Geithner: It Coulda Mighta Been the Fed's Fault

Brian Doherty | May 12, 2009

The Wall Street Journal sees Treasury Secretary Tim Geithner seeing a little bit of the light--that green, excessive light of too much moolah flowing from central banks. Quoting him from the Charlie Rose Show:

I would say there were three types of broad errors of policy and policy both here and around the world. One was that monetary policy around the world was too loose too long. And that created this just huge boom in asset prices, money chasing risk. People trying to get a higher return....It was too easy, yes. In some ways less so here in the United States, but it was true globally. Real interest rates were very low for a long period of time....our long rates in the United States started to come down -- even were coming down even as the Fed was tightening over that period of time, and partly because monetary policy around the world was too loose, and that kind of overwhelmed the efforts of the Fed to initially tighten. Now, but you know, we all bear a responsibility for that. I'm not trying to put it on the world.

The Journal points out that it isn't that easy to absolve our own Federal Reserve in this, as Geithner half-assedly tries to do:

He's right that monetary policy needs to be considered in global terms, but he's still too quick to pass the buck from the Fed to other central banks. The European Central Bank was much tighter than the Fed throughout this period. The Fed was by far the major monetary player because much of the world was on a dollar standard, with its monetary policy linked to the Fed's. That was true of China, most of Asia and the Middle East.

The Fed's loose policy from 2003 to 2005 created the commodity and credit bubbles that made these countries flush with dollars. Given their low domestic propensity to consume, these countries then recycled those dollars back into dollar-denominated assets, such as Treasurys and real-estate-related assets such as Fannie Mae securities. The Fed itself had created the surplus dollars that kept long rates low and undermined for a substantial period its belated attempts to tighten.

I only wish Charlie Rose has asked Geithner about what sort of disaster some future Treasury Secretary will be surveying based on the stunningly expansionary monetary policy of the past year.

Comments

Charlie Rose|5.12.09 @ 1:30PM|#

"I only wish Charlie Rose has asked Geithner about what sort of disaster some future Treasury Secretary will be surveying based on the stunningly expansionary monetary policy of the past year."

So I'm a socialist shill. Sue me.

|5.12.09 @ 1:59PM|#

Where did TaxFreeTim work before he got the Treasury gig? I'm trying to remember...

hmm|5.12.09 @ 2:10PM|#

NY Fed.
Embassies
IA for treasury

Generally a worthless tick turd of a career in politics. I'm guessing he can hit his knees and bob 100 times in seconds flat.

He reminds me of the most weasely person I could think of. He is one shifty and mildly retarded person.

|5.12.09 @ 2:35PM|#

I only wish Charlie Rose has asked Geithner about what sort of disaster some future Treasury Secretary will be surveying based on the stunningly expansionary monetary policy of the past year.

What is hyperinflation?

I note that the gold market is currently cracking the $920/oz barrier, the line in the sand drawn by the central banks in an effort to protect their currencies. The combination of the Obama budget and the failed Treasury auctions appear to have finally shifted the safe haven money flows into gold.

hmm|5.12.09 @ 2:46PM|#

Hell the safe places to park money have become few and far between. The dollar is facing inflation, munis are damn near as risky as equities now (hyperbole), Corp. Bonds are just plain scary with the government screwing the Chrysler debt holders. Safe places are rapidly approaching gold, silver, and individually wrapped lead. The later is so damn scarce that target practice has become a $100 afternoon out. Hell right now trading in ammunition is probably more profitable than the market by 10 times. People still must have hope for change though, gold hasn't hit 1K.

BakedPenguin|5.12.09 @ 3:00PM|#

As scary as the graph is, the monetary base is a pretty restricted view of money supply. The graph for M2 isn't as alarming, although it also portends some hefty inflation. Only more in the 10-20% range. The AMBS graph linked in the article makes it look like we're headed for hyperinflation.

BakedPenguin|5.12.09 @ 3:03PM|#

Safe places are rapidly approaching gold, silver, and individually wrapped lead.

The run up in gold and silver has discouraged me from investing in them. Diamonds and many other gems have actually fallen in price, and that's where I'm looking to invest whatever little extra cash I have.

Well, that and guns.

