Tuesday, January 12, 2010
Specifically, I want to talk about the importance of Fed independence and insulation from short-term political pressure in the conduct of monetary policy. I also want to argue for maintaining a strong, independent, apolitical regional voice in policy deliberations through the 12 Reserve Banks.I cannot stress enough the importance of that last sentence. Despite everything, credit is not the current bar to business expansion. Business profits are; it should be obvious that until hiring rebounds, the consumer side of the economy is not going to expand much. We're through the shock zone and into the replacement zone; what we have here is about as good as it gets with current consumer incomes. Take a look at ICSC and Redbook; as good as it gets is not very good.
Businesses are still reluctant to invest and hire. Businesses are holding fire pending clarification of future government policy in the areas of health care, taxes, and climate change. Most importantly, many businesses are waiting for clear improvement in top-line revenues.
I never thought the Democratic party set out to be suicidal, and I retain hope that at some point this year they are going to "get" the concept that handing out bennies to financial companies is a BAD idea, and that the private infrastructure of our economy is not capable of handling large doses of uncertainty and higher costs. True reforms are needed but will have to be delivered in modest packages. Demotopia has already failed.
Currently it seems to me that a tiny group is controlling Democratic initiatives. I don't think that group is representative of the larger Democratic party. We will find out if I am right or wrong quite quickly.
The trade balance for November worsened again, but not severely. That is because although the import price for crude oil rose about $5 from October ($72.54), imports lessened. Exports grew and imports grew. Current oil prices have implications for bonds for foreign countries, trade expectations and pricing expectations, and are not favorable for sustained global growth in trade and investment.
China raised reserve requirements on banks 50 bps. After looking at trade figures, I am not surprised, but I don't think China will be able to contain this bubble.
The bit that caught my attention in that speech was his concern over politicization of the Fed, and the potential for shutting the regional branches out of the decision-making. If either one happens, then it's Katy-bar-the-door; the dollar has no chance of remaining a useful store of value.
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