Fed Funds and Unemployment Rate
Submitted by
CalculatedRisk on Mon, 09/21/2009 - 3:38pm (224 comments)
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Mo money
Mo money
Mo money
Massive intervention didn't work. Maybe moderate intervention will work.
The world is a mysterious place when you are blinded to half of all the alternatives. Take off the blinders. Duh.
"Mo money "
The
must he hard on your banana budget.
If you want to get some real news, you might wander over to Comedy Central and catch Stewart's show-
the Wayans
All you need to know to work for the Fed
I don't expect the Fed to raise rates until late in 2010 at the earliest - and more likely sometime in 2011.
The Fed meetings are going to be B-O-R-I-N-G.
That blue line (Fed Funds Rate) is really bouncing along the bottom.
If it doesn't get raised until sometime in 2011, I don't see how we dodge the inflation bullet.
The Fed meetings are going to be B-O-R-I-N-G.
No, writing fiction is H-A-R-D.
"Mo money
Mo money
Mo money "
More like
"No whammy
No whammy
No whammy"
Man I loved that show. So relevant to what's going on right now.
Three cheers for Helicopter Ben!
Liz,
For you:
Comment by Cinco-X from thread 'Moody’s: CRE Prices Off 39 Percent from Peak, Off 5% in July'
I still think the natural rate of unemployment is much higher than 5%. Absent bubbles and senseless credit creation targeting CONsumer spending, I'd say 10% is closer to reality.
Low debt and low CONsumption makes Jack a not-so-dull boy with lots of freedom.
CR - with Congress interfering, I doubt rates get raised until we have a nice bout of inflation going.
Well.....after staring into the Abyss as they claim to have done last Fall, boring is probably a welcome change for them.
from last thread: Dell/Perot systems
The 60% premium paid to Perot Systems gives DELL several years to obfuscate accounting and smooth earnings through goodwill. then when the time comes, they'll divest it...
Money, TARP giveaway.
Get a Goldman job with good pay and you're okay.
Money, its a gas.
Grab that cash with both hands and make a stash.
New car, caviar, four star daydream,
Think Ill buy me a football team.
Money, get back.
I'm all right jack keep your hands off of my stack.
Money, its a hit.
Dont give me that do goody good bullshit.
I'm in the high-fidelity first class traveling set
And I think I need a Gulfstream jet.
Money, its a crime.
Share it fairly between yourselves, but dont take a slice of my pie.
Money, so they say
Is the root of all evil today.
But if you ask for a share its no surprise that they're
Giving none away.
YouTube - Money - Pink Floyd + Lyrics
Natural unemployment is usually the folks transitioning from one job to the next. I think additional unemployment you describe will be structural unemployment due to people with the right skills in the wrong locations for jobs, and housing tying them to their present location.
Interesting graph, chronicles the death of a fiat currency system pretty well.
Deflationary hyperinflation currency crisis.
Deflationary hyperinflation currency crisis.
In other words, Iceland now, and soon to be Ireland, UK, and US.
Cinco-X,
There's just too many people working. And most of the "work" is totally useless. Seriously. If 25% f the people in the U.S. stopped working tomorrow and stayed home and read a book, exercised or just watched tube nothing of importance would change.
All our food plus the surplus we export is produced with < 2% of the work force. I could go on, but you get the picture.
Terry, the Fed is always under some political pressure - and no question it is intense this time, but I wanted to post this because I think the people looking for the Fed to raise rates early next year are wrong.
best wishes
Basel Too (profile) wrote on Mon, 9/21/2009 - 4:53 pm
Deflationary hyperinflation currency crisis.
In other words, Iceland now, and soon to be Ireland, UK, and US.
The problem is that Ireland and then England could be handled. By holding back the tide we are faced with Ireland AND England at the same time and I don't think that can be contained.
I've given up predicting short term USD. Too many competing forces. I'll let somebody else be the oracle and 20 others be the goat.
When do the sans-jobs sans-benefits reach critical mass?
FFR raised by 2011? Fat chance -- we'll still be in the depths of depression, aggravated by a currency crisis.
I find it highly unlikely that the Fed will or even can sit back and watch a deflationary scenario play out--as credit contracts and economic activity falls off the map it'll prove interesting how the Federal government intends to function and service the debt, which is fairly unlikely to be possible in a deflationary economy.
Also, when you run a debt based economy (a "service" based as it's euphemistically called) without inflation. Two things the Fed has no choice but to do:
(1) Create inflation,
(2) keep interest rates as low as possible.
The moment Mr. Bernanke raises the Federal Funds Rate to a moderate level, the United States would more then likely be unable to even service the national debt.
They will need the patience of the sphinx.
They may have it.
C
people are just going to the ER for everything and letting the hospitals(you), eat it.
who needs jobs when the gubment will give you everything you need. the ghettos learned this a long time ago.
CR,
You stated that the Fed's withdrawal from the MBS market would only jump mortgage rates by 35 basis points (whereas the article stated 50). Since there's very little MBS issuance these days and the Fed constitutes the only major buyer, how can it not jump much, much higher???
setting yourself up as an oracle turns out to be a rather thankless job, doesn't it? Being a martyr isn't much better.
barring war
there is zero chance of the Fed raising rates until 3rd quarter 2010.
My own guess is the last meeting of 2010. To go out with a bang, you know.
I concur
perhaps 35bps x 5 or even 10
CR, I disagree.
The Fed may be forced to raise rates to mount a defense of the dollar, and sooner than most are stating.
But, if we don't defend the indefensible, we will slide much faster than the Fed can stand.
Caught between delevering asset classes, and quantitative easing.
Someday this war's gonna end...
but I wanted to post this because I think the people looking for the Fed to raise rates early next year are wrong.
