Thursday, March 05, 2009

William Poole says stop the bailouts

The former president of the Federal Reserve Bank of St. Louis says government should stop the bailouts:
THE fundamental causes of this recession, unique in the experience of the United States, were mortgage defaults and the consequent insolvency of major financial firms. These insolvencies, and especially fear of them, damaged normal credit mechanisms.

The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.

Federal policy is damaging the economy’s prospects. It fails to provide the needed tax incentives for investment in factories and equipment, incentives that were central to efforts to revive the economy during the Kennedy-Johnson era and under Ronald Reagan. ...

Heavy-handed federal intervention into the management of companies from banks to auto makers will also delay recovery. And misguided efforts to help distressed homeowners by permitting courts to rewrite the terms of mortgages will cause banks to limit mortgage lending, which will prevent housing from contributing to the recovery.

The unrelenting anger across the country over bailouts of corporations and households that made unwise and even irresponsible financial decisions is influencing federal policy. Punitive measures, like forcing companies receiving federal dollars to cancel employee events, will increase uncertainty over where the government will strike next in its effort to deflect public outrage. Instead of more bailouts, we need a clear and consistent path to fundamental reform of our financial system.

13 comments:

  1. "We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year."

    Translation - get ready for inflation!

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  2. Now is the best time to put your money in another currency. Its the only sure bet.

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  3. "Now is the best time to put your money in another currency. Its the only sure bet."

    Uhh have you looked at forex lately? Nearly every other currency is plunging in relation to the dollar. They are doing the same things we are, except their balance sheets are even worse to begin with. Its a race to the bottom and the US (while sinkng) is falling behind the rest. I would stay away from forex for the time being.

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  4. "Uhh have you looked at forex lately? Nearly every other currency is plunging in relation to the dollar."

    The key is not to look at the current trend, but the future ones. The dollar printing presses are just getting warmed up. Come back and tell me about forex in 6 months after a few trillion worthless dollars are printed that keeps bus drivers in their 800K homes.

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  5. I have the same feeling

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  6. "The dollar printing presses are
    just getting warmed up."

    Agreed, but the Euro presses are already running on HI, and the Pound presses are already in overdrive. Again, its a race to see which country can turn their currency into worthless weimar republic marks first, and the US is the laggard of the pack.

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  7. For an informed and utter take down of Poole's ridiculous argument see Brad Delong and Paul Krugman.

    The resurgence of neo-hooverist the-economy-will-take-care-of itself economists is disturbing.

    "82 years of progress in monetary economics thrown away"

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  8. >I believe, though without great confidence, that the recession will end in the second half of this year.<

    This guy is some Bush administration relic.

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  9. Miguel said...
    "For an informed and utter take down of Poole's ridiculous argument see Brad Delong and Paul Krugman."

    I already had read Krugman's post. That's why I removed Poole's argument which said, "But government spending can’t lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit."

    Miguel said...
    The resurgence of neo-hooverist the-economy-will-take-care-of itself economists is disturbing.

    Poole is NOT saying the economy will take care of itself. He is saying that the Fed has the power to take care of it. Monetary policy has long ago replaced fiscal policy as the primary tool for fighting recessions.

    Besides, bailouts are not exactly Keynesian economics anyway.

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  10. "Agreed, but the Euro presses are already running on HI, and the Pound presses are already in overdrive."

    Yeah and they havent taken that much of a hit. You think the dollar will fare as well when we print trillions?

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  11. Lance will pay off his house with teeny-tiny dollarettes while BH scramble to sell their assets to cover their ever-increasing rent.

    ... what's left of their assets.

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  12. Yeah and they havent taken that much of a hit. You think the dollar will fare as well when we print trillions?

    Actually, YES!!! GB started its very own quantitative easing program yesterday. The Euro has not, but heres the thing. This is a 10 year old currency, an agreement between countries with relatively strong economies (Germany, France) and extrordinarily weak ones (Ireland, Spain, Eastern Europe, etc.). Right now, the strong do not want to bail out the weak, protectionist policies are being enacted, and there is a minority but distinct chance that the currency will cease to exist!

    Now, I guess the Yen, or maybe the Yuan or Loonie might be a safe bet, but I would have to look into it further. Who else out there is engaging in quantitative easing? I dont know...

    Personally, if you are that concerned with the devaluing of the dollar, I would stick with the commodies market. Probably not gold or oil, simply because there are so many know nothings who dabble in these markets (creating tremendous volatility), but you can accomplish the same goal.

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  13. Actually, I should have said, now that the commodities bubble has burst, you can accomplish that same goal (i.e. hedge against inflation).

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