The Volcker path

evince

evince

Truthmatters
http://www.bloomberg.com/apps/news?pid=20601109&sid=aBid7AnvOvNA&refer=exclusive


Does Bernake have the guts to do it?



It took Volcker's effort as Fed chief to push the overnight lending rate to 20 percent in 1980 and drive the economy into its deepest decline since the Depression to break the inflation he inherited. To avoid squandering the gains Volcker made, Bernanke may need to stop his all-out effort to prop up the weakening economy and start paying more attention to countering price pressures.

``You have to take the risk of the possibility of a small recession if you want to avoid ending up with a big one,'' says Allan Meltzer, a Fed historian and professor at Carnegie Mellon University in Pittsburgh.

As policy makers meet this week to decide on interest rates, Bernanke has one big thing going for him that Volcker, 80, didn't: Polls show Americans, for the most part, are still convinced the Fed will do what it takes to keep inflation down.
 
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no "c" in Volker. :)

As I mentioned last year, Bernanke had to address the housing problem first as it was the more immediate problem. Inflation was secondary. The equity markets seem to believe the worst has been priced into the housing market. (which means we will likely see another few months of negative reports in the media and then the news will go neutral to slightly positive.)

IF it was not an election year, I would have said that Bernanke would begin raising rates slowly in the later part of the year. But since it is an election year, I would be we do not see increases until December at the earliest. At most Bernanke cuts another 25bps. More as a psychological boost than anything.

Consumer confidence is very weak. Another contrarian indicator. Given the technical breakouts on the equity side, I think we have bottomed. More than likely we will continue to see a trading range market while consumers come to grips with the changes in energy and food.

Raising rates to Volker levels will not happen. We are not even close to being in the position we were in the 70's. Unemployment is at 5% (which is considered full employment). Inflation is a concern. But it is not urgent enough to warrant destroying the housing and financial markets in order to combat it now.

Good article from bloomberg Desh as it does touch on the basic principles of what Bernanke will need to eventually address.
 
I supported their efforts at first. But now it just seems like they're propping up a zombie. It'll be worse if we put it off by indebting ourselves.
 
I really dont think all the subprime have been calculated in yet either. More fallout to come.
 
To the morons who say "ZOMG Jimmy teh Carter wuz worst in history?!"

I always liked to point out that it was he who appointed Volcker, and he who whipped inflation.
 
Watermark said:
I supported their efforts at first. But now it just seems like they're propping up a zombie. It'll be worse if we put it off by indebting ourselves.
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Our debt is the number one source of our demise. No more talk about reducing deficit spending. Time to talk about eliminating it. If we don't have the money.... tighten the belt.
 
Watermark said:
To the morons who say "ZOMG Jimmy teh Carter wuz worst in history?!"

I always liked to point out that it was he who appointed Volcker, and he who whipped inflation.
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Jimmy Carter was indeed a horrid President. But that does not mean he didn't do anything good. His appointment of Volcker was indeed a very good choice.
 
Desh said:
I really dont think all the subprime have been calculated in yet either. More fallout to come.
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I disagree. While all the foreclosures have not happened yet, they have been priced in. Most firms have priced in a foreclosure rate of 2.5% to be conservative. I doubt we even get close to that mark.

But as mentioned, the fact that it is priced into the market does not equate to the media being done reporting on the issue. The market tends to be way ahead of media reports. Keep in mind, the media reports essentially on what HAS happened. The market looks forward to what will happen.
 
Desh said:
I hope you are right. Im not convinced.
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That is because most of your information is derived from the media... which again, looks backwards, not forwards. This holds true for the vast majority of the country. Which is why consumer confidence numbers are a lagging indicator and often used as a contrarian indicator. By the time the average individual gets comfortable with the economy, typically it has been recovering for a few months. Similar, by the time the average consumer gets concerned about a worsening economy... the shit has already hit the fan.

That is why we made fun of toppy last year in November when he was touting retail sales numbers and third quarter GDP growth while many of us were saying the market and economy were about to get crushed. He was focusing on media reports of data that looked backwards... not forwards.
 
they will attack inflation, as soon as they BAIL OUT EVERY SUIT ON WALLSTREET.
then when it's so bag stagflation is globholding the country like and octopus Wall street bets on higher prices and low and behold the FED will accomodate.
 
Topspin said:
they will attack inflation, as soon as they BAIL OUT EVERY SUIT ON WALLSTREET.
then when it's so bag stagflation is globholding the country like and octopus Wall street bets on higher prices and low and behold the FED will accomodate.
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I don't know why... maybe due to your incoherent posts.... but I picture you sounding like Charlie Browns teacher....
 
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