Why Not More Stimulus?
Nonfarm Payrolls grew at a paltry rate of 80,000 in June, the unemployment rate is stuck above 8%, retail sales are faltering and inflation is significantly low… It appears the economy is stagnating once again, and GDP may even once again slip into negative territory creating a double-dip recession. To some, the time seems ripe for the government to enact additional stimulus measures.
Proposed actions have ranged from the institution of QE3, to slashing the Fed Funds rate to zero, to even outright government job creation. With so many negative economic signals, why doesn’t the Fed or the government enact more stimulus measures to help jump-start the economy? These are 3 of the top reasons given against enacting more stimulus.
First, and probably the most popular reason, is the fear of sudden runaway inflation. This is always refuted by the fact that we’ve had minimal inflation as of late, and there has yet to be any signs of it increasing in the near future. Common evidence for this is the lack of an increase in TIPS breakevens, which is interpreted as the market’s consensus of expected inflation.
A second common reason against more stimulus (fiscal, at least), is the fact that increased spending will increase the deficit. An increase in the deficit, some fear, will lead to a decrease in confidence in the dollar and result in higher interest rates, a lower dollar and higher inflation. None of these are particularly healthy for the economy, at least in the long run. However, if investors have lost any confidence in our debt, they certainly haven’t shown it in the Treasury market. Even longer term real yields are currently negative, meaning the investor effectively pays for the government to keep their money safe.
Lastly, there’s been some talk about slashing the Fed Funds rate to zero (from a range of zero to .25%). The most common reason given against this strategy is its effect on the money markets. If the rate was slashed to zero, there would be less demand for overnight cash in the fed funds market, and it could cease to operate normally. Considering this would be a marginal decrease at best, Bernanke considers it too risky because it could make it more difficult to raise rates effectively when the time comes. Not to mention, with rates at zero, the money market mutual fund industry would no doubt suffer.
So should there be more fiscal or monetary stimulus? One thing’s for sure- if the economic data continues its recent troublesome trend, for better or worse, there’s no doubt someone will eventually act.
Comments
TLDR (only skimmed, I'm a
TLDR (only skimmed, I'm a dick, sorry)
But I am pretty sure that QE 1,2,3,4,5,6,7,8,9... are all priced into the market already. We are on life support, bernanke bills are the only thing keeping the show going at this point.
You need to remember that the stock market and the economy are two completely different things, at least to me they are. I see the economy as Joe Blow and Mary Jane getting up, making breakfast, sending the little fuckers off to school and going to work to push paper and make widgets, pay taxes, buy shit, fuck some more, have more kids and repeat. The human experience.
The market is quantifying the human experience. Then add in fear, anticipation, manipulation (some big some small), government reports (see BLS) that are nonsense, new housing #'s etc. that make a bunch of computers shit a trade every time they scan a + or - head line. Speculation, market making blah blah. I am rambling.
because stimulus is lame bro
because stimulus is lame bro
Interest rates can't go too
Interest rates can't go too much lower than 0%. The marginal benefit of further quantitative easing simply isn't great.
Cookies With Milken: You need
You need to remember that the stock market and the economy are two completely different things, at least to me they are.
A lot of people use market performance as reported on the news everyday as a gauge. Most ordinary people will interpret poor market performance reported in the news as the economy sucks, which then can result in pulling back and maybe holding off on a few purchases, etc. which can create a feedback loop. So, the stock market and the economy really aren't two completely different things. They both effect the other.
As far as more stimulus goes, I think the issue is waiting for the absolute right moment. The Fed does not want to do anything unless it is totally necessary because it could be the last bullet they have. Not to mention the politics.......there is an election in 4 months
"One should recognize reality even when one doesn't like it, indeed, especially when one doesn't like it." - Charlie Munger
The government is all out of
The government is all out of options. They have nothing left up their sleeves. The $5 Trillion dollars spent by this administration has been completely mismanaged, all of it gone to pet projects, pipe dreams, and donor businesses. The street by my house is still waiting to be fixed by the American Prosperity Something from 2009 which was brought to me by the Obama Administration, or at least that is what the $10,000 sign has been telling me every time I drive by it. I wish I took a time stamped picture of the sign/road back in 2009 and one today... not a damn thing has been done on it.
