Wednesday, December 22, 2010

As Central banks squabble, the rich get richer and the poor get poorer....


Wealth is being transferred from savers to investors / speculators.

The zero interest rate policy (ZIRP) the Fed has been pursuing for years has in effect taxed savers at 100%. There is no incentive to save, there is a conscious effort on the part of the Fed towards more consumption, more debt accumulation - a "hair of the dog that bit you" strategy. Doesn't work well for curing alcoholism, does it?

The unfortunate bottom line is this:
The rich can handle the inflation manufactured by Bernanke better than the poor.

What this will do is an ongoing case study for why there is such a considerable wealth disparity in the country. Blame capitalism all you want, the central planners at the Fed should be "on the hook" for their out-sized (IMO) share of the blame.

Recent comments regarding the deficit, the debt and QEII:

"What we see is politicians cutting taxes with borrowed money, and spending on new programs, new projects with borrowed money. But the debt is increasing at a rate of over a trillion dollars a year. And because interest rates are low, being in a weak economy, it is very easy for the government to sell as many bonds as it wants. I think there’s a complacency rising at this stage. Interest rates are down for a number of technical reasons. But, assuredly they’re not going to stay here...We don't know at this stage why or how the markets respond to this sort of -- this type of massive budget deficit. And I think we’re taking a very high risk. This is not a tradeoff between good and bad. In fact, I sometimes put it between terrible and catastrophic." - Alan Greenspan September 24th

“we should be clear in our minds that the fiscal situation in the United States is much worse than in Europe. When the European debt situation stabilizes, attention of financial markets will definitely shift to the United States. At that time, U.S. Treasury bonds and the U.S. dollar will experience considerable declines.” - Li Daokui, adviser to China's Central bank

----

Then this in the Battle of the Central Bankers:

On November 13th, China’s FX chief, Jin Zhongxia, criticized the Fed’s QE-2 scheme. Jin warned that China doesn’t support the monetary easing that causes capital inflows to increase the risk of asset bubbles. Major countries that excessively print money to get out of their own economic difficulties, pose a policy dilemma for emerging economies. That will impose greater pressure on capital inflows, bigger bubbles in asset markets and inflationary pressure.


But Bernanke shot back on December 5th,

Keeping the Chinese currency too low is bad for the American economy, because it hurts our trade. It’s bad for other emerging market economies. If they fix their currency to the dollar, then they’ll have the same monetary policy, essentially, that the United States has. China is growing very quickly. They’re risking inflation by importing U.S. monetary policy. And that’s a problem for them.

Thus, QE-2 is also aimed at China.

------
From the Pragmatic Capitalism:

http://pragcap.com/dont-fight-the-fed

DON’T FIGHT THE FED?

7 DECEMBER 2010 BY TPC


This famous Wall Street slogan has become popular again in recent months as more and more investors believe in the Fed’s ability to generate economic recovery through the wonders of QE. But the facts from the last few years don’t exactly corroborate the “don’t fight the Fed theory (via David Rosenberg at Glulskin Sheff):

Since the first cut in the Fed funds rate on September 18, 2007 …

- The S&P 500 has gone from 1,520 to 1,223.
- The unemployment rate has gone from 4.7% to 9.8%.
- Industry capacity utilization rates have gone from 81.5% to below 75%.
- The 10-year note yield has gone from 4.5% to below 3%.
- Housing starts have gone from 1.183 million units to 0.519 million.
- Median real estate values have gone from $210,500 to $170,500.
- Core inflation has gone from 2.1% to 0.6%.

Well done!

When asked about rising inequality in the United States, Mr. Bernanke offered a response that was likely to be embraced by liberals.

“It’s a very bad development,” he said. “It’s creating two societies. And it’s based very much, I think, on educational differences. The unemployment rate we’ve been talking about. If you’re a college graduate, unemployment is 5 percent. If you’re a high school graduate, it’s 10 percent or more. It’s a very big difference.”

Mr. Bernanke added: “It leads to an unequal society, and a society which doesn’t have the cohesion that we’d like to see.”

How extreme is this inequality? It's higher than it has ever been since the peak of the roaring 1920s.




The graphs in this article and the portrait it paints about our country at this time is very troubling. We simply have to do better than this.


15 Mind-Blowing Facts About Wealth And Inequality In America

http://www.businessinsider.com/facts-about-inequality-in-america-2011-11#




The gap between the top 0.01% and everyone else hasn't been this big since the Roaring Twenties




Half of America owns 2.5% of country's wealth. The top 1% owns a third of it.

Source: Institute for Policy Studies.


Real average earnings have not increased in 50 years. That's HALF A CENTURY!




