Mish's Global Economic Trend Analysis |
Fed Admits It's Clueless How QE Works; Radical Suggestion Posted: 04 Jan 2014 06:07 PM PST Inquiring minds are investigating three articles from today, stating opinions of three different Fed governors. Boston Fed President Against Tapering Boston Fed President Eric Rosengren says Rapid QE withdrawal could permanently harm U.S. workers A dovish U.S. central banker on Saturday again urged the Federal Reserve to be patient as it trims its support for the economy, in part because it risks permanent damage to the labor market.Plosser at Odds with Yellen's Approach Yahoo!Finance reports Fed's Plosser at odds with policy approach favored by Yellen. The Great Recession could have done permanent damage to potential U.S. output, a top Federal Reserve official said on Saturday, taking an indirect shot at more cyclical approaches to policy-making that is favored by many economists, including the next Fed chair.Dudley Admits He's Unclear How QE Works Rounding out our trio of articles from today, please consider Still unclear exactly how QE eases conditions: Fed's Dudley. Extensive research into massive asset-purchase programs has not yet clarified whether such policies ease financial conditions primarily as a signal to investors or more directly through private portfolios, an influential U.S. central banker said on Saturday.Radical Suggestion While these Fed governors are grasping at straws in a tornado bickering over whether to taper or not, let me propose a simple idea: The Fed cannot figure out how QE works because QE doesn't work. Two decades of Japanese QE is sufficient proof. In the US, the Fed did ignite massive stock and bond market bubbles, but who in their right mind thinks bubbles are a measure of success? All of the Fed's modeling is nothing more than a chasing one's tail exercise of economic stupidity. Simply put, the Fed is nothing more than a bunch of Soviet-style central planners with inflated opinions about what they can or cannot do. If the Fed came out tomorrow and stated it would set the price of orange juice, everyone would think the Fed was insane. And they would be correct. Yet amazingly, people think the Fed can set the correct interest rate policy and the correct monetary easing policy, not only to control the proper amount of inflation, but to manage unemployment as well, even though the central planners themselves readily admit they are clueless as to how their policies even work! If that's not a bubble belief in wizard fools, what is? Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
Posted: 04 Jan 2014 09:23 AM PST In a rare vote in favor of common sense and local jobs, Boeing machinists Approve Contract securing 777X jet manufacture in Washington state. Boeing's machinists on Friday narrowly approved a crucial labor contract that secured thousands of jobs and billions of dollars of economic activity for Washington state but will cost workers their pensions.Common Sense Vote Boeing secured a no-strike agreement that lasts until 2024. As part of the plan, workers will shift from defined benefit plans to defined contribution (IRA-type) pension plans. Those are huge union concessions. But the all important counterbalancing force is people keep their jobs. 10,000 or so jobs stay in the region. Simply put, this was the best possible result for Boeing workers in the Seattle area. Shocking Result The result is unusual in that unions seldom do what is best for workers. It is even more unusual because local union leadership was staunchly against the agreement. This was a rare case in which Contract Debate Divides Union Leadership On a local union poster were the words ... "We need every member to stand with us in solidarity, and just say no to this takeaway offer. We are under a great deal of pressure to give up our pension, pay dramatically more in healthcare costs, and stagnate wage growth so we have less take-home pay going forward. We are asked to accept less when Boeing has record profits, record backlogs and approved a $10 billion stock buy back. Machinists stand ready to build the 777X. We are the key to a successful 777X future. Rejecting this concessionary offer, does not diminish all the advantages of building the plane here. Our current wages and benefits are less than 5 percent of airplane costs without these concessions. Vote no and tell Boeing to focus on building the 777X here because analysts, customers and shareholders agree — that is the right choice!"Heads, Not Hearts Union workers voted with their heads, not their hearts, in approving the deal. 10,000 immediate jobs would have been lost had they not done so. Countless other local jobs (restaurants, hotel, limo, etc) jobs would been lost in the process. Of course, Seattle's loss would have been some other region's gain. In the grand scheme of things it seems to even out. But it doesn't. There are huge moving costs and huge disruptions on local economies. Win-Win All things considered, this vote was a huge win for Boeing as well as the local employees. Congratulations to the union for ignoring tremendous pressure from local union leadership. That said, the local "scorched earth" plan of opposition was so horrendous, one might wonder why the vote was close at all. Had the jobs left Washington state, none of them would have been union jobs. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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