This administration has been a complete failure, and we will be paying for it the rest of our lives. The only option to restart the economy is to elect Romney. Obama's anti-business, anti anyone who makes money outside of the government rhetoric has set us as a nation back. Getting Obama out of office. That will do more for the markets and the economy as a whole then any amount of money, QE, or interest rate drop.
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Nobama88: The government is
The government is all out of options. They have nothing left up their sleeves. The $5 Trillion dollars spent by this administration has been completely mismanaged, all of it gone to pet projects, pipe dreams, and donor businesses. The street by my house is still waiting to be fixed by the American Prosperity Something from 2009 which was brought to me by the Obama Administration, or at least that is what the $10,000 sign has been telling me every time I drive by it. I wish I took a time stamped picture of the sign/road back in 2009 and one today... not a damn thing has been done on it.
This administration has been a complete failure, and we will be paying for it the rest of our lives. The only option to restart the economy is to elect Romney. Obama's anti-business, anti anyone who makes money outside of the government rhetoric has set us as a nation back. Getting Obama out of office. That will do more for the markets and the economy as a whole then any amount of money, QE, or interest rate drop.
This, investor sentiment will be sideways until Obama is gone. Hopefully by next January.
Here to learn and hopefully pass on some knowledge as well. SB if I helped.
Nobama88: The government is
The government is all out of options. They have nothing left up their sleeves. The $5 Trillion dollars spent by this administration has been completely mismanaged, all of it gone to pet projects, pipe dreams, and donor businesses. The street by my house is still waiting to be fixed by the American Prosperity Something from 2009 which was brought to me by the Obama Administration, or at least that is what the $10,000 sign has been telling me every time I drive by it. I wish I took a time stamped picture of the sign/road back in 2009 and one today... not a damn thing has been done on it.
This administration has been a complete failure, and we will be paying for it the rest of our lives. The only option to restart the economy is to elect Romney. Obama's anti-business, anti anyone who makes money outside of the government rhetoric has set us as a nation back. Getting Obama out of office. That will do more for the markets and the economy as a whole then any amount of money, QE, or interest rate drop.
Agreed. Most people in my industry are Republicans and abhor Obama, but rates will rise if Romney wins the election because few people will do anything entrepreneurial unitl this un-American is kicked out of office. Higher rates is bad for my bottom line business but it will be an indication of more positive signs to come.
@ cplpayne Thanks for
@ cplpayne
Thanks for pointing that out. Not arguing with you, I agree with you, a lot of people use market performance as reported on the news every day as a gauge.
The only issue is that the economy is not 100% wall street bros. There are uninformed folk out there as well as very smart people are financial duds, some doctors lawyers etc. Given that the news is mostly portrayed in a positive light, wouldn't the economy react positively to 'bad news' that a financial professional could understand and see through?
I remember reading some WSJ article about consumer confidence must be high because revolving consumer debt (credit cards) has increased - so people must be more confident if they are willing to take on additional debt. In theory that sort of makes sense; but given the fact the economy has been stuck in neutral, wouldn't the data really be pointing to stagnant wages, rising costs, depleting savings leading people to put ordinary and necessary goods on their credit cards to make ends meet?
Same deal with BLS reports. News says BLS beat estimates, loss not as big as expected. They fail to remind the reader that the last report's estimated figures were revised downwards 3x over and this report has been revised down as well. Or job surge in 4Q omg..... big whoop wal-mart hired a bunch of greeters for $5 an hour to hold a door open at midnight for the holiday season. Come Jan 1 they are gone.
If the theory was correct and enough people who could move the market / economy could disseminate good information from bad and plan accordingly then why isn't the 'real joe schmoe economy' picking up every time equities rise because jp morgan beat earnings even though revenues across each division were down 40% and they lowered expenses by laying people off - or book face ipos?
