I do not understand why we give much importance to these common Fed statements when most of us seem to believe the numbers they use are bogus anyway. However, thanks for helping clear away the confusion.
FFDIC, I like reading these speeches because they give you the establishment view. I think Kohn is telling it like he sees it - with the usual on the one hand, on the other hand, on the gripping hand (for Sci Fi fans).
Last year I thought the Fed was dead wrong on housing - and Kohn admits they missed housing. Now the Fed is being more realistic on housing (more pain to come), although they are probably still overly optimistic (it should be more SEVERE pain to come!).
At the least, these speeches give a hint about further Fed moves (no rate cut this month). Clearly the Fed is concerned about the inflationary impacts of a weak dollar - something that has been discussed frequently in the comments.
Best Wishes.
P.S. Should we have a contest to predict the number of FDIC bank failures this year? We are upto 3, and I expect a few more this year.
FFDIC said: "I do not understand why we give much importance to these common Fed statements when most of us seem to believe the numbers they use are bogus anyway."
I agree about the statements, but strenuously disagree about the numbers being "bogus."
They have to be cross-checked against other indicators for confirmation/non-confirmation and they have to be interpreted correctly in terms of where we are in the business cycle, but the most commonly-used economic numbers give a clear view of what's happening with the economy.
I suppose its only marginally relevant for this blog (and has nothing to do with this thread) but I found the cnnmoney.com article "Life and Debt In Suburbia" interesting.
The article describes three middle class familes "The Mendells and the Steins, for instance, thought they were better off than they are, while the Wrights, who feel they are struggling to keep up in Wallingford, actually have saved the most."
What is interesting is how the Wrights "saved" their money. They did what was effectively a $100K cash-out refinance, and have "burned through $60,000 of the money" in 2 years. They are apparently the most solvent of the lot. And, they are still "saving"! They save 5% of one salary in a 403(b).
Having been employed at the FDIC in 1989 when there were more than 500 bank failures I would not hazard a guess and I'm pretty sure the FDIC has no idea at this point. This has come as a complete surprise to the FDIC. As my FDIC job ended in Sept. 2005 I told my supervisor this is only a lull in the action. I had seen to much bank fraud to believe bank closings at stopped forever. A contest would be your call. Thanks.
"To be sure, households are likely to start to save more out of their current incomes as they come to realize that they cannot count on a rise in the value of their real estate to build their retirement nest eggs. However, households have been surprisingly resilient to recent economic shocks, and any rise in the saving rate probably would be gradual. More generally, consumer spending should continue to be supported by ongoing growth in employment and income." [Fed Vice Chairman Donald L. Kohn]
When he says that households have been surprisingly resilient to recent economic shocks, perhaps the reason is that financial institutions lent more money to households than they should have. Meanwhile, I don't believe that there is substantial "ongoing growth in employment and income". Obviously, employment has been trending down. And with the collapse of union bargaining power in the face of unprecedented outsourcing of goods, and increasingly, services, it is countertuitive to think that that incomes are growing. Please tell me which occupations are in high demand nationally and have rising wage or salary levels. Manufacturing? Construction? Computer programming? Financial services? Fast food worker?
To be sure, households are likely to start to save more out of their current incomes as they come to realize that they cannot count on a rise in the value of their real estate to build their retirement nest eggs. However, households have been surprisingly resilient to recent economic shocks, and any rise in the saving rate probably would be gradual.
Since the prices of other types of assets are exploding, couldn't that compensate in the short-term?
Remember, many Americans have moved from US to foreign stocks and bonds now, and many of these markets are up on the order of 50% or so this year alone.
It is past time that the public begin to ask certain questions;
you think it was coincidence that the market was selling off and a Bear rumor and Buffet takeover/investment hit the papers?
That two banks failed in the last 7 days, Merrill & Wamu warned of deep markdowns and charges, Soveriegn just warned, and the fed announced that 297,000 jobs went poof into thin air, but, all of a sudden jobs came in higher than forecast and the previous two months were revised up? The earnings warnings and lowered guidance announcements have been "daily".
This is an era of smoke, mirrors, and fraud and this is masking the tremendous weakness in the economy.
The risk of a deep correction is far more pronounced than what you are being told. We are at severe risk of a systemic crisis.
It makes me sick when I hear someone saying that American consumers are resilient.
Better description would be to say American consumers are reckless and thoughtless as ever. They spend money they dont have to buy stuff they dont need.
"Since the prices of other types of assets are exploding, couldn't that compensate in the short-term? Remember, many Americans have moved from US to foreign stocks and bonds now, and many of these markets are up on the order of 50% or so this year alone." [ac]
AC, I doubt if the people investing in foreign stocks and bonds are marginal consumers. Ditto for commodities. Housing value is more closely related to marginal consumption, in my opinion.