CBC News - Money - Bank of Japan raises rates after 6 years at 0%
A little perspective - Bank of Japan lowered rates back to zero. Go figure.
"Borked" = To have really screwed something up.
"Björked" = To have really screwed something up in Iceland.
Tonight, parts of Atlanta look like the 9th Ward of N.O. after Katrina. Suburbs just west of downtown had 15 inches of rain so far since midnight last night. I-75/85 through the heart of downtown flooded this afternoon, and people had to be rescued from the roofs of cars. Cobb County, a northwest suburb has 185 major road closures. Suburban home rescues are being done by airboats west of town. 6 dead so far in cars swept off of the roads. More rain is on the way.....
Why defend the dollar.... its decline would help a lot of people out....
I disagree emphatically
the dollar devaluation is part of the goal.
The defense of the dollar = deflation writ large.
The "prime rate" is supposed to be 300bps above the FFR as published in the WSJ on the last Friday of the month. When was the last time it was actually that low? Those 4-12 bps are pure ripping off the CP and credit line market borrowers for billions.
Thought experiment: If the 2010 primaries look bad for incumbents the Fed won't dare raise rates. Discuss.
A Priest, a Rabbi, an Imam, 200 fish, and 25,000 gallons of water go into a bar in New Orleans...
I'd like to see the dollar mix it up with the yen in the octogone...
UFC 86*
This is for all the hegemony!
Gentlemen,
I do not argue that a controlled descent is what the Fed has in mind, but markets are unruly.
That unexpected sudden drop will need some attention.
Someday this war's gonna end...
It's like that Doug Noland post "No Exit" I linked a while back -- the Fed and the Federal Government cannot extricate themselves from any position and/or market without risking collapse as they are the market.
Everybody is in way too deep, there is no way out.
If other currencies had anything going for them, then the $ implosion threat would be real, but they dont. Forex is always relative, and the Euro isnt that great, nor the pound or the yen. An orderly decline of the $ is needed, only way to get net exports as a bigger share of the economy to offest falling C share (unless you really really want G to increase a lot). With falling C, I is not going to go up that much, although it is now at historic lows as a share of the economy, 11.02% in 2Q vs. post war avg of 15.97%, but remember that I includes Residential Investment, and building more McMansions 40 miles from work centers is probably the purest form of malinvestment going.
The Fed may be forced to raise rates to mount a defense of the dollar, and sooner than most are stating.
AllenM,
Kind of a "rock and a hard place", isn't it? What good is propping the body up if doing so virtually guarantees a stroke?
"Tonight, parts of Atlanta look like the 9th Ward of N.O. after Katrina."
Ouch. Terrible news.
Santa Ana winds and single-digit humidity is predicted for LA starting tomorrow.
Stand by for the fire report.
"
Why defend the dollar.... its decline would help a lot of people out....
montas ankle (profile) wrote (in reply to...) on Mon, 9/21/2009 - 5:12 pm
* reply
* Ignore user
I disagree emphatically
the dollar devaluation is part of the goal.
The defense of the dollar = deflation writ large.
"
An orderly decline would help a lot of people out. A disorderly decline wouldn't. If it starts to become disorderly you could definitely see rates rising etc...
At least the drought in Atlanta is over
again, barring war, the dollar decline will be orderly enough
Japan got stuck at zero for 5+ years
you think we can't do it for one year?
If its dissorderly it would be fugly.... But as Dirk mentioned it´d have to be relative to something big and the big players arent looking too hot either... The countries running surplusses still need to park their ´$´s somewhere...
.......
Dirk,
Believe it or not, Lake Lanier, Atlanta's main water source, is still 6 feet below full pool.
The real question for me is what do we do next time? Look at that blue line- it keeps bottoming lower and lower, and for all of this, we now have 9.7% unemployment with higher numbers pretty much baked in. The monetary interventions are increasing in amplitude over time. When does the bridge start galloping so much that it falls into the river?
I'm still sticking to my hyper-devaluation call...
A quick 2/3rds surgical strike on the value of the almighty dollar, and leave it right there...
If you did it in baby-steps, you'd lose confidence all along the way.
Guest Post: If Credit is Not Created Out of Excess Reserves, What Does That Mean? « naked capitalism
Quite and interest and very integral to the inflation/deflation debate.
I don't buy the argument that the dollar won't crash simply because the other currencies aren't exactly bulletproof.
There's also little chance we have anything like the time Japan did, for any number of reasons we've already covered here.
O. H. Chick: Heard. Rain headed toward much of the Southeast too. Hang in there, keep treading water.
Learned a few things from the Bush Regime?
JD,
Think that would be enough?
"In Canada, the banks have no shame. They do exercise the recourse option. Mortgages are recourse loans under Federal law. "
And they require 20% downpayments. And Canada appears to be having no financial collapse (although it will suffer some in the future).
Gosh, could it be that having low downpayments and non-recourse loans leads to financial instability? It's almost like learning that you cannot have your cake and eat it too. Life is so unfair. I don't want to know about this. Let me put my head back into the sand.
"The real question for me is what do we do next time? Look at that blue line- it keeps bottoming lower and lower, and for all of this, we now have 9.7% unemployment with higher numbers pretty much baked in. The monetary interventions are increasing in amplitude over time. When does the bridge start galloping so much that it falls into the river?"
Exactly my point above - this chart is an excellent summary of the decline in a fiat currency system. Owning the reserve currency in such a system is a losing position in the long run.
When hyper-inflation gets out of control and gets stupid (Zimbabwe) it turns a place into a basket-case, but if you just realign everything in one-fell swoop, it's easier.
