Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
Gold & Silver Prices in

The Out-of-Touch-With-Reality Crowd

IMG Auteur
Published : December 04th, 2012
588 words - Reading time : 1 - 2 minutes
( 2 votes, 3.5/5 ) , 1 commentary
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
1
comment
Our Newsletter...
Category : Crisis Watch

 

 

 

 

Here is a brief commentary from Panzner Insights, my members-only website, which I posted earlier today:


In “The Biggest Myth About the Fed,”David Beckworth, an assistant professor of economics at Western Kentucky University, suggests that the pessimists are wrong to be concerned about what Mr. Bernanke and Co. are up to.


There many myths about Fed policy over the past few years, but the biggest one has to be that the Fed has been monetizing the national debt. This simply is not true, but it does not stop some folks from making this claim. For example, at last week’s Cato Monetary Conference we find former Fed officials pounding the Fed-is-monetizing-the-debt drums:


Mr Warsh and Mr Poole (who was filling in for Allan Meltzer) made a sharp distinction between the “legitimate” efforts to fight the crisis and the subsequent easing actions that were, allegedly, unjustified by the economic fundamentals. According to them, the interventions of 2007-2009 were required to ensure that “the markets could clear”, as Mr Warsh put it, while the second round of easing was done to satisfy “political masters” by monetising the debt. In fact, Mr Warsh said that the Fed was being actively unhelpful by “crowding in” Congress’s supposedly poor policy choices.


My first response is how can they can say this with historically-low U.S. treasury yields and muted inflation expectations? Surely, if the Fed were truly monetizing the debt we would be seeing a 1970s-repeat in the bond market, but we are not. And this is happening, in part, because the Fed is not that big of a treasury purchaser. Consider the figure below. It shows the Fed’s stock of treasuries by remaining maturity compared to the total stock of marketable treasuries as of the end of October, 2012. Though the Fed’s share of treasuries increases by remaining maturity, at most it hits 32% of the total for 10-30 years category. That means that after many months of Operation Twist that roughly 68% of long-term treasuries are still held outside the Fed. Overall, the Fed holds about 15% of marketable treasuries as seen in the “All Years” category. It is hard to square these numbers with the allegations that the Fed is monetizing the debt.


Leaving aside the questions of whether:


  • the Fed’s share of the Treasury market will remain as low as it is now if other investors start heading for the hills;

  • the central bank’s current intentions with respect to their securities holdings will remain the same if the economic, financial, political, or social landscape changes for the worse; or,

  • we can really know for sure that the debt has been monetized until after the fact;

the notion that current benign market conditions are a reason for optimism sums up just how out of touch with reality most academic economists (and other alleged experts, including journalists-cum-forecasters who parrot this nonsense) are.


By this sort of logic:


  • Mid-2005 was the right time to be optimistic on housing

  • January-2007 was the right time to be optimistic on the banking sector

  • The spring of 2007 was the right time to be optimistic on credit markets

  • The fall of 2007 was the right time to be optimistic on global equity markets

  • Mid-2008 was the right time to be optimistic on commodities

  • This past September was the right time to be optimistic on technology stocks

Of course, we know how those all worked out (hint: not well).


(Note: for those who are interested, this is a taste of what I touch upon in today’s podcast, “Simple Minds.”)

 

 



<< Previous article
Rate :Average :3.5 (2 votes)
>> Next article
Latest comment posted for this article
Panzner, The Fed and Wall-Street-Gang are now using Up & Down Quark Math. Up and down quarks have the lowest masses of all quarks. The heavier quarks rapidly change into up and down quarks through a process of particle decay: the transformation from a  Read more
Gypsy - 12/4/2012 at 2:55 PM GMT
Rating :  1  1
Top articles
Latest Comments
41 Facts about Central Banks no ...
19 Decsamking73
I'm not sure that much was taught about the central banking system back when I was in school...25 + years ago. At least not the important parts.
Gold & Silver Market Morning
19 Decend
If you trade XAU/RUB and have bought XAU using RUB, you should have closed your position as he advised. Then you should have switched, buying gold ...
Muslim terrorism, the left and t...
19 DecFirebear1
All please understand this person was a Muslim,that was his believe! His character was that of a criminal as was shown by his action on the day and...
Napoleon vs. Cheney: "Interrogat...
18 Decwalmarde
Torture just put the moral line lower. Lets think about American exceptionalism. What we want ? we want to spread and defend that exceptio...
Napoleon vs. Cheney: "Interrogat...
18 Decwalmarde
Utilitarianism is bad philosphy. I'm also very disgust about torture. It will backfire in our face. We are now no better than ou...
Napoleon vs. Cheney: "Interrogat...
18 DecJosu O.5
I cannot overstate how important is that every american read this article. It's absolutely wonderful how you have summarized every aspect around to...
Muslim terrorism, the left and t...
18 Decend0
Does anyone still wonder why is Australia hotbed for second generation Muslim migrant radicalization? Does anyone still need an explanation on why ...
Gold & Silver Market Morning
17 Decsamking731
Gypsie, my take on what he's saying is on paper gold, not actual gold that you are holding in your hand. In that way, gold is gold, though Pandas ...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Comments closed
  All Favorites Best Rated  
Panzner, The Fed and Wall-Street-Gang are now using Up & Down Quark Math. Up and down quarks have the lowest masses of all quarks. The heavier quarks rapidly change into up and down quarks through a process of particle decay: the transformation from a higher mass state to a lower mass state. This Particle Decay (loss of value) is a Transformation of what - back in the day - was called The Enron Accounting Method. The "Boyz" are doing all they can to KEEP the average Joe-six-pack jumbled in Rocket Science while they rob his 401K.
Rate :   1  1Rating :   0
EmailPermalink
Subscribe to 24hGold’s daily market briefing
  • Prices and data of precious metals in 119 currencies and world mining companies
  • Daily analysis of the economy, markets and more
  • Free, daily and indispensable
Stay informed, subscribe now !
* Your email will never be shared.