I had forgotten Eisenhower’s disservice to Marshall. That, combined with Eisenhower's dislike of the Brown v. Board of Education decision, certainly pushes back the devolution of the Republican Party from 1968 (Nixon) or 1964 (Goldwater), where most people seem to mark the beginning of the end of the GOP’s honor.
I had forgotten Eisenhower’s disservice to Marshall. That, combined with Eisenhower's dislike of the Brown v. Board of Education decision, certainly pushes back the devolution of the Republican Party from 1968 (Nixon) or 1964 (Goldwater), where most people seem to mark the beginning of the end of the GOP’s honor.
The Fed will push interest rates up until there is a recession. As a practical matter, it is the only way the Fed knows that they have effectively taken away the punch bowl. The problem, of course, is that the current inflationary pressures are not the result of the traditional business cycle or of a finance driven bubble in asset values. There is both pent-up demand and pent-up savings which resulted from the pandemic, and excessively low corporate tax rates from the Trump tax bill has left a large segment of the economy with more funds than they know what to do with. Increased interest rates will not eat away at these savings and cash hordes. Increased interest rates will not induce the Chinese to bring their economy out of lockdown and resume producing desired goods. Increased interest rates will not make Putin withdraw from Ukraine and re-open the spigot for oil and gas and to Europe. What increased interest rates will do is shut down the real estate market, and the development of new single family residences, thus causing rents to rise as people bid up the cost of apartments because they can’t find a house to buy. I know I am sticking my neck out, but I think a very good argument can be made that in this particular economic situation, increasing the price of money (aka interest rates) may actually be inflationary. The question is whether such effect will be felt before the second Tuesday in November?
The Fed is and has been in La La land for a very long time. Increasing interest rates now will have no positive impact on inflation. You are right - it will make it worse.
And what's worse than that is the fact that super low (like zero for years) rates pushed savers into the equities markets that they don't understand or have risk capacity for. And...those super low rates allowed zombie companies to live past their due dates. Watch them tumble...
Powell is a dinosaur - lost in time when things were simpler.
By fixed income you mean on the verge of poverty? In a real sense most working people are on a fixed income. They have a fixed salary or a fixed wage with a fixed number of hours in the day. People who leverage money by borrowing or inducing investors to part with money, and then apply that leveraged money to a market via goods or services, are just about the only people who’s incomes are not fixed.
Anyway, I digress. In answer, Fern, people on a fixed income are screwed either way. Fed interest rate policy is never about helping individuals. It’s about keeping the economic ball in the air. On those rare occasions when the Fed takes seriously the labor side of its two part mandate (the second being price stability, I.e., inflation), all they try to do is increase the number of opportunities for people to find jobs. If opportunities outstrip job seekers, the job seekers have the chance to bid up their wages. But those instances are brief because a wage driven increase in inflation scares the shit out of the coupon clippers who sit on, and are represented by, the Fed. They have visions of the Weimar Republic, plus they don’t think workers deserve a good life (a perverse Calvinism at work there).
Gary, Thank you. I believe the following spells it out.
'Inflation can have a negative effect on fixed-income assets when it leads to higher interest rates. It usually does. Central banks like the U.S. Federal Reserve typically set inflation targets and, when inflation exceeds the desired threshold, they raise interest rates to bring it under control.
The longer term of a bond, the greater the risk that inflation will hurt the investor's real return.
Fixed-income assets can be found with terms ranging from a few months to five years or more.'
'The longest bond offered by the U.S. Treasury is a 30-year bond.
An investor in a one-year bond is taking less risk that inflation will erode its value before the bond matures.' (Investopedia)
In that regard, coupon clippers are the same as everyone else. Prices go up during periods of inflation. I referred, particularly, to those on a fixed income.
thanks, Gary. everything you're saying sounds right and I greatly appreciate it, having a weirdly bad head for any talk of economics. just a personal shortcoming which began in high school and has only gotten worse.
the trouble with it sounding right is that the situation SUCKS. and I don't see a way out anytime soon.
and of course, in times of economic stress, voters tend to "throw the rascals out," and most of the voters I know casually tend to vote exactly that way. it is a horrifying global irony that with all this good information "at our fingertips" people seem to be badly informed on a level I haven't seen before. we're in the digital domain now, but more and more, I'm feeling that it's a lot more like Pandora's Box than anything else. I look at the trades we seem to be settling for as a society and it looks like we've traded down very badly. the internet feels like one of those "shiny objects" and the trade has ended up being convenience in exchange for our souls. I know that sounds extreme but (as Tom has made the case above) things are pretty extreme.
I read a quote from Ike sometime in the last few years and it went something like "the thing I regret most is nominating that sonofabitch Earl Warren to be Chief Justice." Ike was one of those "gradual change" guys, whatever that meant in practical terms...I've never been able to figure out how gradual that "gradual" is. at around the same time Ike said that, the greatest of all American novelists was interviewed from his Mississippi perch and said that integration was ok, but "go slow," by which he meant something like two hundred years.
the thing about a lot of history is, as Tom says above (and which I say at least four or five times a week) that you can't make this shit up.
and since his name came up, I'm also a huge fan of General Marshall, who just might be the greatest public servant of his era. when you look at the things he did, it's (at the very least) kind of mind-blowing.
Marshall desperately wanted to command the army he had created for the invasion of Europe. When FDR told him "I can't let you go from where you are," he set aside that disappointment and made certain the "best man for the job" was assigned: Eisenhower.
