Bernanke: No Plans to Add New Stimulus Measures Now

More evidence of the suspected understanding with China- they resumed buying US Tsy secs in return for no more QE:

The U.S. economy “has been doing worse than expected” and Beijing needs to “seriously assess” possible risks to its vast holdings of American debt, said Yu Bin, an economist in the Cabinet’s Development Research Center.

Yu expressed concern about a possible third round of Fed purchases of government bonds, known as “quantitative easing” or QE. He said that might hurt China by depressing the value of the dollar and driving up prices of commodities needed by its industries.

Bernanke: No Plans to Add New Stimulus Measures Now

July 14 (Reuters) — Federal Reserve Chairman Ben Bernanke backed away slightly from promising a third round of stimulus measures, telling a Senate panel Thursday that the central bank “is not prepared at this point to take further action.

The comments during his second day of congressional testimony sent the US dollar higher and caused stock to pare their gains.

On Wednesday, Bernanke suggested to a House panel that the Fed was ready to take further steps to boost the flagging US economy. That sent stocks soaring and pushed the dollar lower.

But on Thursday, Bernanke seemed to back away a bit from that plan.

“The situation is more complex,” he told the Senate Banking Committee. “Inflation is higher…We are uncertain about the near-term developments in the economy. We would live to see if the economy does pick up. We are not prepared at this point to take further action.”

He also said a third round of stimulus may not be that effective.

Bernanke also repeated his warning that a U.S. debt default would be devastating for the U.S. and the global economy.

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30 Responses to Bernanke: No Plans to Add New Stimulus Measures Now

  1. Mario says:

    just a thought guys….tell me what you think:

    The US government sends every citizen $1,000 a month.

    This could just be like a JG that creates a floor of support for the economy and for people to “take care of themselves” in our society. Beyond that we can always adjust fiscal policy, etc. And also in future as inflationary trends shift we can also shift this monthly citizen amount as well.

    Why not? What do you guys think?

    Reply

    Neil Wilson Reply:

    @Mario,

    You’re not getting anything real for your money. That affects the exchange rate.

    Jobs are about more than income. The biggest problem amongst the unwaged and lightly engaged is sheer boredom. That’s one of the reasons why they prize drugs and TV higher than food – it helps kill the hours.

    Bill Mitchell puts it like this:

    It does not provide any capacity building. A BIG treats people who are unable to find adequate market-based work as “consumption” entities and attempts to meet their consumption needs. However, the intrinsic social and capacity building role of participating in paid work is ignored and hence undervalued. It is sometimes said that beyond all the benefits in terms of self-esteem, social inclusion, confidence-building, skill augmentation and the like, a priceless benefit of creating full employment is that the “children see at least one parent going to work each morning”. In other words, it creates an intergenerational stimulus that the BIG approach can never create.

    http://bilbo.economicoutlook.net/blog/?p=13025

    Reply

    Dollar Monopoly Reply:

    @Neil Wilson,

    @neil and mario.

    great comments. helped me flush out some ideas. mario may have a point. additional income creates additional profits for producers. additional profits enable capacity building. from that perspective both private and public spending causes capacity building. however i would suggest that it is short term whereas public spending on R&D provides the 10-15 year long term capacity building.

    The private sector is great at finding commercial applications but government usually subsidizes the R&D in some form or another years earlier. Plus, it shouldn’t be the private sector’s responsibility to do 10-15 year out R&D, it’s the governments. Why would someone like Exxon want to develop alternative energy. They are a monopoly petro distributor. Why would they want to develop something that could potentially be used by someone else to take market share away from them? Exxon would better off letting someone else put up money take the risk and if the a new idea or process is developed just buy it – at least that way they know what they are getting rather than spending money in the hopes of finding some sort of solution.

    Another example is microdrive. Military technology subsidized microdrives. Apple used a subsidized technology to develop a commercial application that made them a mint. Generation leaps in technology all come from public sector funding in some form or another. Fiber optics, internet, microdrives, computers, etc…the list goes on and on. Read George Friedman’s “The Next Decade” for a great read. The technology stuff is around chapter 11 I think. In fact you can read the gist of the “google books” site.

