Two Vids One Vid About the Fed (& One About Optimism)

The economy sucks, the government sucks…let's see, is there any reason to be happy?

Sure there is. Here's a vid about the Fed and QE2.

"Under the President Bush, the Ben Bernank only blew up the American economy. Under the President Obama, he is working on blowing up the entire global economy."

Regardless of the accuracy, or the influence, of the critique above, let's not get so down in the dumps that we fail to acknowledge that we still live in a world of wonders that was virtually unimaginable just a few years ago. I mean, there's a lot of inarguably great stuff going on, thanks to continuing innovation in technology and social and economic arrangements.

Take it away, Monty Python:

Comments

[Colin]

Not exactly Disney quality, but fun nonetheless.

[Tyler]

This was the first video about the Fed that made me lol.

[Johnny Longtorso]

The revolution won't be televised, it will be reenacted on Xtranormal.

[Mark]

Someone has posted a "reply" to the QE explained video:

http://www.youtube.com/watch?v.....re=related

What the response completely fails to address is the question of whether the Fed (or ANY entity) has the knowledge and expertise necessary to understand all possible effects such tinkering can have on ordinary citizens, much less the world economy.

[Brandybuck]

Krugman and DeLong say it won't have any effect because it isn't big enough. What an endorsement!

[Troll]

The "response" video suggests that currency manipulation is a perfectly healthy way to deal with current account imbalances.

[Vince Cate]

I made a video like this of euphemisms for "printing money".
http://howfiatdies.blogspot.co.....money.html

[Jason]

This video is ridiculous.
How do you first complain that Bernanke has no business experience, and then complain that William Dudley used to be a partner at Goldman Sachs. Given that GS is probably the most powerful entity ever created (I'm not condoning its existence and power, but merely stating it), they will recruit the smartest people in the world to be their partners. If you want one of the best minds in the world to work for the Fed and to also have business experience, chances are that they're coming from GS.

Bernanke probably single handedly saved our economy from a depression, and the far majority of mainstream economists in America agree with QE2. Its only politicians that have no economic training and have political agendas that are speaking out against it.

Economists from other countries disagree with QE2 because it makes the dollar cheaper which makes it harder for them to export stuff to us, and easier for our products to compete in their markets. Europe and Japan have also both recently gone through the same process, and China is constantly manipulating their currency to the effect of quantitative easing.

Its good to debate public policy, but only when we use facts.

[joshua corning]

How do you first complain that Bernanke has no business experience, and then complain that William Dudley used to be a partner at Goldman Sachs.

Because the FED should have someone in the top position that has first hand experience with markets while the treasury should have an egghead who is really good at numbers.

Instead we have an Egghead who is terrible with numbers at the FED and a treasury head who has first hand experience stealing money from Tax payers.

Does it make sense now?

[Jason]

Because the FED should have someone in the top position that has first hand experience with markets while the treasury should have an egghead who is really good at numbers.

I'm going to ignore the fact that you didn't even respond to my complaint- that the video contradicts itself by complaining that the Fed chair is 'an egghead', then says the head of the NY fed comes from business, and that apparently both of these situations are unacceptable- and I will address your well articulated, but horribly misinformed statement.

Let's start with a history lesson. Since 1950, the Fed has had 6 chairman, 3 of which are from pure academia/public sector, and 3 of which have experience in both public and private sectors. Treasury secretaries are historically from business, with a few recent exceptions- One of which is Geithner, the quintessential egghead you are looking for.

Even if your opinion is correct (you believing your opinion to be a fact is neither a necessary nor sufficient condition for it being one, and since you offered no explanation on why you hold those opinions, I will assume that they are talking points you read somewhere), just because the Fed Chairman doesn't hold the resume you think he should does not mean his policies are misguided. The business community has the most to gain from quantitative easing as it improves exports and restricts foreign competitors, and they know it. It's laughable that you would suggest that a Chairman from a business background would not support QE2. If you want further proof, just look at the stock market surge around the time that rumors of QE2 leaked and the week it was officially announced. I realize , of course, that what is good for the stock market and the business community is not necessarily always best for the country, but I only offer that evidence as proof that the business community is pro QE2 and that Bernanke's lack of experience in the private sector does not cloud his judgment.

[JoshINHB]

Dude,
How much are you getting paid to post this ball licking bullshit?

