SF FED Bank President thinks several trillion dollars in so-called stimulus is not enough

Bloomberg Businessweek ran this online article today about SF FED President, John Williams, comments on the need for more dollar counterfeiting.


My comments to the article are in red below.

Federal Reserve Bank of San Francisco President John Williams said the central bank must continue to act “vigorously” to boost the economy and sustain labor market gains.

Let me translate, “Tenured technocrat with a lifetime pension  who didn’t predict the financial crisis of 2008 now knows what to do.  The Fed should create a lot of money out of thin air.”

“We are far below maximum employment and are likely to remain there for some time,” Williams said in the text of remarks given today in San Diego. “Under these circumstances, it’s essential that we keep strong monetary stimulus in place. The recovery has been sluggish.”

The US is comprised of individuals.  There is no “we”.  That is collectivist commie-speak.  Immoral, unconstitutional minimum wage laws prevent employers from hiring labor at market rates.  Socialist unemployment welfare provides a incentive not to work for some individuals.  He’s right since no legislators are proposing abolishing minimum wage laws and they aren’t trying to abolish unemployment welfare.

Monetary stimulus is code word for creating trillions of dollars out of thin air and giving it to large banks who will buy some government bonds or store it at the Federal Reserve as excess reserves (earning 0.25% interest from the FED).  They will not loan it into the economy, so the so-called recovery will remain sluggish.

The policy-setting Federal Open Market Committee on March 13 maintained its pledge to keep interest rates low through at least late 2014, noting improvements in employment while also saying “significant downside risks” remain. Still, policy makers saw no need to roll out new easing measures unless growth faltered, minutes of last month’s meeting showed today.

The FOMC is not keeping interest rates low.  The commercial bankers are keeping interest rates low.  Normally the FED controls the FED Funds Rate which is the rate that commercial banks charge each other for overnight loans to meet legal reserve requirements.  But these aren’t normal times.  The commercial bankers have $1.6 trillion in EXCESS reserves.  They aren’t lending to each other overnight because they are to the stratosphere will extra reserves above the legal limit.  This make the FED Funds rate drop to near zero.  The FOMC is pretending that they are in control of that interest rate.

The significant downside risks include European recession brought on the the sovereign debt crisis.  The other risk is a Chinese recession brought on by Keynesian, mercantilist policies of “stimulus”.  The Chinese government has been printing yuans to keep up with the Federal Reserve stimulus.  This keeps the exchange rate between the yuan and the dollar near constant, but it also creates price inflation and discontent inside China.  Chinese banks have been lending the newly created money into their economy which expands the money supply even more due to the fractional reserve banking process.  So they have to slow down or they will experience hyperinflation.  The decrease in the rate of monetary expansion will show many so-called investments (think about their real estate and constrution boom) to be malinvestments.  A recession will ensue.

Recent data signal a strengthening U.S. recovery, with an improving labor market encouraging consumers to spend more in the world’s largest economy. The unemployment rate has fallen to 8.3 percent, its lowest in three years.

The economic data is Keynesian by nature.  The author is talking about the recent 2%-3% gross domestic product estimates for this year.  The GDP is a bogus number because Keynesians think that government spending adds to the economy.  It takes money away from savings, investments, and consumption in the form of taxes.  The money that could have been used by consumers and investors is then wasted by pensioned bureaucrats and politicians to buy votes.  The GDP is measured in dollars; therefore, FED money creation “stimulus” makes it go up even though there are fewer goods after the bureaucratic waste.

The real unemployment number is much larger somewhere in the range of 14% – 17% when you count people who want to work full time, are able to work, or are dropped from the unemployment rolls after their benefits run out.

“Unfortunately, the kind of moderate economic growth I expect won’t sustain such rapid progress” in the job market, Williams said. The time to begin tightening monetary policy is “still well off in the future,” he told students at the University of San Diego.

The real unemployment problem is not going away fast enough despite three rounds of so-called stimulus.  So what is needed is more stimulus.  Years and years of printing dollars will do the trick.  It worked so well in 1920’s Germany, Hungary after WWII, South America, the former Yugoslavia, and most recently Zimbabwe.