    Reply

    Tom Hickey Reply:

    @Dollar Monopoly,

    “Why would someone like Exxon want to develop alternative energy. They are a monopoly petro distributor. Why would they want to develop something that could potentially be used by someone else to take market share away from them?”

    I heard the Exxon veep in charge of alternative energy on NPR a couple of years ago in a panel on sustainable and renewable energy. He said that Exxon is an energy company and intends to dominate the industry whatever the source. They are geared and up and ready to go. They have alternative plans but the capital required for the enormous scale up is beyond the ability of private sector to undertake. So it is going to be a slow transition, with the larger companies buying up the smaller ones as they grow and need capital. For a quick ramp up, government has to provided the funding for the scale up. He said that we could go to alternative sources quickly but the cost of energy would either have to be subsidized or the public would balk at the price differential. Increasing the monthly energy bill is like increasing the mortgage payment. Moreover, the price increase would spill over to related areas that are heavily dependent on energy.

    We definitely need to look at this. I got into a back and forth on the MMT aspect of this over at Gail the Actuary’s energy site, Our Finite World, in her post on The Link Between Peak Oil and Peak Debt – Part 1. It’s still going on.
    .

    Dollar Monopoly Reply:

    @Dollar Monopoly,

    @Tom – Read George Friedman’s book the Next Decade. In my book he is the foreign policy equivalent of Warren. The guy is very nonpolitical. He is huge proponent of expanding government R&D. To counter the baggage of “wasteful public spending” the trick is to position public spending as opportunity for government R&D. Folks will more willing to buy into public spending framed in then language at which point if they have subscribed to the rest of MMT will be open to other types of public spending. I think R&D needs to be our euphemism for public spending. Talking points. I’ll check out the link above.

    Tom Hickey Reply:

    @Dollar Monopoly,

    Right, the financial resources that MMT shows are available need to connected specifically to the expansion of real resources availability/distribution, especially sustainable, renewable energy sources. A fundamental issue here is scaling up in a timely fashion, now that we are behind the curve, and maybe way behind.

    Even the climate skeptics will have a difficult time disputing that the growing pollution problem is poisoning the planet. The evidence is in. Most of the population either lives in or near cities, or is soon headed that way, and cities are extremely polluted. There are very few places that remain pristine, and the reason they are pristine is that no one wants to live there.

    WARREN MOSLER Reply:

    worse, it threatens hyperinflation if BIG is a living wage, if people gravitate to BIG vs working output falls and income grows in a potentially accelerating manor

    Reply

    Tom Hickey Reply:

    @WARREN MOSLER,

    Nothing wrong with taking care of people who are not able to work, but those who are willing and able to work work should be provided employment.

    That leaves the people that are able but unwilling. That is a hard core problem that is being swept under the rug. The answer is not to try to starve them into work because they just take to crime, and then if imprisoned, they get a free ride, too.

    WARREN MOSLER Reply:

    After we implement a jg/elr we’ll know if it’s a material problem. I suspect not

    Dollar Monopoly Reply:

    @WARREN MOSLER,

    Exactly – you can’t marginalize people to the extent they turn to crime. strategically it makes no sense. they just end up diverting public spending to unproductive uses like housing criminals. you have to give them a living wage so people can at least maintain some sort of dignity. once (if) they return to productive law-abiding cititzens it’s a naturally instinct to want to better ones self. i mean how are you gonna get a girl if you live in a cardboard box. good grief this system is so short sighted and structural flawed its painful.

    Mario Reply:

    @Neil Wilson & @Warren Mosler,

    thanks guys. yeah that does definitely makes sense. Bummer b/c I was hoping for a free ride MMT-style!! LOL I mean if the big guys can land it easy with economic rent why can the little guys get some too right!?!?!?! What’s good for the goose surely can be good for the gander too!!

    But as they say, there’s no free lunches. I guess even in MMT that still proves to be true. The FICA permanent cuts would be really, really nice I completely agree.

    Maybe if more people realized that MMT is not a “free lunch” program more people would be receptive to it…I suspect most people get turned off of MMT b/c they think it sound irresponsible and reckless.

    Reply

    WARREN MOSLER Reply:

    fica suspension much better from most angles.

    stops taking a lot more than that from the people actually doing the work who we all depend on, and who’ve been treated the worst by current policies in general.

    also, the value of the currency is what you have to do to get it from the govt, at the margin.