And savings rates have sunk, as Americans borrow money to keep up (though they're rising now).



Despite the myth of social mobility, poor Americans have a SLIM CHANCE of rising to the upper middle class




Source: NBER


Republican tax cuts significantly increased the wealth gap




America redistributes its wealth FAR LESS than other developed countries (via government transfers)




America's income spread is nearly twice the OECD average



Source: Economist


The income gap is NOT growing in other countries, like France.

Income Inequality is worst around Wall Street and Oil States.




Normalized to 1979, the top 1% have seen their share of America's income more than double. The bottom 90% have seen their portion shrink.



Source: Afferent Input


Read more:
http://www.businessinsider.com/facts-about-inequality-in-america-2011-11#if-you-arent-in-the-top-1-of-americas-earners-youre-pretty-much-screwed-15#ixzz17SLlprCh

---

The right thing to do never requires any subterfuge,
it is always simple and direct. - Calvin Coolidge

No comments:

Giants Top Minor League Prospects

  • 1. Joey Bart 6-2, 215 C Power arm and a power bat, playing a premium defensive position. Good catch and throw skills.
  • 2. Heliot Ramos 6-2, 185 OF Potential high-ceiling player the Giants have been looking for. Great bat speed, early returns were impressive.
  • 3. Chris Shaw 6-3. 230 1B Lefty power bat, limited defensively to 1B, Matt Adams comp?
  • 4. Tyler Beede 6-4, 215 RHP from Vanderbilt projects as top of the rotation starter when he works out his command/control issues. When he misses, he misses by a bunch.
  • 5. Stephen Duggar 6-1, 170 CF Another toolsy, under-achieving OF in the Gary Brown mold, hoping for better results.
  • 6. Sandro Fabian 6-0, 180 OF Dominican signee from 2014, shows some pop in his bat. Below average arm and lack of speed should push him towards LF.
  • 7. Aramis Garcia 6-2, 220 C from Florida INTL projects as a good bat behind the dish with enough defensive skill to play there long-term
  • 8. Heath Quinn 6-2, 190 OF Strong hitter, makes contact with improving approach at the plate. Returns from hamate bone injury.
  • 9. Garrett Williams 6-1, 205 LHP Former Oklahoma standout, Giants prototype, low-ceiling, high-floor prospect.
  • 10. Shaun Anderson 6-4, 225 RHP Large frame, 3.36 K/BB rate. Can start or relieve
  • 11. Jacob Gonzalez 6-3, 190 3B Good pedigree, impressive bat for HS prospect.
  • 12. Seth Corry 6-2 195 LHP Highly regard HS pick. Was mentioned as possible chip in high profile trades.
  • 13. C.J. Hinojosa 5-10, 175 SS Scrappy IF prospect in the mold of Kelby Tomlinson, just gets it done.
  • 14. Garett Cave 6-4, 200 RHP He misses a lot of bats and at times, the plate. 13 K/9 an 5 B/9. Wild thing.

2019 MLB Draft - Top HS Draft Prospects

  • 1. Bobby Witt, Jr. 6-1,185 SS Colleyville Heritage HS (TX) Oklahoma commit. Outstanding defensive SS who can hit. 6.4 speed in 60 yd. Touched 97 on mound. Son of former major leaguer. Five tool potential.
  • 2. Riley Greene 6-2, 190 OF Haggerty HS (FL) Florida commit.Best HS hitting prospect. LH bat with good eye, plate discipline and developing power.
  • 3. C.J. Abrams 6-2, 180 SS Blessed Trinity HS (GA) High-ceiling athlete. 70 speed with plus arm. Hitting needs to develop as he matures. Alabama commit.
  • 4. Reece Hinds 6-4, 210 SS Niceville HS (FL) Power bat, committed to LSU. Plus arm, solid enough bat to move to 3B down the road. 98MPH arm.
  • 5. Daniel Espino 6-3, 200 RHP Georgia Premier Academy (GA) LSU commit. Touches 98 on FB with wipe out SL.

2019 MLB Draft - Top College Draft Prospects

  • 1. Adley Rutschman C Oregon State Plus defender with great arm. Excellent receiver plus a switch hitter with some pop in the bat.
  • 2. Shea Langliers C Baylor Excelent throw and catch skills with good pop time. Quick bat, uses all fields approach with some pop.
  • 3. Zack Thompson 6-2 LHP Kentucky Missed time with an elbow issue. FB up to 95 with plenty of secondary stuff.
  • 4. Matt Wallner 6-5 OF Southern Miss Run producing bat plus mid to upper 90's FB closer. Power bat from the left side, athletic for size.
  • 5. Nick Lodolo LHP TCU Tall LHP, 95MPH FB and solid breaking stuff.