Crash the train to stop it

[whell]

https://www.politico.com/news/magazi...-debt-00057606

Powell sounds like a big Volker fan. Volker crashed the economy to stop runaway inflation, fueling a recession that lasted through the early 80's. He got inflation under control but not after a few tough years. Powell is going to have a much tougher job.


This matters for a simple reason. When the Fed tightens the money supply and raises interest rates, it inflicts pain on U.S. taxpayers who must pay interest on the nation’s debt. The higher the debt, the higher the pain.

It was the Fed’s own experiments that helped create all this national debt in the first place. The Fed did so through an experimental program called quantitative easing, or QE. The importance of QE can’t be overstated. Under this program, the Fed created about 9 trillion new dollars between 2008 and today. (To put that in perspective, the Fed created only about $1 trillion in its first 95 years of existence. So it has printed 900 years’ worth of money in a little over 10 years, when measured against its historic rate.) All that money was injected straight into the Wall Street banking system, pumping up the very markets, like stocks and bonds, that are now threatened by the Fed’s tightening.

Years of QE and voracious spending, from Reagan to Bush to Clinton to Bush to Obama to Trump to Biden, all fueled by debt. And that debt sounds like its going to get a LOT more expensive.

[finnbow]

Originally Posted by whell

https://www.politico.com/news/magazi...-debt-00057606

Powell sounds like a big Volker fan. Volker crashed the economy to stop runaway inflation, fueling a recession that lasted through the early 80's. He got inflation under control but not after a few tough years. Powell is going to have a much tougher job.

This matters for a simple reason. When the Fed tightens the money supply and raises interest rates, it inflicts pain on U.S. taxpayers who must pay interest on the nation’s debt. The higher the debt, the higher the pain.

It was the Fed’s own experiments that helped create all this national debt in the first place. The Fed did so through an experimental program called quantitative easing, or QE. The importance of QE can’t be overstated. Under this program, the Fed created about 9 trillion new dollars between 2008 and today. (To put that in perspective, the Fed created only about $1 trillion in its first 95 years of existence. So it has printed 900 years’ worth of money in a little over 10 years, when measured against its historic rate.) All that money was injected straight into the Wall Street banking system, pumping up the very markets, like stocks and bonds, that are now threatened by the Fed’s tightening.

Years of QE and voracious spending, from Reagan to Bush to Clinton to Bush to Obama to Trump to Biden, all fueled by debt. And that debt sounds like its going to get a LOT more expensive.

Yet inflation in the US is far lower than pretty much anywhere in Europe. In other words, it's not Biden's policies causing inflation. It's pent-up demand coming out of COVID, screwed up supply chains, and increasing energy costs attributable to the Ukraine war and Biden is handling it better than pretty much anyone else.

The U.S. recently saw some good inflation news. Falling energy costs bought down inflation for the month of July, suggesting the U.S. might be past peak inflation and the Fed may dial back slightly on a massive rate hike next month.

Europe is not so lucky. A recent report from Citi has U.K. inflation hitting 18% next January. That makes the current U.S. inflation rate of just over 8% look relatively mild. In fact, last week we heard that German producer prices were up an eye-popping 37% year-on-year. Producer prices are often more volatile than consumer prices, but for Germany, it’s a worrying trend, especially as U.S. inflation may be slowing.

The OECD has a similar view with inflation in many European countries running well ahead of North America. All European nations except France and Switzerland will see higher inflation in 2022 than the U.S. based on recent OECD estimates.

As for voracious spending, this year’s deficit will decline by $1.7 trillion, representing the single largest decline in the federal deficit in American history, the Office of Management and Budget says. Despite the gains, the administration said Tuesday that it is forecasting a deficit of $1.03 trillion for the budget year that ends Sept. 30. That number signifies a movement away from the record deficit in 2020, which reached $3.13 trillion. So, Biden's deficit this year will be 67% less than Trump's was at its worst. Sounds like progress to me.

[whell]

Originally Posted by finnbow

Yet inflation in the US is far lower than pretty much anywhere in Europe. In other words, it's not Biden's policies causing inflation. It's pent-up demand coming out of COVID, screwed up supply chains, and increasing energy costs attributable to the Ukraine war and Biden is handling it better than pretty much anyone else.

The U.S. recently saw some good inflation news. Falling energy costs bought down inflation for the month of July, suggesting the U.S. might be past peak inflation and the Fed may dial back slightly on a massive rate hike next month.

Europe is not so lucky. A recent report from Citi has U.K. inflation hitting 18% next January. That makes the current U.S. inflation rate of just over 8% look relatively mild. In fact, last week we heard that German producer prices were up an eye-popping 37% year-on-year. Producer prices are often more volatile than consumer prices, but for Germany, it’s a worrying trend, especially as U.S. inflation may be slowing.

The OECD has a similar view with inflation in many European countries running well ahead of North America. All European nations except France and Switzerland will see higher inflation in 2022 than the U.S. based on recent OECD estimates.

As for voracious spending, this year’s deficit will decline by $1.7 trillion, representing the single largest decline in the federal deficit in American history, the Office of Management and Budget says. Despite the gains, the administration said Tuesday that it is forecasting a deficit of $1.03 trillion for the budget year that ends Sept. 30. That number signifies a movement away from the record deficit in 2020, which reached $3.13 trillion. So, Biden's deficit this year will be 67% less than Trump's was at its worst. Sounds like progress to me.

European inflation - and Germany is an example - is going to be in large part by high energy prices. Germany getting cut off by Putin, and they have no plan B, other than a PPP-like bailout which will cost billions.