If people are consuming more because emerging market stocks are up 50% this year, then that would just be one more worrisome factor...
Good point on the "consumers are resilient" phraseology, wawawa. And this is a Fed Vice Chairman. It's amazing how resilient you can be when people are loaning you money that you'll never be able to pay back!
Since the prices of other types of assets are exploding, couldn't that compensate in the short-term?Remember, many Americans have moved from US to foreign stocks and bonds now, and many of these markets are up on the order of 50% or so this year alone.
Take a stroll through Wal-Mart and hazard a guess how many of these shoppers have been buying Chinese stocks. As go Wal-Mart shoppers, so goes the U.S. economy.
The run-up in emerging markets is coming mainly from leveraged speculation, not J6P.
I think it's dangerous to justify the ½ percent cut by saying that CPI (core and overall) is low enough to permit it.
What's kept our CPI so low (aside from the infamous way it is calculated) is the intervention of worldwide central banks, which has channeled inflation into financial assets and RE instead of most goods and services.
As foreshadowed in events after the rate cut, the bad kind of inflation could explode rather quickly from rising commodity prices, and from the forced cessation of currency manipulation by countries that have been swallowing our bad inflation (and instead giving us good asset inflation).
Anybody here think there will not be a cut given the pattern of thought and action by the so-called adults so far?
Not only do I think there will NOT be further cuts - I wouldn't be surprised to see them raise a quarter point before the end of 2007.
He clearly indicated that option is still open... And considering the recent jobs data and apparent 'stabilizing' credit markets... I wouldn't be surprised at all.
He even says to take his comments with a grain of salt. This is what the Fed hopes will happen. We'll see.
Man, exactly how many "other hands" can he fit into one speech?
I do not understand why we give much importance to these common Fed statements when most of us seem to believe the numbers they use are bogus anyway. However, thanks for helping clear away the confusion.
"You should view these forecasts even more skeptically than usual."
That's like the coach telling the team:
"Now go out there and give -110%!"
WWCPD?
What would Clamity Poole do?
More bs from these guys. They will still lower rates to help their WS buddies.
Too many hands in the pie! Enjoyed the video...clears up everything!!
Congratulations on being selected as one of the Top 25 Most Influential Bloggers!!
FFDIC, I like reading these speeches because they give you the establishment view. I think Kohn is telling it like he sees it - with the usual on the one hand, on the other hand, on the gripping hand (for Sci Fi fans).
Last year I thought the Fed was dead wrong on housing - and Kohn admits they missed housing. Now the Fed is being more realistic on housing (more pain to come), although they are probably still overly optimistic (it should be more SEVERE pain to come!).
At the least, these speeches give a hint about further Fed moves (no rate cut this month). Clearly the Fed is concerned about the inflationary impacts of a weak dollar - something that has been discussed frequently in the comments.
Best Wishes.
P.S. Should we have a contest to predict the number of FDIC bank failures this year? We are upto 3, and I expect a few more this year.
FFDIC said: "I do not understand why we give much importance to these common Fed statements when most of us seem to believe the numbers they use are bogus anyway."
I agree about the statements, but strenuously disagree about the numbers being "bogus."
They have to be cross-checked against other indicators for confirmation/non-confirmation and they have to be interpreted correctly in terms of where we are in the business cycle, but the most commonly-used economic numbers give a clear view of what's happening with the economy.
Sebastia
10 Bank failures this year
50 bank failures in 2008
Us Moties are grateful for your blog, You two are the best Mediators.
Vietnam+Qatar+FED=dollar implosion
Look it up
I suppose its only marginally relevant for this blog (and has nothing to do with this thread) but I found the cnnmoney.com article "Life and Debt In Suburbia" interesting.
The article describes three middle class familes "The Mendells and the Steins, for instance, thought they were better off than they are, while the Wrights, who feel they are struggling to keep up in Wallingford, actually have saved the most."
What is interesting is how the Wrights "saved" their money. They did what was effectively a $100K cash-out refinance, and have "burned through $60,000 of the money" in 2 years. They are apparently the most solvent of the lot. And, they are still "saving"! They save 5% of one salary in a 403(b).
Having been employed at the FDIC in 1989 when there were more than 500 bank failures I would not hazard a guess and I'm pretty sure the FDIC has no idea at this point. This has come as a complete surprise to the FDIC. As my FDIC job ended in Sept. 2005 I told my supervisor this is only a lull in the action. I had seen to much bank fraud to believe bank closings at stopped forever. A contest would be your call. Thanks.
