Geithner: this bailout will work!

Posted on March 24th, 2009 by bile
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I watched this live and cracked up when he said this. I was just amazed by his arrogance or perhaps delusion. I’m not the only one.

Geithner’s Arrogance Knows No Bounds

Inquiring minds are listening to Geithner explain to Congress how his plan works. Here is a transcript of a conversation between Rep Gresham Barrett and Treasury Secretary Geithner.

Rep Gresham Barrett: “The last question I have guys, which is the $64 million question or I guess I should say $64 trillion question is: What’s the backup plan? If everything fails what do we do? Where do we go from here?”

Treasury Secretary Geithner: “Congressman this plan will work. This plan because of the authority provided not just by Congress but the treasury and the Fed gives us broad ability to do what you need to do to get through a financial crisis like this. It just requires will; It’s not about ability. We just need to keep at it. We just need to work with Congress to make sure we do this on a scale that will make it work.

Someone needs to get this Jon Stewart on the Daily show. I think he will have a field day with “It [The Plan] just requires will; It’s not about ability.” Unfortunately, Geithner’s attitude is more scary than it is funny.

Inflation!? All right!!

Posted on March 20th, 2009 by bile
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The big policy news this week has been the Fed’s decision to buy $1 trillion of long-term bonds, going beyond the normal policy of buying only short-term debt. Good move — but it’s probably worth pointing out that yes, this does expose the Fed, and indirectly the taxpayer, to some risks. And in so doing, it blurs the line between fiscal and monetary policy.

Now, the Fed isn’t taking on any serious default risk — Treasuries are backed by the full faith etc of the US government, and agency debt is de facto backed by the same, although the market doesn’t seem to believe that. Anyway, the Fed is for these purposes a government agency itself, so all this is debt between different parts of USG.

The Fed is, however, creating a new liability: the monetary base it creates to buy these bonds. In effect, it’s printing $1 trillion of money, and using those funds to buy bonds. Is this inflationary? We hope so! The whole reason for quantitative easing is that normal monetary expansion, printing money to buy short-term debt, has no traction thanks to near-zero rates. Gaining some traction — in effect, having some inflationary effect — is what the policy is all about.

The problem may come when the economy recovers, and inflation starts to become a problem rather than a hoped-for outcome. Basically, there will come a time when the Fed wants to withdraw that extra $1 trillion of money it created. It will presumably do this by selling the bonds it bought back to the private sector.

But here’s the rub: if and when the economy recovers, it’s likely that long-term interest rates will rise, especially if the Fed’s current policy is successful in bringing them down. Suppose that the Fed has bought a bunch of 10-year bonds at 2.5% interest, and that by the time the Fed wants to shrink the money supply again the interest rate has risen to 5 or 6 percent, where it was before the crisis. Then the price of those bonds will have dropped significantly.

And this also means that selling the bonds at market prices won’t be enough to withdraw all the money now being created. So the Fed will have to sell additional assets; if the rise in interest rates is at all significant, it will have to get those assets from the Treasury. So the Fed is, implicitly, engaged in a deficit spending policy right now.

My back of the envelope calculation looks like this: if the Fed buys $1 trillion of 10-year bonds at 2.5%, and has to sell those bonds in an environment where the market demands a yield to maturity of more than 5%, it will take around a $200 billion loss.

I’m not complaining; I think quantitative easing (it’s really qualitative easing, but I give up on trying to fix the terminology) is the right way to go. But we should go into it with our eyes open.

Good lord. Would someone sit this man down and explain to him Austrian economics?! Or just correct his misunderstanding of the Austrian business cycle theory?! Bill Anderson says:

Hey, Krugman, you don’t have to worry about that, as there is not going to be a recovery, or at least not a recovery anyone can recognize. With the government trying to further distort the structure of production (something Keynesians like Krugman fail to acknowledge as even existing) via inflation, and with the tax and regulatory policies forcing up business costs, the economy will have a difficult time rising to meet former levels of production.

Still, I find it absolutely pathetic that the supposed star of the economics world has no concept at all about the destructive nature of inflation. The guy really believes that debasing the currency is a good thing. That must be the upshot of an MIT education these days.

If you’ve got the time check out Steve Horwitz’s “The Costs of Inflation” from FEE. Roger Garrison’s “The Continuing Relevance of Austrian Business Cycle Theory” and Peter Lewin’s “Capital and Its Structure”.

Check out the comments to the main story. When I last looked not one of them disagreed fundamentally with Krugman’s statements.

Government is good, government is great, let us thank it for our food…

Posted on March 14th, 2009 by bile
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This is a few days old but either it didn’t make the libertarian blogsphere rounds or I missed it. Either way it’s worth sharing.

From the poster of the video, also a state worshiper:

This is what the Republicans don’t understand. The Goverment can only be bigger when they are in control. I am tired of all the Ron Paul supporters that think that we can go back to day one and abolish all government. The goverment works for the people and should do what we want it to do. The economic crisis would be worse shape if we continue to listen to these fools that are only looking to find a footing in the next political race. I used to vote Republican but I am tired of my money being spent on things I could care less about. I want my money to be spent on keeping people healthy and making my energy bills going down by investing in new energy. Instead of Non Regulation of Financial Industry and wars we shouldn’t have been in and that brought new waste in spending. Well said Bill.

Maher’s facts are so off it’s sad. Taking his reasoning further than one would expect Stalin’s Soviet Union, North Korea, East Germany, etc. would have been hugely successful and prosperous.

With all due respect?

Posted on February 27th, 2009 by bile
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Dear Mr. President, I read your New Era $3.6 Trillion Budget Proposal. I also listened to your speech Tuesday night. You made a great campaign speech. However, the campaign is over. You won. And the reason you won is you offered hope as well as a promise of change.

With all due respect Mr. President, Tim Geithner and Ben Bernanke are offering the same policies as President Bush and Secretary Paulson. Those policies are to bail out banks regardless of cost to taxpayers. Mr. President, it’s hard enough to overlook Geithner’s tax indiscretions. Mr. President, it is harder still. if not impossible, to ignore the fact that neither Geithner nor Bernanke saw this coming. Yet amazingly they are both cock sure of the solution. Even more amazing is the fact that solution changes every day.

Read More…

Ron Paul questions Paul Volcker

Posted on February 27th, 2009 by bile
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The primary cause of the current economic crisis explained in 5 minutes

Posted on February 26th, 2009 by bile
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