The Fed said that it now planned to keep short-term interest rates near zero until late 2014, continuing the transformation of a policy that began as shock therapy in the winter of 2008 into a six-year campaign to increase spending by rewarding borrowers and punishing savers.
"What did we learn today? Things are bad, and they're not improving at the rate that they want them to improve," said Kevin Logan, chief United States economist at HSBC. "That's what they concluded - 'We've eased policy a lot, but we haven't eased it enough.' "
The new forecast showed that the Fed expects to hit its inflation target over the next three years, but to fall well short of its goals for unemployment. The Fed projected that unemployment would drop no lower than 8.2 percent this year, just slightly below the current rate of 8.5 percent, and no lower than 7.4 percent by the end of next year. By the end of 2014, the Fed still expects that at least 6.7 percent of people actively interested in working would not be able to find jobs.
How do you like that, dear reader? The Fed has goals for unemployment and inflation. Targets. And it moves its policies around in order to achieve its goals.
Of course, it doesn't necessarily hit its goals. Still, we're supposed to believe that by trying to hit them it somehow encourages them in the right direction...
Most people believe they are successful. Which makes us wonder. Maybe the Fed should set goals for other things? Weight-loss goals, for example.
The idea is that by changing interest rate and banking policies the Fed actually influences inflation and employment. So, there's a logic to thinking that the Fed should set targets and try to hit them. Trouble is, if it could really change things for the better, why does it put up with an 8.5% unemployment rate now - four years after the subprime crisis began? Why doesn't it exercise its magic to bring the rate down...?
Well, we all know the answer. It can't. Once you've taken interest rates down to zero...and announced that you'll leave them there for the next three years...what more can you do? Drop money from helicopters? Right!
But no point in getting ahead of ourselves. Right now, interest rate policy doesn't work. Because the money supply is expanded by retail and commercial bank lending, not central bank lending. The Fed lends money to the money-center banks. They're happy to take the Fed's money. But that doesn't mean they will multiply it out by risking it in the economy.
So, for the moment, they might as well set a fat goal...too...
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*** Excuse us as we pause in admiration and shock...
We had a sneaking suspicion that Alan Greenspan, former Fed chief, was not as dumb as he pretended to be. When he was on the job he could barely say a straight sentence. Probably because he didn't really believe what he was saying.
Since he's been unemployed, he's begun to speak more clearly. In yesterday's Financial Times he has an opinion on capitalism which is actually among the best in the series. In it, he makes a good point. Anti-capitalists are not really annoyed at capitalism. What bothers them is "crony capitalism:"
"Crony capitalism abounds when government leaders, usually in exchange for political support, routinely bestow favors on private individuals or business. That is not capitalism. It is called corruption."
Or you could call it zombification...or geriatric capitalism...or, as Kurt Richebacher used to call it, "degenerate capitalism." But it's not real capitalism.
The 'greed' that preoccupies Occupy Wall Street demonstrators is not a feature of capitalism, Greenspan points out. It's a feature of human nature. He might have pointed out that socialists are just as greedy as capitalists. They are just more corrupt. Rather than get their gains by honest deception, they get it by brute force - by using the police power of government to take it from others.
Greenspan provides an example of a corrupt system, designed to protect the wealthy from competition -- immigration law. It keeps out qualified foreigners willing to work for less:
"The H1B program is in effect a subsidy for the wealthy, a policy that is anathema to the supporters of capitalism."
He goes on to suggest that "improvements" to capitalism, such as those to be considered today Davos, are not likely to be good ones.
Good on you, Alan.
*** "Hey Bill," writes a Dear Reader, "How can you say America is going to Hell? We're the most Christian country in the world."
The trouble with Christians is that from time to time they render unto Caesar far more than he deserves...and lose sight of their own faith. Hardly had the martyrdoms stopped under Emperor Constantine than early Christians began pointing the figure, calling one another heretics...and then murdering each other.
Christian crusaders sacked the Christian city of Constantinople on their way to the Holy Land ...where they did even worse mischief. In the 15th century, Lutherans under Charles V gave Rome a worse sack than the barbarians had a thousand years before. They raped nuns, murdered priests, and stole whatever they could carry off.
And now, once again, Christian mobs are calling for blood. Jon Utley, who we met Tuesday night, explains why America's evangelical Christians are an ungodly bunch. Logically, they should support Ron Paul. He opposes abortion, gay marriage and promiscuity. He's never been divorced. Two of his brothers are ministers. And he's a Baptist. What more could they want?
What they want, Utley explains, is to live by the sword:
Why ... are evangelical leaders now opting for Santorum, and before him Gingrich? The one big area of disagreement with Ron Paul is war; foreign wars and the domestic one against drugs. For this they oppose him. Santorum supports unending war in Afghanistan, backing Israel without limit and a new war against Iran.
Earlier there was a major far leftist candidate who supported all the issues that evangelicals oppose, and was a vocal proponent for expanding Israeli settlements on the West Bank and promoting the war on Iraq. He was overjoyed when open homosexuality became allowed in the military, he supports abortion, gay marriage and the leftist agenda for big, intrusive government; power to labor unions as well as expanded, unconstitutional police powers within the U.S. Evangelicals adore him and went all out to support him 2006, when he lost his primary race and ran as an independent for the Senate. He is Senator Joseph Lieberman of Connecticut.
All this shows how evangelical leaders put support for wars ahead of their social values. Their support includes every new law giving Washington ever greater police powers over American citizens, such as the Patriot Act, Military Commissions Act and the recent National Defense Authorization Act which tear asunder much of the Bill of Rights. Most also supported torture of prisoners of war (with the notable exception of Chuck Colson of Prison Fellowship). All this comes with their "social values."
They loved George Bush. They were major supporters of the two wars against Iraq and the occupation of Afghanistan. Fear and ignorance of the outside world joins together with a belief that God uniquely favors America. Mostly poorer Southerners they also have strong affinity for the American military and its industrial complex. In addition, author Chris Hedges has written about how they are joined by many Northern blue collar families hurting from new technology, globalization, and poor schools in seeing government as out to undermine their communities and social values. Their solace is to hope for Armageddon.
Evangelicals like to quote a biblical text that God favors those who favor the Jews. However, for them they mean only Jews who make wars and contribute to chaos in the Middle East. Jewish peacemakers are cursed in their view. No tears were shed for Yitzak Rabin who negotiated peace with the Arabs until Israeli fanatics killed him. Indeed Pat Robertson said that Rabin was killed because he was trying to thwart God's plans.
Herein lies their antipathy to Ron Paul, who in all other respects is a family values conservative. Indeed, most of them are Baptists who used to look upon Catholics with suspicion. Today they would prefer Senator Santorum or Newt Gingrich, both Catholics, to Ron Paul, who is Baptist. Santorum is no libertarian believer in limited government (he would use government to enforce his social values) and urges absolute support for Israel and the military industrial complex. These evangelicals don't want peace because it would mean postponing Armageddon. That's why their leaders oppose Ron Paul.
Jon Basil Utley is Associate Publisher of The American Conservative.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.