Not going to take the time to edit this or really proof read it, if my tone seems angry or accusative its not you, just my disdain for our current condition.
Virginia Tech 4ever: Interest
Interest rates can't go too much lower than 0%. The marginal benefit of further quantitative easing simply isn't great.
QE = Lower Dollar = Increased Net Exports = Increased GDP
Not endorsing QE, but not many consider that aspect of QE. IMO that is the real goal, a cheaper dollar.
Nobama88: The only option to
The only option to restart the economy is to elect Romney. Obama's anti-business, anti anyone who makes money outside of the government rhetoric has set us as a nation back. Getting Obama out of office. That will do more for the markets and the economy as a whole then any amount of money, QE, or interest rate drop.
Romney is not gonna win squat in November. The GOP made a complete mess out of what was supposed to be a gimme election.
The Americans that actually decide elections (5-8% of the voting population) are squishy and vote ONLY and ALWAYS for the candidate "they like" better and who they are more "connected to" and regarldless of performance.
All the GOP had to do was put up a 6 footer, white protestant with an Anglo-Saxon name who looked above average and talked easy. One who wasn't over 65 or younger than 45. Seems easy enough right? Surely there are GOP Govs who meet this criteria?
Instead they trot out the worst set of candidates possible. A weird talking Mormon with a liberal past, an old fart adulterer and a overly religious ex-senator. And a few other inconsequentials.
The only way Obama loses is if the economy starts losing jobs in October. Even then, knowing him he'll probably just start a convenient war with Iran to save his ass. And if the hope is that at least Romney would be tough, remember, this softie couldn't outmanuever Johnny McCain. lol.
silhouette_semi: Nobama88:
The only option to restart the economy is to elect Romney. Obama's anti-business, anti anyone who makes money outside of the government rhetoric has set us as a nation back. Getting Obama out of office. That will do more for the markets and the economy as a whole then any amount of money, QE, or interest rate drop.
Romney is not gonna win squat in November. The GOP made a complete mess out of what was supposed to be a gimme election.
The Americans that actually decide elections (5-8% of the voting population) are squishy and vote ONLY and ALWAYS for the candidate "they like" better and who they are more "connected to" and regarldless of performance.
All the GOP had to do was put up a 6 footer, white protestant with an Anglo-Saxon name who looked above average and talked easy. One who wasn't over 65 or younger than 45. Seems easy enough right? Surely there are GOP Govs who meet this criteria?
Instead they trot out the worst set of candidates possible. A weird talking Mormon with a liberal past, an old fart adulterer and a overly religious ex-senator. And a few other inconsequentials.
The only way Obama loses is if the economy starts losing jobs in October. Even then, knowing him he'll probably just start a convenient war with Iran to save his ass. And if the hope is that at least Romney would be tough, remember, this softie couldn't outmanuever Johnny McCain. lol.
I never said Romney was or wasn't going to win.
I do know that Romney is ahead in likely voters, with many key states swinging his way or up for grabs. Blacks and young people will not be coming out in droves this time around. Romney needs to kill it in the debates, and start hammering back on his record at Bain and the job he did at SLC Olympics.
I cannot understand why Romney hasn't been explaining his record at Bain more effectively. There was an ad on television in which Steven Spielberg put together which interviewed people who 'lost' their jobs because of Romney and Bain. Three of the couples (out of like 5) they showed in the commercial/documentary said they were in favor of Bain and Romney, and actually saved their jobs / gave them promotions. Spielberg took them out of context and they went on some news shows to set the record straight about the ad. This should have been a prime counter attack ad by the Romney camp using these same people talking about how Obama and Spielberg twisted their words, and that they were actually in favor of Bain. But, nothing from Romney.
Romney needs to get a little bit of Ronald Reagan in him in the next few weeks here...
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Blacks will come out en mass,
Blacks will come out en mass, that is for sure. The young, probably not.