EJ|5.12.09 @ 3:18PM|#

BakedPenguin,

but the only reason why M2 hasnt grown as quickly as the monetary base is because out of flight to saftey banks are holding most of this increase as excess reserves at the Fed and therefore it is not multiplied through the fractional reserve system. As soon as risk appetite increases and/or there is a run away from cash, this will get multiplied and the percentage increase in the monetary base will correspond with a similar percentage increase in M2. Either the Fed is going to have to tighting quickly at the appropriate time before this happens, or we will have massive inflation in a couple of years.

hmm|5.12.09 @ 3:19PM|#

Diamonds are a gamble. The price is artificially inflated for several reasons. One being the Russian government supposedly has store rooms full of them. Gems are easily faked with respect to quality. I was amazed when a friend that owns a jewelry story explained to me how rubies and sapphires are faked or enhanced and how pervasive it is. Last, but not least, gems have less intrinsic value than precious metals. Most industrial gems can be man made.

Right now guns and ammo are a sure bet if you have an inside source. The community is scared shitless of Big O and CIFTA. Next Wallyworld trip run through the ammo section, bare shelves. Walmart and several stores have been rationing it to customers. Guns are just as hard to come by as well as parts. Most places are months behind on production of lower receivers, barrels, upper receivers, and so on on ARs and AKs are fetching ridiculous prices. A Clinton 2.0 ban has the community and those who want to join it scared. You can't even find primers to reload with.

Ike|5.12.09 @ 3:23PM|#

BakedPenguin,

Diamonds are a terrible investment

http://www.nytimes.com/2009/05/12/business/global/12diamonds.html?hpw

read the article, they're artificially scarce and have little intrinsic value

BakedPenguin|5.12.09 @ 3:43PM|#

hmm - thx, I was buying from a friend of my father's. He let me know about the shenanigans that go on.

Ike (& hmm) - I hadn't realized that the glut was so large (I did think it would be a while before they rebounded in value) though. So far my purchases consist of one ruby, which the next GF might receive. More guns for me, anyway.

EJ - as it works its way through the financial system it will cause inflation. But for inflation to continue for an extended period of time, there would have to be continued influxes of money by the Fed.

Also, IANAE, but I think the velocity of M1 would have to be at least 4 for M1 = M2.

hmm|5.12.09 @ 3:55PM|#

I can tell you the velocity of an M1 is about 2800 fps.


OMG PUN.

|5.12.09 @ 3:57PM|#

The run up in gold and silver has discouraged me from investing in them.

All the technical indicators are pointing to a breakout (trend lines crossed, resistance levels busted, long options and futures contracts piling up).

The fundamentals point the same way. Gold is a safe haven investment, and all the other safe havens are augering in.

I am hedging with guns and ammo, though. I've got a hefty order of Hornady .308 backordered, and the new M1A is off to the gunsmith's for a little tweaking. Its appreciated about 15% in the last six weeks.

hmm|5.12.09 @ 4:05PM|#

Any black or scary gun and anything with brass on it is appreciating fast. I hope the fear of legislation is unfounded and the market is flooded, although to be honest I don't see the people buying and piling letting go of inventory. Or the new entrants to the "community" selling off their new found rights protection devices.

I don't think it made the rounds here, but the government tried to either destroy all spent brass or only sell it for destruction. Which would have severely reduced the available ammunition since a few companies rely solely on US military spent shells. The bill was squashed. CIFTA is still a major threat. Here in MO a bill for CCW on campuses, lowered age to 21, and some castle doctrine improvements is headed for a vote and the "gun folks" turned out in droves for the herring. The politicians are trying to strip the bill to just the age change so they can claim a "pro-gun" platform for reelection.

BakedPenguin|5.12.09 @ 4:13PM|#

Ironically, real estate might soon be one of the best investments around. Subject to the specifics of the property, of course.

hmm|5.12.09 @ 4:18PM|#

I'd say it already is. Dirt falls in the same category as precious metals in that it is finite. The good thing about dirt is you can leverage it, not so much with metals. Not to mention the tax effects and so on.

Land is always good to own. From a very basic "black helicopters" point of view.

Ron Paul proven right again, a|5.12.09 @ 5:22PM|#

reason sucks

mark|5.12.09 @ 5:45PM|#

Anyone want to start a pool to bet on the day they retire the penny? My guess: Feb. 1, 2015. Just a wild guess really, informed by that graph up there.

|5.12.09 @ 5:54PM|#

Land is always good to own.

I'll say. About half my net worth is in real estate (used to be a third, but this market! Oy!). I'm looking to unload a sweet parcel near Nocona, TX so I can get one closer to where I live, but you can bet every penny will get rolled over into more real estate.

|5.12.09 @ 7:40PM|#

mark,

It would be cool if they did it on Lincoln's Birthday (Feb 12).