Setting Global Monetary Policy: 21st Century Snake Oil Salesmen? (Bonus Video)

By | October 13, 2014

This slightly irreverent article title is meant to ask the question of whether those tasked with deciding economic policy, and US policy in particular, actually have a strong handle on the how and why it will work as drawn up on the blackboard?

Additionally do they have any inkling concerning what any of the unintended consequences will be when they eventually need to unwind it?

Statistically the US unemployment rate for September ticked down to 5.9% which on its surface looks like a good number heading in the right direction.

It would also seem to serve as prima facie evidence that the US economic policy designed to battle the 2008 economic crisis has in fact worked.

When you look under the hood, however, the labor force participation rate that stands at a decades low of level of 62.7% may be telling a different story.

And further, when you look at the confidence of US citizens concerning the overall direction of the economy and their own personal well-being…

The CNBC survey shows slightly better views on the economy overall compared to a year ago, with 79 percent now judging the economy as fair or poor, down 5 points from a year ago. Those rating the economy as excellent or good rose 3 points. Those are depressed levels compare to a year ago, but they underscore how Americans’ views on the economy are going one way while their views on Obama go in the other direction.

The survey comes in the fifth year of an economic expansion that is described by economists as at best lackluster. Median incomes have remained stagnant, wage growth has been slow and income inequality has grown. The unemployment rate has declined sharply, and more than 9.1 million of jobs have been created since jobs started rising in October 2010. But millions of Americans remain unemployed and have become so discouraged that they have stopped looking for work. Millions more are underemployed in part-time work, even though they would prefer to work full time. (Source)

Bernanke, Lagarde, Yellen and Quantitative Easing

To continue with the question of whether Ben Bernanke, Christine Lagarde and Janet Yellen have a strong grasp on what they are doing in the realm of monetary policy, why they are doing it, how it will work and whether it can be unwound, the following article from a right-leaning blog offers an opinion along with a video in cartoon form that describes what it is that quantitative easing actually is.

Global Economic Policy And The Snake Oil Salesmen Who Sell It! (Bonus Video)

Global economic slowdown ‘confuses’ policy makers…but it doesn’t confuse us!

Understanding why we are experiencing a global economic slowdown seems to be difficult for the Ivory Tower dwellers who are tasked with saving the economy and yet typically possess no real life business experience!

In other words this massive global experiment of printing money, bond buying and expanding government balance sheets in order to spark economic growth appears to have been a very expensive failure.

And if failure is too strong a word for you, how about glancing at the US labor force participation rate and disappearance of the middle class and at least concede that it hasn’t really worked all that well.

And while those on the other side of the argument will state that these policies staved off financial ruin, we will undoubtedly be dealing with the the potential for extreme unintended consequences when the money spigot is eventually turned off.

Global economic slowdown confuses the IMF’s Christine Lagarde!

What happens to the global economy next after a statement like this one about Ms. Lagarde is made on Sunday:

Gathering signs of a slowdown across many parts of the world are roiling financial markets and confounding policy makers, who after years of battling anemic economic growth have limited tools left to jump-start a recovery…

…The IMF sounded the alarm last week by cutting its forecast for global growth, adding another downgrade to four years of what it called “serial disappointments.”(Source)

Good and critically important question for sure!

But as confused as Christine Lagarde (and our own Janet Yellen) seems to be now is as laser focused we were at TPC back in December 2012 when writing the article…

Ben Bernanke: Snake oil salesman! (Bonus animated video: QE explained)

Watching Ben Bernanke answer questions am I the only one who thinks he sounds as if he is just throwing s–t against the wall hoping that something will stick? (While the lemmings (business news pundits) in his audience just seem to listen and nod) 

To date the aforementioned s–t that I speak of is comprised by QE1, QE2, QE3, Operation Twist and whatever name they give to his announcement today.

And so far, nothing has worked typified by an unemployment rate that drops only because people have lost hope and have given up looking for work!

In any event, all of us have known “that” one salesman who tries every gimmick and plays every angle in order to put as much into the pipeline as possible hoping it will all close when in reality very little of it ever will.

Ben Bernanke is that salesman who is expanding the Fed balance sheet to a point at which it will be impossible to reverse and yet, nothing in the economy actually seems to improve when you scratch below the surface of the numbers.

At the same time government borrowing spikes higher with treasury debt outstanding now at a point where the country cannot afford to pay for that debt needing to borrow more money simply to service the interest due bondholders. And these bondholders to a large extent is actually our federal government itself!

Sufficiently confused yet?

Now imagine for a second the impact on federal spending were yields ever to revert to historically “normal” rates. Therein lies the Fed Chairman’s true quandary.

He warns us about the dangers of Washington kicking the can down the road when it comes to “solving” the fiscal cliff but, if any agreement is actually put together, the people we are forced to call our leaders will do exactly that because after all when difficult and unpopular decisions need to be made politicians will be politicians.

Bottom line – Ben Bernanke is an academic who will continue to try his Ivory Tower methodologies to get us out of the mess that we are in, and we can only hope that he is better in the future than the unmitigated failure that he has been in the past! 

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Written by Michael Haltman, President of Hallmark Abstract Service, New York.

HAS is a provider of title insurance in New York State for residential and commercial real estate transactions specializing in the areas of New York City, Long Island and Westchester.

Remember that you have the right to choose your own title company (click here to learn more)!

If you have any questions you can reach Michael by email at mhaltman@hallmarkabstractllc.com.

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