I had forgotten Eisenhower’s disservice to Marshall. That, combined with Eisenhower's dislike of the Brown v. Board of Education decision, certainly pushes back the devolution of the Republican Party from 1968 (Nixon) or 1964 (Goldwater), where most people seem to mark the beginning of the end of the GOP’s honor.
The Fed will push interest rates up until there is a recession. As a practical matter, it is the only way the Fed knows that they have effectively taken away the punch bowl. The problem, of course, is that the current inflationary pressures are not the result of the traditional business cycle or of a finance driven bubble in asset values. There is both pent-up demand and pent-up savings which resulted from the pandemic, and excessively low corporate tax rates from the Trump tax bill has left a large segment of the economy with more funds than they know what to do with. Increased interest rates will not eat away at these savings and cash hordes. Increased interest rates will not induce the Chinese to bring their economy out of lockdown and resume producing desired goods. Increased interest rates will not make Putin withdraw from Ukraine and re-open the spigot for oil and gas and to Europe. What increased interest rates will do is shut down the real estate market, and the development of new single family residences, thus causing rents to rise as people bid up the cost of apartments because they can’t find a house to buy. I know I am sticking my neck out, but I think a very good argument can be made that in this particular economic situation, increasing the price of money (aka interest rates) may actually be inflationary. The question is whether such effect will be felt before the second Tuesday in November?
The Fed is and has been in La La land for a very long time. Increasing interest rates now will have no positive impact on inflation. You are right - it will make it worse.
And what's worse than that is the fact that super low (like zero for years) rates pushed savers into the equities markets that they don't understand or have risk capacity for. And...those super low rates allowed zombie companies to live past their due dates. Watch them tumble...
Powell is a dinosaur - lost in time when things were simpler.
That was an interesting analysis
And what about the consequences for those on a fixed income?
By fixed income you mean on the verge of poverty? In a real sense most working people are on a fixed income. They have a fixed salary or a fixed wage with a fixed number of hours in the day. People who leverage money by borrowing or inducing investors to part with money, and then apply that leveraged money to a market via goods or services, are just about the only people who’s incomes are not fixed.
Anyway, I digress. In answer, Fern, people on a fixed income are screwed either way. Fed interest rate policy is never about helping individuals. It’s about keeping the economic ball in the air. On those rare occasions when the Fed takes seriously the labor side of its two part mandate (the second being price stability, I.e., inflation), all they try to do is increase the number of opportunities for people to find jobs. If opportunities outstrip job seekers, the job seekers have the chance to bid up their wages. But those instances are brief because a wage driven increase in inflation scares the shit out of the coupon clippers who sit on, and are represented by, the Fed. They have visions of the Weimar Republic, plus they don’t think workers deserve a good life (a perverse Calvinism at work there).
Gary, Thank you. I believe the following spells it out.
'Inflation can have a negative effect on fixed-income assets when it leads to higher interest rates. It usually does. Central banks like the U.S. Federal Reserve typically set inflation targets and, when inflation exceeds the desired threshold, they raise interest rates to bring it under control.
The longer term of a bond, the greater the risk that inflation will hurt the investor's real return.
Fixed-income assets can be found with terms ranging from a few months to five years or more.'
'The longest bond offered by the U.S. Treasury is a 30-year bond.
An investor in a one-year bond is taking less risk that inflation will erode its value before the bond matures.' (Investopedia)
Which is why coupon clippers freak out over inflation.
In that regard, coupon clippers are the same as everyone else. Prices go up during periods of inflation. I referred, particularly, to those on a fixed income.
Good point. I have an interest in the real estate market in Philadelphia, and it just started looking tight yesterday with the new interest rates.
Excellent analysis.
thanks, Gary. everything you're saying sounds right and I greatly appreciate it, having a weirdly bad head for any talk of economics. just a personal shortcoming which began in high school and has only gotten worse.
the trouble with it sounding right is that the situation SUCKS. and I don't see a way out anytime soon.
and of course, in times of economic stress, voters tend to "throw the rascals out," and most of the voters I know casually tend to vote exactly that way. it is a horrifying global irony that with all this good information "at our fingertips" people seem to be badly informed on a level I haven't seen before. we're in the digital domain now, but more and more, I'm feeling that it's a lot more like Pandora's Box than anything else. I look at the trades we seem to be settling for as a society and it looks like we've traded down very badly. the internet feels like one of those "shiny objects" and the trade has ended up being convenience in exchange for our souls. I know that sounds extreme but (as Tom has made the case above) things are pretty extreme.
When Eisenhower was finally pushed by events he did take the right position, however reluctantly he got there.
Isn’t it true that his reluctance was not a secret?
Yes. It was obvious, which is why when he finally moved it had an effect.
I read a quote from Ike sometime in the last few years and it went something like "the thing I regret most is nominating that sonofabitch Earl Warren to be Chief Justice." Ike was one of those "gradual change" guys, whatever that meant in practical terms...I've never been able to figure out how gradual that "gradual" is. at around the same time Ike said that, the greatest of all American novelists was interviewed from his Mississippi perch and said that integration was ok, but "go slow," by which he meant something like two hundred years.
the thing about a lot of history is, as Tom says above (and which I say at least four or five times a week) that you can't make this shit up.
and since his name came up, I'm also a huge fan of General Marshall, who just might be the greatest public servant of his era. when you look at the things he did, it's (at the very least) kind of mind-blowing.
Marshall desperately wanted to command the army he had created for the invasion of Europe. When FDR told him "I can't let you go from where you are," he set aside that disappointment and made certain the "best man for the job" was assigned: Eisenhower.
I think you're right.