Essentially the minimum-wage in China is around a buck an hour, here, it's closer to $9
The Asian-rates of pay would go up to $3 in buying value, while ours go down to a buying power of $3, although employees will still get $9 an hour.
It allows us to keep keeping on, but @ a 2/3rds reduction in standard of living.
I don't see any other way out...
Thanks Volker.
Here's a local news TV station link that has a photo of a flooded neighborhood with a burning house, and a submerged fire truck.
Atlanta News - Atlanta Georgia Local News Headlines
I expect the Fed to announce an extension and expansion of their Treasury bond purchases. The dollar may fall, but the value of the dollar is not a concern of the Fed. Currency policy is an area reserved for the Treasury to perform its malpractice.
Hyper inflation in Zimbabwe has ended; they now use the dollar as their main currency.
Minimum wage where I live is 7.25. It's 9.00 in other places?
It $8 something in Ca.
anyways, americans are only affected by dollar devaluation when the they travel overseas.
"Minimum wage where I live is 7.25. It's 9.00 in other places? "
Some parts of LA it is $12.50 or more.
I believe the same is true in parts of San Francisco.
Google "Living Wage".
Living wage, yeah, but minimum wage?
Living wage is probably more around $20/hour actually.
Weakened @ Bernanke's?
"Living wage, yeah, but minimum wage?"
It's the legal minimum wage that certain workers must be paid by law. "Living Wage" is the name of the movement that pressed for the laws.
Actually, the mininum wage is zero.
I don't buy the argument that the dollar won't crash simply because the other currencies aren't exactly bulletproof.
I don't buy the argument that the dollar will crash simply because of the epic short position against it.
There fixed it fer ya
edit: I see the dollar gradually declining with whipsaws upward as this bear mauls those who try to ride it's back. I'd be shocked if a year from now the dollar isn't around 75 (+/- 3), with trips to 62 and 85 mixed in. Currency traders are very trend-oriented, and it is quite easy to "paint the chart" to drive Uncle Buck where you want him to go.
Is there any part of the U.S. that isn't prone to disaster?
Americans are only affected by dollar devaluation..
Or buy luxuries like gasoline or flat screen TVs.
Minimum work out put not required.
Actually, the mininum wage is zero.
um no. zero is too high (scary huh. People actually PAY to work for FREE).
Desperate Youth Pay For Internships - Creative underclass - Gawker
that was my snark at Bernanke's response to Ron Paul's inquiry about the value of the dollar.
I was just reading this link from CNN.com:
See which states have the highest and lowest incomes - Sep. 21, 2009
"Where to Find the Fattest Paychecks"
It ranks states by median income level. I was surprised that the median wage here in NH is higher than the median wage in California, and most other states. I believe NH ranks in the top 5 or 6, judging from the map in the article, altho it's clumsy to read, & I'm skimming.
They can lower the boom later @ Wal*Mart & Target on big price increases on Chinese-made stuff, but you can't hide it @ the outdoor one-arm bandit...
That's where the hoi ploy is gonna go apeshit when they see go-juice @ $9 a gallon, all you'd like, cash & carry only.
Badger Boy,
Yeah, well, a fiat currency is much more than a trading position. The USD is a bubble, and bubbles pop.
I can't think of any disasters that have happened here in NH, much. We've had some flooding issues, but nothing like Atlanta is having. We had an ice storm last year with no electricity for 4 days to 3 weeks, depending on where you live. That is very annoying. But as far as "prone" to disaster, I'd say we're in a pretty safe spot.
I do have earthquake insurance tho. Just in case.
"the median wage here in NH is higher than the median wage in California, and most other states."
Gotta pay for all that fuel to survive the NH winter...
Outsider,
NH is a fairly smallish place. Heck, if you just excluded the IE Cali might jump in front.
If you follow CBO's numbers, you're likely to agree that we're currently looking at an 8% output gap. It may go to 10%, or higher. Regardless of how you choose to measure potential GDP out of sample, it's clear there's a significant gap:
FRBSF Economic Letter: Growth Accounting, Potential Output, and the Current Recession (2009-26, 8/17/2009)
Menzie Chinn commented on this on August 17:
Econbrowser: A Utilization-adjusted Measure of Productivity: Implications for the Output Gap
Jan Hatzius also commented on the gap's implications in the paper you cited in your "Capital Spending and Consumer Spending" piece.
Having duly noted Paul Kasriel's opinion which, in my opinion, is wrong-headed, I think we're seeing tremendous downward pressure on wages and prices, and I've no doubt the pressure will continue throughout 2010. It just doesn't seem possible that everyone's estimates of potential could be that far off.
Why would Bernanke raise rates? If the numbers are even ballpark correct, he could throw the US economy into a tailspin.
I'm not a crook!
TJ - I don't think we're too small as much as you are abnormally large.
We have meteor insurance- full comp-collision, with a 500,000 mile deductible.
If the numbers are even ballpark correct, he could through the US economy into a tailspin.
Heck, if they didn't do everything they're doing now, it would be in a tailspin even with a 0% FFR. As it is we're just circling the drain...
Basel Too
anyways, americans are only affected by dollar devaluation when the they travel overseas.
Tell me abouit it!
(got some Guat pics posted too....
)
mp --
Exactly. Mo money!
This week's Fed announcement will be a "steady as she goes" nothingburger. Possibly indicate how they plan to spin down the MBS purchases, but probably they will wait for the next one. Some small nod to improving numbers, but no indications that they intend to raise the target rate in the foreseeable future.
I wouldn't argue with that. Ever drive the length of California or Florida, or maybe the width of Texas? It takes FOREVER.
I commented here last night, shortly before taking a walk on the yellow brick road with Mr. Chipmunk and Mr. Badger, that the forces at work here now are highly deflationary.