As far as a $1.3 trillion deficit sounding like "progress" to you - whilst comparing it to a 2020 budget that had the double-whammy of reduced revenue due to COVID and increased spending for the same reason - is:

1) Not really apples to apples;
2) Is still $1.3 trillion that will be added to the federal debt, and;
3) Can't really be called "progress" in this content. At best, one might say that it "sucks less".

[Dondilion]

Originally Posted by whell

European inflation - and Germany is an example - is going to be in large part by high energy prices. Germany getting cut off by Putin, and they have no plan B, other than a PPP-like bailout which will cost billions.

As far as a $1.3 trillion deficit sounding like "progress" to you - whilst comparing it to a 2020 budget that had the double-whammy of reduced revenue due to COVID and increased spending for the same reason - is:

1) Not really apples to apples;
2) Is still $1.3 trillion that will be added to the federal debt, and;
3) Can't really be called "progress" in this content. At best, one might say that it "sucks less".

Plus France's nuclear energy is in shambles.

[whell]

Originally Posted by finnbow

The debt is the sum total of accumulated deficits. Accordingly, decreasing the deficit slows the increase in the debt. Even a believer in the fiction of supply-side economics should be able to understand this even if it involves math.

Originally Posted by Rajoo

Because they are inter related, deficit funding of a government leads to national debt. Perhaps you should talk to yourself and spare us from your diatribes.

Have you ever looked at anything from a middle of the road perspective? In engineering we have a saying, statically the answer is always in the middle and never at the extremes.

Yes, they're inter-related, deficit becomes debt, all good. Powell's presumed course of action - increase rates to drive down spending and thus drive down employment thus curb inflation involves increasing rates on debt, and has no short term effect on deficits (except to the extent that budgeted dollars are consumed retiring debt or paying interest on the debt). Which is why I was wondering why you were bringing up deficits.

[Rajoo]

Originally Posted by whell

European inflation - and Germany is an example - is going to be in large part by high energy prices. Germany getting cut off by Putin, and they have no plan B, other than a PPP-like bailout which will cost billions.

As far as a $1.3 trillion deficit sounding like "progress" to you - whilst comparing it to a 2020 budget that had the double-whammy of reduced revenue due to COVID and increased spending for the same reason - is:

1) Not really apples to apples;
2) Is still $1.3 trillion that will be added to the federal debt, and;
3) Can't really be called "progress" in this content. At best, one might say that it "sucks less".

Did you bitch and moan when 2018 TCJA (Middle Class Tax Cuts ) added $1 to $2 Trillion deficit on tax breaks to people to people who didn't need it. Or did you claim that as a brilliant plan to boost our economy, when it did not need any boosting?

[whell]

Originally Posted by Rajoo

Did you bitch and moan when 2018 TCJA (Middle Class Tax Cuts ) added $1 to $2 Trillion deficit on tax breaks to people to people who didn't need it. Or did you claim that as a brilliant plan to boost our economy, when it did not need any boosting?

$1 to $2 TR to the deficit over 10 years, estimated by the CBO at that time. That number was promptly kicked to the curb due to COVID 19 related spending, and probably ended up doubling it, so we'll never know what the real number would have looked like.

[Chicks]

So, what Whell appears to be saying is that his Dear Leader made a mistake when he picked Powell to succeed Yellen. At least he's admitting his Dear Leader isn't infallible, which is a first step out of the cult...

[whell]

Originally Posted by Chicks

So, what Whell appears to be saying is that his Dear Leader made a mistake when he picked Powell to succeed Yellen. At least he's admitting his Dear Leader isn't infallible, which is a first step out of the cult...

No, I'm not saying that. This isn't a plug or a dig on Powell.

Powell is a Volker fan. That's evident by his comments in the Politico piece. Its also a topic in this WSJ piece: https://www.wsj.com/articles/jerome-...ed-11663595217

In a widely anticipated speech, Chairman Jerome Powell decided to be blunt. He scrapped his original address, according to two people who spoke to him, and instead delivered unusually brief remarks with a simple message—the Fed would accept a recession as the price of fighting inflation.

That's right out of Volker's handbook.

It's also true that the Fed has engaged in about 15 years worth of QE. This was intended to make banks flush after the 2008 mortgage meltdown, but it has continued long after because it has the alternative impact of keeping the cost of debt, including Federal debt, low. While not a bad idea in principle, in execution it fueled an appetite for additional Federal spending.

Now it appears to be time to pay the piper, and you and I will be on the hook for it.

[Dondilion]

Originally Posted by whell

No, I'm not saying that. This isn't a plug or a dig on Powell.

Powell is a Volker fan. That's evident by his comments in the Politico piece. Its also a topic in this WSJ piece: https://www.wsj.com/articles/jerome-...ed-11663595217

In a widely anticipated speech, Chairman Jerome Powell decided to be blunt. He scrapped his original address, according to two people who spoke to him, and instead delivered unusually brief remarks with a simple message—the Fed would accept a recession as the price of fighting inflation.

That's right out of Volker's handbook.

It's also true that the Fed has engaged in about 15 years worth of QE. This was intended to make banks flush after the 2008 mortgage meltdown, but it has continued long after because it has the alternative impact of keeping the cost of debt, including Federal debt, low. While not a bad idea in principle, in execution it fueled an appetite for additional Federal spending.

Now it appears to be time to pay the piper, and you and I will be on the hook for it.

QE also had huge social implications. It provided easy money to those who were close to the system. They then quickly transformed this huge printing into real assets thus exacerbating the division between the have and the have not.