head of the Illinois Finance Authority (IFA), testified last month that Rezko arranged for him to be appointed to the IFA by helping him pay off the governor.

The current chair of the IFA, Bill Brandt, has been one of the most vociferous proponents of a ShoreBank bailout, and may even have suggested a state-level bailout to ShoreBank, rather than the other way around.

There is another Rezko connection to ShoreBank: Howard Stanback, who serves on one of ShoreBank’s boards, once worked for Rezko at New Kenwood LLC–the same development company that Obama had assisted.

(Rezko’s partner at New Kenwood was Obama’s former boss, Allison S. Davis; Stanback also chaired the Woods Fund, where Obama served along with Bill Ayers of the Weather Underground.)

Until now, the role played by property developers in ShoreBank’s demise has been hidden from all but a few insiders and key officials at the Federal Reserve.

A few days ago, Tim Geithner responded to a request by Schakowsky and other Chicago Democrats by giving ShoreBank an 11-week extension. Before, it needed to raise enough capital to avoid closure by May 21; now, it has until August 6. (How many homeowners get that kind of break?)

Republicans in Congress have pushed for an investigation into the White House’s role in trying to secure a bailout for ShoreBank. Yet we also need a public forensic audit of the bank.

Is there a Rezko connection? Are there developers with ties to the Chicago machine who would be protected by a bailout? What are the connections, if any, to Obama, Schakowsky, and other Chicago politicians?

We need to know–now. At the very least, we can already dismiss Schakowsky’s false excuse that the bailout is for the poor. It is nothing more than Chicago-style corruption on a national scale.

Originally from Big Government

The Dollar rose against the Euro late in the trading session after the release of the Fed’s Beige Book. The business survey showed subdued U.S. economic growth which led speculators to believe that the Fed won’t be raising interest rates soon despite what investors had earlier interpreted from Chairman Bernanke’s comments.

Some traders also attributed the break to position evening ahead of the European Central Bank’s policy meeting on Thursday. Although the ECB is expected to leave interest … [visit site to read more]

Originally from Daily Markets