Williams forecast economic growth of 2.5 percent this year and 2.75 percent in 2013. The unemployment rate will remain around 8 percent at the end of 2012, and is likely to be about 7 percent at the end of 2014, he predicted, according to the prepared remarks.

If the FED prints money, then GDP will rise.  But individuals will be poorer because each dollar will have less purchasing power than before thanks to the inflation of the money supply.  The problem will be worse if the banks decide to expand lending.  More money will be created.  GDP growth is a lie to make you think you are becoming more prosperous when you’re actually getting robbed.

The unemployment will drop because of all the reasons I gave above.  Less people will be working in 2013 and 2014 than are working now in 2012.

‘Stronger Recovery’

“I’m encouraged by recent signs of a stronger, self- sustaining recovery,” Williams said. “I’m especially glad to see that the economy is adding jobs at a pretty decent clip. Still, we have a long way to go.”

The pretty decent clip is less than the number needed to keep up with population growth.  He was clueless in 2008.  He is clueless now.  But he makes good money and has a FED pension.  There are no negative sanctions awaiting him is his optimism is misplaced.

U.S. stocks extended losses today and Treasuries fell as minutes from the FOMC’s last meeting showed central bankers are holding off on increasing monetary accommodation unless the U.S. economic expansion falters. The Standard & Poor’s 500 Index of stocks lost 0.7 percent to 1,409.42 at 3:14 p.m. in New York, retreating from an almost four-year high.

Investors are disciples of Keynesian economics also.  They are sad when the FED hints that they won’t print as much money as Wall Street investors estimated.  They sell some stocks when they are sad.

Government bonds are in a bubble.  They are not safe, but they are touted as safe by Keynesian educated financial advisors.  Are Greek bonds safe?  These people thought so two years ago.  They continue to be wrong.

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of that meeting released today in Washington. “Most participants did not interpret the recent economic and financial information as pointing to a material revision to the outlook for 2013 and 2014.”

Keynesian central bankers believe in free lunches.  There are no free lunches.  The negative effect of their past and future money printing is ruinous price inflation followed by the Greater Depression.  Plan accordingly.

Consumer spending in February grew 0.8 percent, marking the biggest gain in seven months, Commerce Department figures showed March 30. Manufacturing growth accelerated in March, according to the Institute for Supply Management’s index released April 2.

Individuals need to save more money.  When you save you forego consumption.  You accumulate capital that can be invested in producing capital goods.  Capital goods product consumer goods.  Capital goods increase the supply of consumer goods.  A large supply of consumer goods usually leads to a drop in consumer goods prices.  You get more goods for less dollars.  Your standard of living goes up.  Keynesians hate this.  They think that there is a paradox of thrift.

The paradox of thrift goes something like this: saving is good unless everyone does it; if they do then the economy crashes.  Keynesians can’t think straight.  They don’t follow the money.  Where do you usually put your savings.  Answer: in a bank as savings or into the stock market.  What does the bank normally do with your deposit.  Answer: it loans it out to entrepreneurs trying to make profits producing and selling capital goods or providing consumer goods.  So how exactly the saving prevent the creation of more capital goods and consumer goods in the economy?  Keynesians don’t have an answer except, “Don’t save.  Spend money now to help the GDP numbers.  Even better spend money you don’t have now.  Go into debt to spend now to help the GDP numbers.”

Williams, 49, is a voting member of the FOMC this year. He became the San Francisco Fed’s president in March 2011 after two years as its director of research.

You will not find any prediction by this man between 2005 and 2008 warning you of a financial crisis.  His research was bought and paid by the FED to tout the FED.  The FED is your enemy.  He will vote to ruin your purchasing power.  Buy some gold coins if you don’t have any yet.

To contact the reporters on this story: Aki Ito in San Francisco at aito16@bloomberg.net; Caroline Salas Gage in New York at csalas1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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Published in: on April 3, 2012 at 5:19 pm  Leave a Comment  

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