Anyone talking inflation right now is, in my opinion, smoking dope.
If Bernanke hadn't turbopumped trillions of dollars into the economy, we'd be able to buy an apple or a pencil on every streetcorner in every American city right now.
But would the pencil be made in China?
JD, do you think a step devaluation could be implemented with causing too many ripples in other markets? I think that's their big worry. Everything is so interconnect now that one slip and all the climbers go down the mountain together.
I don't know, but this isn't over yet.
Not by a long shot.
There were 2 farmers talking, one from the northeast, one from Texas. TheTexas farmer commented - I can drive all day and still not get from one end of my farm to the other. The farmer from the northeast said, yeah, I had a car like that once...
it looks like Jas was right.... (so far)
......
Is the end result that we just turbopump until we can't? What exactly do we get from the GDP output gap that you referenced to the inflation part?
.
More jokingly, can QE'd fiat be inflated so much that it skips the hyper-inflation phase and just implodes on itself ala paper black hole?
mp,
There is doubtless less activity broadly across the economy, so there is some real output gap. But a good part of the recent changes is the beginning of a shift in economic activity from one sphere to another. FIRE sucked up too many resources. There wasn't enough manufacturing. There is a lot of excess capacity in FIRE, but that capacity will be exposed as being of little value, and will go away forever. Meanwhile, we may be short of capacity in other areas (like import substitutes for more expensive imports as the dollar falls).
I would not overstate the output gap. And the many intelligent folks proclaiming that the gap is huge include more than a few who have an ulterior motive, such as the many overleveraged borrowers who want interest rates kept extremely low, and credit easy.
Most mountain climbing injuries or deaths occur after reaching the summit, and heading down...
It's easy to be complacent on the descent.
You need to spend some time with the SF Fed paper and with Menzi Chinn's comments.
The output gap is real.
"he bank and the government informally agreed to share losses on a $118 billion portfolio in January, soon after Bank of America's acquisition of Merrill Lynch & Co, but never signed an official agreement."
This is just bizarre. Paying money to break an informal agreement? How on earth was this approved by the Board?
I could not agree more
"Anyone talking inflation right now is, in my opinion, smoking dope."
Uh-oh, I'd better hide my pipe.
No one talking inflation is thinking it will happen immediately. Just like the people who were calling unsustainable bubble (and future price drops in RE) when the bubble was still inflating, those calling for inflation know that it will probably take a few years. You have to look further than the current trendlines.
Would that be more of the
or the 
kind?
Patientrenter is correct. Having excess capacity in sectors which add no value is a net plus. The people currently looking for jobs which add no value will eventually switch to industries which add some value.
At best only 25% of homeowners are not interested in interest rates. I would speculate renters don't want interest rates to go up because of the personal debt they tend to carry. (I'm not sure I'm convinced low interest rates are the way out btw. That's the problem with deflationary spirals, it isn't a matter of more capacity needing to be generated.) So, the idea that folks are talking their book in regards to interest rates may be true, but it isn't provincialism which is what I think you are attempting to argue.
all this money-printing, propping up serves to do is to allow the same mouth-breathing morons to stay in control of assets they can't manage... this will work until it doesn't. hopefully it will last for awhile. i'd rather be led around by a bunch of morons than scrapping through the gutter for a few scraps of garbage to eat.
looking at the graph on this page makes me think: "damn, somethings broke".
"The output gap is real"
As I say, there is some output gap, but it's best not to overstate it. As for the SF Fed's paper, well, as you well know, the Fed produced paper after paper during the bubble saying there probably wasn't any bubble. I'll believe my own lying eyes before I accept a Fed paper on faith.
You guys should be careful what you wish for.
If Bernanke raises rates prematurely, you could end up looking at something absolutely devastating to this economy.
As if what's happened already isn't devastating enough.
sure, in the long run we are all dead anyway, but that doesn't stop me from living even though my trendline leads to death
NH is roughly equivalent to Sacramento County by most metrics except for being 10x larger in area.
New Hampshire QuickFacts from the US Census Bureau
Sacramento County QuickFacts from the US Census Bureau
Paying money to break an informal agreement?
perfectly valid. BAC received a significant benefit from an implied contract.
I would speculate renters don't want interest rates to go up because of the personal debt they tend to carry.
Excluding mortgage debt, gotta wonder whether renters carry more or less debt than homeowners. I could make a case for less, but I really don't know. Interesting question.
All of the sudden, TPTB are going all wishy-washy on staying the course in Afghanistan, just a few days after saying ixnay on missiles in Poland and the Czech Republic, eh?
Are we pulling in our horns in a big way?
Damage Report, Captain:
Census: Recession had sweeping impact on US life
Note the past tense used in the title of the article. I think those demographers will be whining "hoocoodanode" when their next damage report comes out in a year or two.
It's funny, but looking at that graph I could swear that raising the FF rate increase unemployment...
Renters don't have access to seconds or HELOC loans.
"you could end up looking at something absolutely devastating to this economy"
mp, doubtless there are risks associated with any tightening of credit. But we are a little skeptical of the warning that, if we don't offer easy credit, or loan forgiveness, or a bailout for banks, or for homeowners, or for car makers, or.... then we will all go to economic hell. That warning has been used on us too often.
Businessmen tend to favor easy credit and low interest rates, probably a little too much for the general good. I am reminded of Treasury Secretary Regan's fights with Volcker. I guess I think Volcker got it more right in the long run.
Scotty,
Are you still trying to reconfigure the Goldman cloaking device into the U$$ Enterprise?
Spock, out.