    Reply

  2. @Roger “government’s true task is to keep us employed”

    it’s funny you say that because the more I think about the operational aspect of the monetary system it leads me back to exactly what you mentioned. the fundamental “operational” purpose of the economy is to provide economic prosperity, employment, goods and services, and a medium of exchange to facilitate trade and store value. do great minds think i like or what!

    Reply

    roger erickson Reply:

    @Dollar Monopoly,

    only caveat is that with scaling population & economies, the only “store of value” that matters long term is preserving the compound benefit from sustained social coordination

    in complex systems, every virtual transaction process becomes less stable, and more useful as a method for transmission to transactions distributed farther away;

    in short, the more liquidity the less stable a store of value;
    common sense; surely some economist made a law of that somewhere

    small minds own commodities;
    bigger minds own currencies plus commodities;
    even bigger minds in bigger systems own organizing methods;

    It’s what we call social species. It pays off – if used.

    Reply

    Dollar Monopoly Reply:

    @roger erickson,

    “only caveat is that with scaling population & economies, the only “store of value” that matters long term is preserving the compound benefit from sustained social coordination”

    not sure i really follow. The depreciation of the dollar is offset by the productivity improvements in the marketplace. Price inflation must be measured in terms of wage increases and standard of living.

    “in short, the more liquidity the less stable a store of value; common sense; surely some economist made a law of that somewhere”

    liquidity is unstable when it’s structured poorly. for example, if you have a ship that is not separated by bulkheads–if the hull is breached in one compartment, it may flood with water, but the bulkheads prevent water from penetrating the other compartments, which could take down the entire ship.

    a properly structured private banking system can serve as bulkheads.

    Reply

    roger erickson Reply:

    @Dollar Monopoly,

    In biology, I learned that all system components & processes are tuned to system purpose. Call it reverse-entropy. System evolution is how complex systems tune themselves to reverse-entropy.

    When it came to monetary systems, all I knew is that everything I’d heard didn’t add up. All thanks go to Warren for clarifying a field rife with anthropomorphic bs, or even more to the point, banker-pomorphic bs. It’s only with Warren’s expose that we’re now able to re-tune all monetary concepts to fit system purpose, what Warren calls Public Purpose.

    Now the hard part still remains. How to recruit enough of the electorate to cast off what they’ve been taught, and insist on defining a monetary system as something that serves Public Purpose.

    We can’t very well streamline coherent operations in this country if we allow such a glaring hole in operational thinking to persist. It really is quite analogous to not being able to efficiently map astronomical motions until recognizing that the earth circles the sun, not the other way around.

    Reply

    Dollar Monopoly Reply:

    @roger erickson,

    your right the question is how to get this MMT viral? to be honest this is the coolest part because we will live in a digital age and once this message is crafted correctly and then presented in an entertaining fashion who knows what will happen. what’s cool is that we are sitting here on the vanguard of an idea that could change society in mind blowing ways. when this thing takes off we’ll be able to watch the whole thing happen. to me we are at a special place in time in history. i’m stoked by the possibilities of what can be – who knows what the future holds. there are alot of possibilities

    Reply

    WARREN MOSLER Reply:

    Right, as Pirsig describes in ‘Lila’, evolution isn’t moving us towards anything, it’s moving us against the forces of nature, particularly gravity.

    Reply

  3. Roger Erickson says:

    @Dollar Monopoly,

    here’s another nicely put; simple message

    “Forget surpluses – a government’s true task is to keep us employed”
    http://theconversation.edu.au/forget-surpluses-a-governments-true-task-is-to-keep-us-employed-1624

    Next step is to get away from treating “government” as something other than ourselves.

    how about: “Public purpose always involves generating insanely great return-on-coordination”

    that challenges any reader to put 2+2 together, and then multiply by 10; like we used to do for about 4 billion years, before we invented economics textbooks

    Reply

  4. Craig Austin says:

    when we accept issuer debt as “debt” we have already lost the conceptual frame in presenting MMT to the laymen. Issuer debt must be reframed as user savings. without doing so we are just running up hill. i know i’m preaching to the choir – can i get an amen people.