[joshua corning]

Economists from other countries disagree with QE2 because it makes the dollar cheaper which makes it harder for them to export stuff to us, and easier for our products to compete in their markets.

Perhaps one day you will be able to explain why during every economic expansion the US has had for the past 60 years we have had our largest trade deficits.

Until that day happens please shut up.

[robc]

Except there is no such thing as a trade deficit. During the 80s "deficit" with Japan, we were balancing it out by exporting Hawaiian golf courses. Somehow, that never showed up in the stats.

[robc]

Also Manhattan skyscrapers, as there werent enough golf courses.

[Jason]

Perhaps one day you will be able to explain why during every economic expansion the US has had for the past 60 years we have had our largest trade deficits.

I think you're confusing correlation and causation here. Economic expansions increase demand for consumption. Higher incomes mean high rates of consumption. This is what causes the large trade deficits. It is not the trade deficits that cause the expansion. Trade deficits ease during recessions because consumer spending drops.

[Robert]

So the money used in your country should be inflated so that the people in that country can buy less, just so people who sell from that country can sell more? What good does it to for the people in that country that some of them gain currency from foreigners?

[Jason]

So the money used in your country should be inflated so that the people in that country can buy less, just so people who sell from that country can sell more? What good does it to for the people in that country that some of them gain currency from foreigners?

Inflation causes the currency to devalue against foreign currencies. This essentially makes foreign goods more expensive and domestic goods cheaper in foreign countries. The domestic businesses producing these goods see demand for their goods increase, both in foreign countries, since they're cheaper there, and at home, since foreign competitors' products are more expensive than they were before. When demand for goods increases, domestic wages and employment levels both increase. This offsets the rise in domestic prices of foreign goods.

That's the really simple explanation, but in reality, its far more complicated. The real threat that quantitative easing is supposed to prevent is deflation. When prices fall, people will postpone buying stuff because the same item will be cheaper in the future if they wait. This causes the consumer markets to collapse. Demand plummets, and firms are forced to decrease wages and layoff workers. This video runs through three of four things that they claim have become more expensive over the past year. This is their proof that deflation is not occurring, and will not occur. In reality, inflation is measured using baskets of goods composed of hundreds of items. They also picked items which aren't really correlated to the overall inflation level. For example, the price of oil is much more volatile than the inflation rate, and comparing those two would be the equivalent of comparing the temperature at 1pm with that at 1am as proof that the Earth is cooling. The increase in the price of public transportation is mostly because government bodies are cash strapped and don't have the means to subsidize as they used to, even as we're facing increased costs related to the repair and replacement of old infrastructure. Tuition - same thing. Taxes - same thing.

[fresno dan]

How do you first complain that Bernanke has no business experience, and then complain that William Dudley used to be a partner at Goldman Sachs.

Uh, because Bernanke has no business experience, and because William Dudley used to be a partner at Goldman Sachs?

Now, are those bad things (valid complaints)?
Yep.
Perhaps some acquantance with business reality, and the Bernank would have seen that the subprime was NOT contained. Maybe even seen if you keep rates abnormally low, you pay a price.

As far as Dudley, and his friend, bended knee Paulson, maybe multi,multi millionaires who make a good deal of their millions by front running treasury auctions should not be in a position of continuing that obvious conflict of interest...we won't go into that little thing about buying cr*p for 1$ what is worth 10 cents... or guarantees provided that are worth billions and are sold to GS for...nothing.
The more you know, the more you want to vomit infinitely

[Jason]

As far as Dudley, and his friend, bended knee Paulson, maybe multi,multi millionaires who make a good deal of their millions by front running treasury auctions should not be in a position of continuing that obvious conflict of interest

I do agree with you that many things Goldman Sachs does to turn a profit are vomit worthy. They truly are the worlds first Public-Private partnership since the Dutch East India Company. What I was trying to point out is that, given the reality of GS's existence and overall dominance in the private sector, if we want our public official to be of the highest pedigree and to also have experience in the private financial sector, we must expect that they will come from GS.

Whether or not US financial regulations should allow a company like GS to operate the way it currently does is another point entirely, and one that I'm sure we would mostly agree on.