I agree we shouldn't hope for doom here. Part of the argument for low interest rates is that our currency will devalue (controlled) and improve our exports and reduce our imports. With labor arbitrage in China, I'm not sure the effort to get to parity is worth it. If you consciously strengthen the dollar, you do make imports cheaper, but you also increase the savings rate and you also move labor into higher end capital capital products that we currently only compete with Europe for. Admittedly the rest of the world is weak on the capex side, but I think it is a stronger bet than playing labor arbitrage with China over lingerie, toys, and t-shirts.
I don't think Bernanke will raise rates again for a very, very, very long time. Ben doesn't care about the dollar. He hopes to devalue his way out of this . IT IS THEIR ONLY CHOICE.
Tightening credit would be bad for the economy?
Asset values, yes. The economy, I'm not so sure.
The rate of the Fed Funds rate is somewhat academic when banks are not lending and business are not borrowing. Debate it as much as you like but Ben Bernanke has much less control over the economy than the talking head would lead you to believe.
"I would speculate renters don't want interest rates to go up because of the personal debt they tend to carry."
Apples and oranges. Renters' average age is much younger than homeowners' average age. If you consider the preferences of renters and homeowners of equal age, homeowners have far more debt, and benefit far more from low interest rates.
OK, rajesh. let's raise rates right now and see what happens.
businesses ARE borrowing. so are consumers.
The problem with devaluation is energy. We're too dependent upon imported energy, so any gains from competitive devaluation could be offset. JD's snap devaluation could easily push gas past $10/gallon; what would that do to the economy?
Persuading Europe, the US and China to accept International Monetary Fund advice on economic polices may be difficult, European Central Bank President Jean-Claude Trichet said on Monday.
Don't worry Arsenic is good for the complexion.
I'd be interested as to exactly what FFR wouldn't be damaging to the US economy at this point. No fair hedging with "woulda, shoulda, coulda." Now, going forward.
Actually, someone told me that law associates were now offering to work for nothing, or even paying to work, just to have the experience on their resumes. The law profession is undergoing some serious contractions these days.
"...push gas past $10/gallon; what would that do to the economy?"
Make it far more energy-efficient and self-sufficient, with a cleaner environment to boot?
Yeah, it only lasts from October to June.
What's left of it, sure.
It is less the rate than the expectation that rates will remain low for an extended period.
patientrenter (profile) wrote (in reply to...) on Mon, 9/21/2009 - 6:26 pm
"...push gas past $10/gallon; what would that do to the economy?"
Make it far more energy-efficient and self-sufficient, with a cleaner environment to boot?
You mean as $8 home heating oil leads to the deforestation of Boise to Bangor?
Nobody ever said it was going to be a walk in the park...
The problem with devaluation is energy.
On the other hand, devaluation continues the earnings fraud by the MNCs. anyone think CNBC will attribute improved earnings to a weaker dollar?
the Fed can only serve one master and it ain't J6P.
It would destroy it.
As of July, demand for gasoline was still falling.
http://omrpublic.iea.org/demand/us_gs_ov.pdf
mp,
That isn't demand destruction, that's the results of C4C paying dividends.
"What's left of it, sure"
All this talk of $10 gasoline destroying the economy is, with all due respect, nonsense. Europeans have been living with far more expensive energy for decades and, last time I visited, it was rather pleasant there, and the natives were enjoying themselves. From time to time, the discussion here has strayed to the inaccuracy of GDP as a measure of wellbeing. A 'disaster' for the GDP might be quite good for us people.
I agree. $10/gallon gasoline = full stop
C4C, They can't afford gas with their new car payment!
patient renter, you must be fairly well off, with little regard for commuting costs.
I can tell you, high gas costs hurt a lot of working folks. Esp. in the less-urban areas.
edit: I can remember at $4.50/gas reading about truckers having to abandon their trucks, they couldn't afford it. Etc. etc. etc., lots of industries. Lack of shipping cross country isn't necessarily an easy thing.
Yes.
But Obama really, really backed himself into a corner in the case of Afghanistan during the campaign. It will be difficult for him to finagle a way out that doesn't look bad.
For the record, I think we should abandon Afghanistan altogether. There are no compelling reasons to stay.
Europe has so many differences from the U.S. that it isn't a useful comparison point for midterm comparisons. Urban density is significantly higher. The urban services network is a lot smaller although that is changing with the Euro, EU, and China's continued influence.
Yes, and may I respectfully point out, they have an extremely well-developed public transportation system and tend to live closer to their workplaces.
In other words, direct comparison of European and American energy prices is like comparing badgers to apples.
Europe doesn't have too many people driving 2 or 3 hours to and fro from work 5 times a week, to $10 an hour jobs, in theory working 8 hours, but make it 10 or 11-with the drive.
After our intrepid commuters start paying more for gasoline than their net take-home pay, is when it gets interesting.
There's 10's of millions of people like this~
Nobody ever said it was going to be a walk in the park...
Oh yeah, it will be... looking for firewood, hunting for squirrels.
Make sure you cook those squirrels well, tho, we don't want any trichwhatever cases. Worms. Yuck.
"little regard for commuting costs"
I walk 7 mins to work
But of course an increase in the price of imports would lead to changes in our economy. If a change in the price of the dollar, and the resulting prices of imports and exports, doesn't lead to real changes in behavior, then what's the point of having prices? If we are using too much of the world's oil in comparison to our ability to compensate the rest of the world for this consumption, then we have to use less, and nothing is more efficient than price in getting people to change behavior efficiently. If we use less oil, that means organizing ourselves to use less, guided by the high price of oil. We would have incentives to buy smaller and more fuel-efficient cars, and to live closer to work, and to heat our homes with more efficient heating systems, etc. Nothing wrong with any of that.
I'd like to comment on something from another thread, Obama's remark that he will make college more affordable with student loans.
It sounds stupid unless you accept it at face value.