    Reply

    Tom Hickey Reply:

    @Craig Austin,

    Better to say “Issuer liabilities” instead of “government debt” or “national debt.” This makes the vertical relationship clear, since issuer liabilities are user assets (tax credits). Since there is no corresponding liability in non-government, changes in issuer liabilities result in changes in non-government net financial assets, where all assets/liabilities originating in non-government net to zero. Increase of non-government NFA is saving that increases net worth (wealth), and decrease of non-government NFA is dissaving that decreases non-government NFA. That is so say, government dissaving (fiscal deficit) results in greater non-government saving (surplus) and adds to net worth as net financial assets are added without corresponding non-government liabilities, while government saving (fiscal surplus) results in non-government dissaving (deficit) that decreases net worth as non-government net financial assets are withdraw through taxation. This keeps it on the level of national accounting. Otherwise the loaded terminology obscures what is actually going on through fiscal ops. It also clarifies that monetary ops do not change the amount of non-government NFA, only alter the composition and duration, as non-government NFA are switched back and forth from zero maturity reserves to longer maturity tsy securities.

    Reply

    Craig Austin Reply:

    @Tom Hickey,

    i’m aware i’ve been bouncing around all over on my debt/liabilities terminology. so from your input and roger’s input below i need to give some thought to have a “coordinated” strategy on my terminology.

    from roger e.:
    “Exactly. Craig has restated tenets of MMT – which in turn restate even older, less direct statements [back to Lincoln, etc] – to semantics that Craig is more comfortable with. Craig, the real value of your approach will be to take your semantics to those audiences who use such semantics yet which don’t yet read any of the MMT blogs. Real value is to promote further alignment. To do that, always remind all that your laws are simply alternate wording of MMT jargon. Highest return is always return-on-coordination. If you can recruit more people to cooperate with MMT-like thinking, then our entire country will benefit.”

    you know what be helpful is to get your input on addressing the confusion around the “value of the dollar”. for starters, this is some stuff I grabbed off cullen’s site:

    “The depreciation of the dollar has been more than offset by the productivity improvements in the marketplace. Price inflation must be measured in terms of wage increases and standard of living. Has your standard of living declined? What you’re saying is as silly as saying that NYC is worse than Biloxi because it costs more to buy a cheeseburger there. Think about that for a second. Price rises must be measured in terms of wage increases and standard of living.”

    Reply

    WARREN MOSLER Reply:

    yes, govt spending adds dollar savings, taxing removes dollar savings.

    and adding dollar savings happens to be called going into debt.

    Reply

    Gary Reply:

    @WARREN MOSLER,

    this should be in H1 font at the top of the page.
    It sums up MMT well :)

    Reply

    Dollar Monopoly Reply:

    @WARREN MOSLER,

    see those are little tidbits you pick up when you troll this blog regularly. he spits these little jewels out and if your don’t happen to be here when he does then you’ll miss them…you sneaky little fart. i’m on to you!

    see it’s these little nuggets that help people conceptualize MMT. stuff like: the only reason to trade is to import. the cost of importing is exporting. i mean seriously does it get any more concise than that.

    Reply

  5. Anders says:

    Sorry if I’ve missed an explanation, but why does the US need or want to bargain with China? What harm can or would China inflict if the US were to initiate QE3?

    The only measure I can see open to China is diversifying its portfolio of govt bonds away from Tsys to Eurozone, with a worst case scenario of a mild devaluation of the USD – hardly devastating for the US

    Reply

    WARREN MOSLER Reply:

    we think we are dependent on them for funding when in fact we are not.
    see ‘the 7 deadly innocent frauds’ on this website

    Reply

    Anders Reply:

    @WARREN MOSLER, Of course, sorry, I do know 7DIF well, just didn’t make the connection. Depressing.

    Reply

    WARREN MOSLER Reply:

    no worries!

  6. I don’t get this idea that QE drives up commodity prices. Of course people with surplus cash will TRY to diversify into other assets, including commodities: maybe taking bets on commodity price rises. But unless someone somewhere physically stockpiles an awful lot of commodities, any temporary price rise will be reversed.

    Of course commodity prices have risen about 10% since the worst of the recession, but they crashed about 10% at the start of the recession.

    Reply

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