[JoshINHB]

So your saying that

GS is a corrupt pseudo private enterprise that is dominate because it is essentially an arm of the government, not because it out competes its rivals. And anyone that criticizes this corrupt nexus is being ridiculous.

Wow

Is that crony capitalism's 'false consciousness'?

[David]

Ben Bernanke is the best possible person we could have as Fed Chairman in this situation. He has literally saved us from another great depression. Don't just blow a statement like that off. Think about how bad the economy feels now. Compare 10% unemployment to 25%. How about a 4 year contraction vs a 2 year contraction. Basically, double or triple any pain that you or your loved ones have felt from this recession, and that's what Bernanke and a small, independent group saved us from.

How did they do this? While a few complicated but unconventional measures were taken, the Fed primarily acted by conducting traditional monetary policy in an incredibly aggressive manner. More simply (the only way to make an effective argument these days), the Fed bought short-term government bonds from 19 "primary dealers," which are major US banks (GS included). This lowers interests rates, making it easier for consumers to borrow and giving banks an incentive to lend. Lending drives an economy and without lending, consumer demand and business output halts. With less output there is less need for employment. With less employment comes less income/wealth, which leads to less demand for goods, and then even less output. That's what we were seeing until the Fed stepped in, literally saving the economy from a terrifying downward spiral. Unfortunately, when times are a really bad, the Fed can lower rates to zero and the economy can still have more room for improvement (or a lot more). Luckily, they have more bullets to fire at the problem at minimal cost. All QE is doing is buying longer term bonds from 19 primary dealers instead of short term bonds. This effectively brings down long term interest rates, facilitating more loans to stimulate recovery. Many rational people argue that the purchases should be bigger than 600B to have a real effect on growth, but only those with hidden agendas or outdated economic models would actually argue that QE is hurting the economy. For those who scream before thinking, at least realize that QE is just an extension of conventional monetary policy, which has been used by Fed chairmen from Benjamain Strong in the 1920s to Volker to Greenspan to Bernanke and on. This is just a more extreme dose, because these are extreme times.

In addition to low interest rates, the Fed's actions do have the consequence of adding to the money supply, which (if lent out) will increase inflation eventually. Bernanke knows that at some point this will happen, and he has the tools in place to reverse the expansion when the time comes. But that time isn't now, as the CPI has been steadily decreasing for over a year. We are looking a lot like Japan did before it's lost decade. The core CPI is at it's lowest level EVER recorded. Don't get me wrong, inflation can be very damaging for an economy and no body wants run away inflation, but we have seen from the Great Depression and Japan in the 90s that deflation can be even worse for an economy. But what is an even stronger point is the fact that it's very easy (but painful) to fight inflation. We can raise rates enough (like Volker) until inflation goes away (at the cost of high unemployment). Given that we are already experiencing that now, it's prudent to avoid deflation with expansionary policy.

Also, to clear something up for the wackos, the the Fed doesn't want 'inflation' as you guys might be twisting it. The Fed (as mandated by congress) has a goal of pursuing an inflation rate of 1.7-2%. That's all the Fed really wants. Right now the latest number came in at 0.6%. While some argue that short-term inflation of graeter than 2% would be beneficial, the Fed really just wants to get back to normal. With unemployment high and inflation low, it's a clear case for Fed expansion.

Additionally, Ben Bernanke has been studying monetary policy in academia for over 30 years at the best institutions. This is an asset to his credibility, as he has no inclination to help any 'buddies' at GS. He has been studying his whole life how to maximize welfare in the United States economy using monetary policy. And that's what he's doing. He has written one of the most famous papers ever on the great depression. He has also criticized Japan publicly for not using QE to avoid their 20 year stagnation and recession. He has been waiting his whole life to put his studies to work in a real world crisis, and he finally got the chance. I'm sure he was hoping he would never have to use his recommendations in the US, but he literally was the most qualified person in the world to do the job.

In regards to Dudley, there is really no point discussing him. It's another case of misguided correlation. The NY Fed makes the purchases that the Board of Governors in DC tells them to make. Just because the NY Fed is literally making the purchases from GS and the other primary dealers doesn't mean it is making the decision to make those purchases. They are merely executing an order. Bernanke and the rest of the FOMC decide what to do once every 6 weeks in Washington. So I'm not sure what point anyone is trying to make by correlating William Dudley with Goldman Sachs.