Obama can't make college more affordable any time soon in a head-on way. But he can extend loans to students now and later on forgive some principal under certain conditions. He said he would to this in his campaign and he probably will. Already, teachers can get $5,000 of loan principal forgiveness.
For my kid, I'm taking all the DIRECT federal loan money I can get. It's at a low interest rate during college anyways, and there's always a chance principal could get reduced later. It's the only way for Obama to make college more affordable, but he can't say so. The fact that the feds want to take over college lending tells you it's a possibility down the road.
College is one of America's only growth industries, and also one of our viable exports. The way to keep higher education revenues flowing, while continuing to stimulate the economy and help the generation that elected him, would be for Obama to forgive some student loans. Yeah, another bailout, but not the worst, right?
Take maximum direct college loans, and buy gold and silver!
I missed that - was this part of a discussion on killing the FFEL program?
For the record, I think we should abandon Afghanistan altogether. There are no compelling reasons to stay.
Yancey, I agree. Except for the fact that these people will find no jobs waiting for them when they get back, I will let Obama off the hook on this one - I don't care if you're backed into a corner, I'm letting you out, bring em home.
Makes me wish I had college aged children.
"tend to live closer to their workplaces."
Yes, and we'd have a new-found incentive to do the same. Again, nothing wrong with that. In fact, if we change nothing about what we are doing, then we will continue to use more oil than we can pay for with our exports. Something real has to change, not just words on paper.
And at rush hour, there's nine million motor bikes, a lot of them carrying two people.
I don't think anyone is going to argue you with you patient renter that things have to change. I think a lot of us are projecting significant pain from such an event though, cataclysmic in fact.
But of course an increase in the price of imports would lead to changes in our economy.
Well, I agree with that premise anyway. There would definitely be a change in our economy.
Well, write your congressman.
I don't get involved with policy.
Bond Girl --
I missed that - was this part of a discussion on killing the FFEL program?
He gave a fairly interesting speech this morning; you might want to track down the transcript.
Talked about how the Federal Government guarantees loans made by private institutions, and how those private institutions extract "$80 billion" from the exchange.
Said he wanted to "cut out the middle-man" and have gov't make all the loans itself.
".... nine million motor bikes, a lot of them carrying two people."
Whatever works. If someone wants to drive something bigger, they'll have to figure out how to make things that the Germans, Japanese, or Chinese really want, at a price that makes everyone happy. (I know, it's not as direct as that, but you get the idea.)
Silver Lining...
No reason for rents to go up stateside if the dollar gets tomahawked.
It was one of the few things we couldn't off-shore~
...like comparing badgers to apples.
Or Chipmunks to Conjure Bags.
How about Toronto to Kenora, Ontario? It seems like northern Ontario never ever ends.
Europeans simply do not understand the distances involved in North American travel. Friends and relatives across the pond can't really comprehend a 800km/500 mile round trip with the kids just to see my parents for the weekend. 400km/250mi from most anywhere in Europe puts you in the ocean or interior russia
Attempting to drive from Toronto to Winnipeg, which are neighbouring provinces, is 24 hours of straight driving (2100km/1300mi). Vancouver to Los Angeles is almost 20 hours. It's a big frickin landmass.
badger (profile) wrote on Mon, 9/21/2009 - 6:38 pm
Europe has so many differences from the U.S. that it isn't a useful comparison point for midterm comparisons. Urban density is significantly higher.
Not as different as it used to be: http://www.demographia.com/db-worldua.pdf [3Mb pdf]
Outsider,
I voted for Obama, but I pretty much disagree with everything he stands for (I live in CT, and McCain had zero chance of winning here, so I decided to vote for the winner). However, he will earn big props from me if he can make the right decision on Afghanistan, but I am doubtful that he actually will. Democrats have seriously knotted themselves up by playing up justification for the Afghanistan War while lambasting the one in Iraq. The proper position was to be opposed to both. Not having principles can really put a politician into a bind.
"Well, write your congressman."
I was discussing exchange rates, and the consequences of changes in exchange rates. Short of currency controls (which seems unlikely although not unthinkable), Congress has not determined exchange rates for some time.
In some of his acadmic papers, Ben has argued that one of the ways to keep long term interest rates down is to convince the market that short term rates will stay low for an extended period of time. Of course if you do it too much, then inflation expectations get de anchored, and that starts to raise the longer term rates. So far it looks like those inflation expectations are staying pretty low.
Short term it looks like deflation is the problem, and broad money is starting to decline even as narrow money has been pumped up.Capital Economics recreates M3 and says its year over year growth is now just 2.3%, a 6 year low, and over the last 3 months has been falling at a 2.2% rate. That does not sound very inflationary to me.
Eventually inflation is likly to be a problem, esp if the $ does fall, then import prices go up, along with import subs. Most important of those is of course oil. I suspect that headline inflation starts heading up, but core inflation stays very low. No way for the wage side of a wage price spiral to get any traction.
I think this map, although it is from 94.
Global Population Density Map | NRCS Soils
Nemo,
Old news in the muni market. Many student lenders participating in the Federal Family Education Loan Program were, shall we say, adversely affected by the collapse of the auction rate securities market and had to be propped up by the federal Department of Education. The $80 billion relates to budget savings from the Special Allowance Payments (i.e., subsidies) they receive. The alternative is funding student loans with direct Treasury borrowings as opposed to in the tax-exempt market.
Man, I just had this exact conversation with my wife. For me, making $1500 a month in the UK, but spending $500/month on gas driving 70 miles a day precipitated the need to 'do something else'.
So I emigrated to the US.
Well, that's worked out well.
Anyone driving old gas guzzlers and not making much money are gonna be rioting, and spoiling life for everyone except the very rich in their gated communities. Argentina here we come.