Romney is an INCREDIBLE weakling who can only beat up on inconsequentials like Santorum and Gingrinch.
He is also very cautious, slow moving and defensive.
Obama will go after Bain, SLC and Mass govenorship now, so that by fall all three will be negatives. In the fall, he will tell folks in Florida about how they are gonna lose their SS and Medicare soon. Romney is not gonna fight back either.
Romney doesn't have any bit of RR in him. He is the opposite of charismatic. I've heard him speak and it was like watching paint dry. No energy whatsoever and weird mannerisms. His only chance of winning is if the economy starts losing jobs (as opposed to low increases) in the Fall. And even then, very few people will actually be voting FOR Romney (as opposed to voting against the incumbent).
Again for the true swing voters (who honestly are 50-50 between both parties) and who are mostly white, protestant, middle-aged and middle income ... and the GOPs answer to that was Romney. lol.
JeffSkilling: Virginia Tech
Interest rates can't go too much lower than 0%. The marginal benefit of further quantitative easing simply isn't great.
QE = Lower Dollar = Increased Net Exports = Increased GDP
Not endorsing QE, but not many consider that aspect of QE. IMO that is the real goal, a cheaper dollar.
And who will be exporting too? Canada and Australia? Our dollar is not going to weaken much(if at all) relative to the Euro or GBP. China is slowing. India is shit. Japan is deflating. I'm not sure how Brazil is doing or Russia for that matter but probably not that well.
I think the big problem with manufacturing in this country is unions. They artificially inflate the workers wages amongst many other things and make us far less competitive in the global market. Outlawing unions would drop our unemployment rate substantially and would allow us to get things like the post office in line. Way too many overpaid post office workers that we cannot afford.
Virginia Tech
The government is all out of options. They have nothing left up their sleeves. The $5 Trillion dollars spent by this administration has been completely mismanaged, all of it gone to pet projects, pipe dreams, and donor businesses. The street by my house is still waiting to be fixed by the American Prosperity Something from 2009 which was brought to me by the Obama Administration, or at least that is what the $10,000 sign has been telling me every time I drive by it. I wish I took a time stamped picture of the sign/road back in 2009 and one today... not a damn thing has been done on it.
This administration has been a complete failure, and we will be paying for it the rest of our lives. The only option to restart the economy is to elect Romney. Obama's anti-business, anti anyone who makes money outside of the government rhetoric has set us as a nation back. Getting Obama out of office. That will do more for the markets and the economy as a whole then any amount of money, QE, or interest rate drop.
Agreed. Most people in my industry are Republicans and abhor Obama, but rates will rise if Romney wins the election because few people will do anything entrepreneurial unitl this un-American is kicked out of office. Higher rates is bad for my bottom line business but it will be an indication of more positive signs to come.
My personal belief is that if Romney wins, businesses will reinvest a lot. This will cause inflation to rise overnight which will cause rates to rise which will cause inflation to rise further. I'm thinking GDP growth of between 3-5% and inflation of around 7-10%. I think all this cheap money is bound to cause a spike in inflation, growth will follow but not at the same pace as inflation. It's a matter of when, not if.
West Coast FX: A second
A second common reason against more stimulus (fiscal, at least), is the fact that increased spending will increase the deficit. An increase in the deficit, some fear, will lead to a decrease in confidence in the dollar and result in higher interest rates, a lower dollar and higher inflation. None of these are particularly healthy for the economy, at least in the long run. However, if investors have lost any confidence in our debt, they certainly haven’t shown it in the Treasury market. Even longer term real yields are currently negative, meaning the investor effectively pays for the government to keep their money safe.
This is the only reason you need. We can not afford it, plain and simple. Unless you want the US to look like Spain or Greece, that is.
Eventually, inflation will come and the US will have to pay a multiple of what it pays now to fund its borrowing costs. This will cripple us as a nation. And no one seems to understand this. This is why it is so vitally important to cut the deficit now.
silhouette_semi: Blacks will
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