Global economy: Central bankers gone wild
Let’s start with the US Federal Reserve, which did something that it’s never done before: It tied its actions to actual, concrete numbers in the economy.
The Fed said it would keep stimulating the weak US economy until the nation’s unemployment rate fell to 6.5 percent (it’s now at 7.7 percent). It will also keep interest rates historically low as long as inflation in the US remains under 2.5 percent.
That may not sound radical, but it is.
That’s because it’s the first time the US central bank has used such explicit targets.
Why the switch?
The Fed hopes it will be a more transparent way to let markets know its plans. “We think it’s a better form of communication,” Federal Reserve Chairman Ben Bernanke said.
But more importantly, the use of explicit “guideposts” signals that the Fed is far more concerned about the weak employment situation in America than it is with its primary worry of keeping inflation under control.
The move is part of an evolution in central bank thinking that’s been pushed, in particular, by the president of the Federal Reserve Bank of Chicago, Charles Evans.
Here’s how Evans described his thinking, way back in 2011:
“Imagine that inflation was running at 5 percent against our inflation objective of 2 percent. Is there a doubt that any central banker worth their salt would be reacting strongly to fight this high inflation rate? No, there isn’t any doubt. They would be acting as if their hair was on fire. We should be similarly energized about improving conditions in the labor market.”
So it’s burn, baby, burn until the job market improves.
Charles Hugh-Smith: The Dangerous Blindspots of Clueless Keynesians
…For all the p#$%^&* and moaning over the fiscal cliff, there was never much of a “cliff” in the first place. Worse yet, every delay made matters increasing irresponsible in terms of addressing the deficit.
The final result, as passed by the Senate, watered-down budget cuts from $600 billion to a mere $12 billion.
Moreover, the extension of the tax cuts will add almost $4 trillion to the deficit over 10 years, according to the CBO analysis of the American Taxpayer Relief Act….
Alabama Sen. Richard Shelby said Wednesday that the United States is “headed down the road that Europe’s already on.”
“We’re always wanting to spend and promise and spend and borrow, but not cut,” the Republican lawmaker said on Fox News’s “Fox & Friends.” “We’ve got to get real about this. We’re headed down the road that Europe’s already on.”
Shelby was one of eight members — who hailed from both sides of the aisle — to oppose the Senate’s fiscal cliff offer earlier this week. He slammed the final deal for not tackling issues like entitlement reform. The agreement extended Bush-era tax cuts for families making under $450,000 a year and warded off sequestration for another two months but did not take serious action on the debt or entitlements….
(CNNMoney) Credit rating agencies are likely to hold off passing judgment on the U.S. credit rating until they have a clearer picture about the fate of the debt ceiling and longer term plans to reduce borrowing.
The New Year fiscal cliff agreement between the White House and Congress raised taxes on the richest Americans but postponed much of the toughest political wrangling on automatic spending cuts for another two months….
The Daily History of the Debt Results
Historical returns from 12/26/2012 through 12/31/2012
The data for the total public debt outstanding is published each business day. If there is no debt value for the date(s) you requested, the value for the preceding business day will be displayed.
|Date||Debt Held by the Public||Intragovernmental Holdings||Total Public Debt Outstanding|
Debt To GDP: 103%
…And with that we can close the books on the first quarter of Fiscal 2013, in which US public debt grew by $366 billion, some $122 billion per month on average.
This number will now remain fixed, and not change for the next two months, or until the debt ceiling is once again riased, most likely by another $2.4 trillion to $18.8 trillion, to much theatrical kicking and screaming, some time in February or March. In the meantime, any new debt issuance will have to be offset dollar for dollar with a reduction in various government retirement funds, Federal asset sales, SLGS issuance suspension, and the various other internal and external liability rearrangement, i.e., the Treasury’s emergency response, the various components of which were listed here.
And for those curious what this means in debt/GDP terms, we apply the roughly 1.5% annualized GDP growth to Q4 GDP to get a debt/GDP number at December 31, 2012 of 103%, and rising very rapidly.
The American People are the Big Losers In The Cliff Deal
Bipartisan Hosing of the American People
The “fiscal cliff” deal will raise taxes for 77% of the American public.
It will create a drag on the economy equal to 1% of the grodd domestic product.
It creates uncertainty in the following areas:
A) the debt limit, B) the sequestered amounts, C) cuts in entitlement spending, D)additional taxes and don’t forget E) the President needs another Continuing Resolution (CR) to keep the lights on.
Blackrock’s Larry Fink is correct when he says:
The American People are the Big Losers In The Cliff Deal.