Dirk, for what it's worth, I agree with you. There's no doubt that inflation will eventually be a problem, but certainly not right now, not in the short-term.
"Vancouver to Los Angeles is almost 20 hours. It's a big frickin landmass."
The landmass that starts with Spain ends 12 time zones further East. So there's no geographic reason why North Americans have to use more energy for a given standard of living than people who live on the much bigger Eurasian land mass. We are simply used to using more, and have organized our lives around that. We could use less. Over time, we'd clump together more in pockets of population, kinda like.... Europeans.
The cost of gas is a killer for me. Managing rental properties means I have to go and inspect them, do move ins and move outs etc.
However, I live 5 miles from my office. If there was a dependable, on time, often running bus I would use it. But a bus stop is 1/4 mile away, I would have 2 changes (not that bad) and a bus only shows up every half hour. So it would take me about an hour to make a trip that takes 10 minutes by car. And standing in over 100 deg heat for 30 min is not my idea of a good time. Mafor Metro area.
In Europe and Argentina they have great public transportation. We never had to wait more than 10 min for the bus or 5 min for the subway. And yes, there are millions of scooters.
Deflationary pressures are really aggressive right now - no doubt about it. The bad news is that by the time the Fed realizes its over-done the QE thing inflation is likely to be a major problem as well.
The loans were actually insured by private entities and then reinsured by the federal government.
Juvenal Delinquent (profile) wrote (in reply to...) on Mon, 9/21/2009 - 6:42 pm
Europe doesn't have too many people driving 2 or 3 hours to and fro from work 5 times a week, to $10 an hour jobs, in theory working 8 hours, but make it 10 or 11-with the drive.
After our intrepid commuters start paying more for gasoline than their net take-home pay, is when it gets interesting.
There's 10's of millions of people like this~
More like 4 million: US Census Press Releases
Clean up, clean up...
" There's no doubt that inflation will eventually be a problem, but certainly not right now, not in the short-term."
And that's what all the people who point to inflation are saying. (Maybe there are a few folks who claim hyperinflation is about to blow out, but no one takes those people seriously.)
Bond Girl --
I never did quite understand whether Sallie Mae was private or public.
Well, same for Freddie Mac and Fannie Mae prior to last year, I suppose... Sometimes I long for the days when I didn't care about this stuff.
My daughter and her friend drove across the panhandle of Florida after
Hurricane Andrew, and then down the state to Miami. They refer to Fla
as The State that Never Ends.
So banks will borrow at 0.1% from depositors or the Fed to loan to the FDIC to resolve failed banks?
F.D.I.C. May Borrow Funds From Banks
Senior regulators say they are seriously considering a plan to have the nation’s healthy banks lend billions of dollars to rescue the insurance fund that protects bank depositors. That would enable the fund, which is rapidly running out of money because of a wave of bank failures, to continue to rescue the sickest banks....
Ultimately, officials say, the deposit insurance corporation could settle on a plan that replenishes the insurance fund by doing some of both: borrowing from healthy banks to shore up the shorter-term liquidity needs of the fund, and imposing a special fee on banks to increase the longer-term capital level of the fund.
Dryfly, again and for what it's worth, I agree with you as well.
Going forward, there are going to be ample opportunties for Bernanke and Team Obama to screw the pooch.
Indeed, please don't infer that this was some sort of justification for using more energy per capita.
The North American landmass developed behind the locomotive and railways; by the late 1860's three day's travel would take you pretty much anywhere east of Chicago; twenty years prior it would have taken two or three weeks to do that journey.
For the sake of expanding the discussion, however, why did railways in Europe not expand into Russia and take advantage of the same sort of shrinkage in travel times? Russia had resources to spare, and space to spare. Why would the czars or whomever was in charge not capitalize on the same model and encourage settlers to build their country inward? They'd have had a great shipping advantage into Europe that New York would have never had in the late 1800's.
Its a moot argument - never going to happen as a 'snap devaluation'.
The exchange rates wrt USD aren't 'set' by us... they are set by traders in the forex. Even the merchantilists can't set the exchange rate vis-a-vis the dollar... all they can do in manipulate the forex by way of buying and selling assets denominated in the currencies they want to manipulate so as to maneuver the 'price' at which the exchanges occur.
Somebody order that pooch a case of KY.
There are different kinds of lenders, from Sallie Mae to quasi-state government run lenders (non-profits). Lots of jobs will be lost from this, but it is not necessarily a bad thing. But it is a little strange how much of the lending in our country now originates from the federal government... If he really wants to cut out the middleman...
This really was not much of an issue until the ARS market collapsed. The SAP was set up as a variable rate subsidy, so most of these lenders issued ARS to match assets and liabilities, without the cost of having to maintain liquidity facilities.
The House actually voted out legislation to nix the program last week.
Where does it say that?
I see 3.4 million 90 mile one-way commutes, but what about 60 mile one-way drives?
I'd suspect the number is much higher...
A LOT of renters, you should excuse the expression, patient,
are imbecilic ne'er do wells. I evict them. I talk to them. Some
of them clearly have no intention of paying. I tried to be a landlord.
Nope, nope nope.
so it wouldn't surprise me in the least if these people had run up
a lot of debt, and didn't have anything to show for it.
Now, there's an example of good planning.
In many large metro areas a 20 mile commute can take an hour in rush hour. You are stopped allot more than moving. Distance does not always relate well to how long it takes.
It's especially bad as well for Canadians, eager to escape winter, who drive through all of the states and get all excited when they hit Jacksonville. You've driving 16-17 hours already, and you think you're almost there. But then you look at the map and realize it's another 5 hours to get down to Miami. It does seem like it never ends...
