Tuesday, September 21, 2010

Same Old Song and Dance

Of course I got sucked into that Monday Night game! Bed at 12:15am with a 5am wake up for work is not fun at all. The 49ers played their game of the season and came up just short against the Saints. Watching the Saints keep fighting for 4 quarters and never giving up or looking down was a nice change from the team here in New England.

Same Old Song and Dance
Today the FED started the process of Quantitative Easing 2.0 (QE2) as they downgraded their forecasts for the economy. There has been plenty of ink spilled on just what QE is and what it does and EconomicDisconnect has high hopes that a real break through is going to come soon on this front. Just today Kid Dynamite asks:
So, here's the question: Gross acknowledged "printing money" for quantitative easing, and advocates it heartily. We already know from our prior discussions of Modern Monetary Theory (MMT) the government need not tax in order to spend - they can just spend - they can just print money (of course, there may be consequences if they do this). Why then, is it a problem to cut taxes by $2T, but not a problem to just print $2T for QE? Said differently, we don't need taxes to "pay" for the budget - we can just print money for that too/instead. Said a third way, why not get rid of QE, and use the $2 Trillion for tax cuts instead?

I guess it's possible that what Bill Gross really meant is that we can print $2T for QE, but we can't print another $2T in the form of tax cuts, because THAT would be too much for the dollar to handle...
Great question indeed.

I need to fully write out my view on this core issue, it is one that took me some time to get to, but I feel pretty good about where I arrived. I want to see how things sort out on KD's post and see what else is written later in the week. This is important to understand.

The FED is looking to play the "lower interest rates across all time frames" game once again. I wonder if Bernanke and company would love to include in their statement something like "if you Congress fools would do something we could get a break!" but that will never happen. I think it is dangerous for the FED to do something large right at the mid term elections. I have to wonder why they would risk such a thing unless they think the economic data will improve so much by then that they will not have to move. Precarious game they are playing indeed.

Sorry I do not have more! I am off to try and finish Stephen King's "Under the Dome" and get to bed by 10pm to catch up.

Have a good night.


watchtower said...

I would have thought that this QE talk would have propelled the PM's higher than it is today, but I'm wrong...again.

watchtower said...

Speaking of SK's 'Under the Dome', did you hear that Ron Howard is going to take a crack at 'The Dark Tower'?

Now that is going to be one hell of an undertaking there.


I hope they don't screw it up.

EconomicDisconnect said...

muted reaction all around. Will need a "clarification" by the FED in the next week or so on what they plan exactly.

Yeah, I think The Darl Tower is going to be impossible to make happen.

Kid Dynamite said...

i'm infuriated by the never ending string of bullsh!t answers i get on questions like this. every time i think i have a clue what's going on the MMT heads, they remind me that I don't.

EconomicDisconnect said...

yeah, I left a short version answer of what i think and I will try and expand on that tonight. They get too caught up with the mechanics and terms rather than discuss the real effects. Good try though.