"To be sure, households are likely to start to save more out of their current incomes as they come to realize that they cannot count on a rise in the value of their real estate to build their retirement nest eggs. However, households have been surprisingly resilient to recent economic shocks, and any rise in the saving rate probably would be gradual. More generally, consumer spending should continue to be supported by ongoing growth in employment and income." [Fed Vice Chairman Donald L. Kohn]
When he says that households have been surprisingly resilient to recent economic shocks, perhaps the reason is that financial institutions lent more money to households than they should have. Meanwhile, I don't believe that there is substantial "ongoing growth in employment and income". Obviously, employment has been trending down. And with the collapse of union bargaining power in the face of unprecedented outsourcing of goods, and increasingly, services, it is countertuitive to think that that incomes are growing. Please tell me which occupations are in high demand nationally and have rising wage or salary levels. Manufacturing? Construction? Computer programming? Financial services? Fast food worker?
Three handed economist.
To be sure, households are likely to start to save more out of their current incomes as they come to realize that they cannot count on a rise in the value of their real estate to build their retirement nest eggs. However, households have been surprisingly resilient to recent economic shocks, and any rise in the saving rate probably would be gradual.
Since the prices of other types of assets are exploding, couldn't that compensate in the short-term?
Remember, many Americans have moved from US to foreign stocks and bonds now, and many of these markets are up on the order of 50% or so this year alone.
It is past time that the public begin to ask certain questions;
you think it was coincidence that the market was selling off and a Bear rumor and Buffet takeover/investment hit the papers?
That two banks failed in the last 7 days, Merrill & Wamu warned of deep markdowns and charges, Soveriegn just warned, and the fed announced that 297,000 jobs went poof into thin air, but, all of a sudden jobs came in higher than forecast and the previous two months were revised up? The earnings warnings and lowered guidance announcements have been "daily".
This is an era of smoke, mirrors, and fraud and this is masking the tremendous weakness in the economy.
The risk of a deep correction is far more pronounced than what you are being told. We are at severe risk of a systemic crisis.
It makes me sick when I hear someone saying that American consumers are resilient.
Better description would be to say American consumers are reckless and thoughtless as ever. They spend money they dont have to buy stuff they dont need.
"Since the prices of other types of assets are exploding, couldn't that compensate in the short-term? Remember, many Americans have moved from US to foreign stocks and bonds now, and many of these markets are up on the order of 50% or so this year alone." [ac]
AC, I doubt if the people investing in foreign stocks and bonds are marginal consumers. Ditto for commodities. Housing value is more closely related to marginal consumption, in my opinion.
If people are consuming more because emerging market stocks are up 50% this year, then that would just be one more worrisome factor...
You can never have too many hands for wringing.
Good point on the "consumers are resilient" phraseology, wawawa. And this is a Fed Vice Chairman. It's amazing how resilient you can be when people are loaning you money that you'll never be able to pay back!
Take a stroll through Wal-Mart and hazard a guess how many of these shoppers have been buying Chinese stocks. As go Wal-Mart shoppers, so goes the U.S. economy.
The run-up in emerging markets is coming mainly from leveraged speculation, not J6P.
I think it's dangerous to justify the ½ percent cut by saying that CPI (core and overall) is low enough to permit it.
What's kept our CPI so low (aside from the infamous way it is calculated) is the intervention of worldwide central banks, which has channeled inflation into financial assets and RE instead of most goods and services.
As foreshadowed in events after the rate cut, the bad kind of inflation could explode rather quickly from rising commodity prices, and from the forced cessation of currency manipulation by countries that have been swallowing our bad inflation (and instead giving us good asset inflation).
Again, parsing these entrails is fruitless (unless Calamity Bill shows up in a cast around his broken arm).
Anybody here think there will not be a cut given the pattern of thought and action by the so-called adults so far?
Anybody?
CR!
I just saw the 'gripping hand' comment!
Three glasses into a bottle of 'Black Swan' Shiraz/Merlot I have to say YOU ROCK!
Anybody here think there will not be a cut given the pattern of thought and action by the so-called adults so far?
Not only do I think there will NOT be further cuts - I wouldn't be surprised to see them raise a quarter point before the end of 2007.
He clearly indicated that option is still open... And considering the recent jobs data and apparent 'stabilizing' credit markets... I wouldn't be surprised at all.
Gripping hand?
Hmmmmm, IIRC the motie economy was characterised by regular and quite vigorous bubbles/busts.
(Although I haven't worked out why Mote system doesn't have large percentages of the solar radiation captured by hyper-thin-film solar cells.)
dryfly,
I will hold you to no rate cut at the next meeting.
I believe the political has trumped the economic, and will continue to do so, for the next 12 months, if history is any guide.