Well, those silly Canadians should all buy condos in Fla, and stay
6 months of the year, and drive less! Actually enclaves of Canadians
are here already.
Florida is flat and boring. I find billboards actually nice to relieve the
tedium.
Florida is flat and boring.
Luckily the women aren't.
Interestingly, when I worked in Germany I never drove on weekdays, excepting a few rare occasions.
I could actually make my commute faster by taking the streetcar to and from work because I didn't have to walk back and forth to the parking garage.
" it wouldn't surprise me in the least if these people had run up
a lot of debt, and didn't have anything to show for it"
LL, the median family home prices in the communities I've lived in for the last 15 years are now about $1-2 million (after the recent drop). I'd guess the typical mortgage debt is around $500,000 - $1 million. Renters of the same age in the same neighborhoods don't typically have debt that big.
Got any good deals?
I'll try to convince a few family members...
My wife drives 50 miles each way to work - takes her less than an hour. Rural to suburban...
One of her friends goes the other way... urban to suburban... about 10 miles - takes her MORE than an hour most days.
Also - my wife drives a Jetta TDI diesel like I do - gets ~50 mpg. Costs here about $5 a day fuel cost... less than she spends for lunch.
Someday we might move closer to work but currently no motivation to do so - she loves the drive in and out... goes through beautiful rolling rural countryside with cell phone dead zones throughout - no one can bug her there.
In Rome a 15 minute bus ride would get us to the main hub (bus, train, subway). From there you could go anywhere easily and pretty fast.
Basel,
It almost sounds to me that this is a plan to collect the future deposit insurance funds immediately.
A trucker once told me you could eat three breakfasts crossing Texas.
In Florida, it's three hangovers. But that route is Pensacola to Key West.
Miami is just hangover #2.
Actually, someone told me that law associates were now offering to work for nothing, or even paying to work, just to have the experience on their resumes. The law profession is undergoing some serious contractions these days.
law, imo, being perhaps the most cut-throat of professions, this doesn't surprise me in the least.
California compared. Redding to San Diego is the same distance as Düsseldorf to Genova.
During the depression, graduating law students were required to "clerk" in a law office for a year before they could take the New York bar examination.
A lot of aspiring lawyers in New York who graduated in those years never sat for the bar exam.
The law was eventually changed.
I'd never say never to financial eventualities i'd never considered possible in the past.
That just sounds like really, really fat trucker talk to me.
"You've driving 16-17 hours already, and you think you're almost there. But then you look at the map and realize it's another 5 hours to get down to Miami. It does seem like it never ends..."
A person living in Portugal, who gets the urge to drive to the Pacific Coast opposite Japan, will take a lot longer than 22 hours to get there. Just because we live on a large landmass doesn't mean that we must use our current levels of oil consumption to stay happy and well taken care of. There are hundreds of millions of people living on another landmass proving my point. But of course if we let oil prices float up naturally in response to a devaluing dollar, we will all need to make real changes in response to the higher oil prices. Changes like Mrs Dryfly's 50mpg diesel, or my choice to live a short walk from work, etc.
Devaluation of the dollar doesn't have to be a catastrophe.
Basel Too,
The next step is for FDIC to use credit from Iceland and then build a new pyramid to replace the house of cards.
See: YouTube - Radiohead - House of Cards
We Aint ever Gunna Change
Drive By Truckers...
Amarillo represent....
Not to be the smartass of the group, but Ukraine is about as far as you can go and still be in Europe, and I would imagine most folks are talking more about everything from Germany south and west.
"During the depression, graduating law students were required to "clerk" in a law office for a year before they could take the New York bar examination."
In the 1970's my brother had to pay to apprentice with an accounting firm. For 3 years, he got paid nothing, and had to pay them. (Different country, not the US.)
Juvie,
Those are aggregate totals. I was being kind with the 4 million and I also didn't bother to correct for the obvious guess as to $10/hr salaries.
The topic of supercommuters is well known and published among those who follow the data. There's no need to guess. The keyword for you to start is "JTW" journey to work in the ACS American Community Survey. I would have thought you'd remember from 2004-2005.
BOOM
DONE
"Not to be the smartass of the group, but Ukraine is about as far as you can go and still be in Europe"
My smartass contribution: Most of the people I know who live in Europe live on the Eurasian landmass. Last time I checked, that's all one big contiguous area of non-ocean
you have obviously never driven across Texas.
My wife drives 50 miles each way to work - takes her less than an hour. Rural to suburban...
Maybe we should call her drivefly?
Maybe we should call her drivefly?
LOL - no kidding - I can't keep up with her when she's got the hammer down.
"A LOT of renters, you should excuse the expression,
are imbecilic ne'er do wells."
I'm a renter, and I have my faults, but "imbecilic ne'er do wells" ? Gimme a break, I'd reserve that term for anybody who bought in Florida in the past 5 years. Now that is just, to the bone, stupid.
You do know that was snark?
Actually if you gather together 20 or 30 people to buy simultaneously,
at a very cheap price, you might have something. Too much chance of
buying a super headache.
I evict these people. I listen to the landlords. i look
at the pictures of the filthy wrecks they've made of people's
houses. I tried doing it myself. 4 bad tenants in a row,
and then we rented with a option to buy and he bought.
Not paying is the best you can expect.
People who rent million dollar houses may be different,
but I am thoroughly jaded.
Liz,
I do know it was snark, but I'm thinking that the idea that renters are trash, or that renters are debt-laden morons is not snark...it's pretty much what a lot of the commentariat think. NYC has a long-term renters culture, if you will, and you never hear that stuff here. It's possible that Florida has large numbers of low-life trash as residents, and some portions of these are renters.
No need, pooch is already well-stretched.