The most important speech in the last 50 years.?
federalreserve.gov
But, in the two decades following the abandonment of the gold standard in 1933, the consumer price index in the United States nearly doubled. And, in the four decades after that, prices quintupled. Monetary policy, unleashed from the constraint of domestic gold convertibility, had allowed a persistent overissuance of money. As recently as a decade ago, central bankers, having witnessed more than a half-century of chronic inflation, appeared to confirm that a fiat currency was inherently subject to excess. ------
But WE ARE NOT RETURNING TO THE GOLD STANDARD.
The widening globalization of market economies in recent years, for example, is integrating a growing share of previously local capacity into an operationally meaningful world total.....These shifts in aggregate supply--whether foreign or domestic in origin--influence the relationship between money and prices.---------
*The Fed is no longer standing by without addressing global issues.We are going to manipulate the world economy.And the need to stand with us is the only way to stop this.
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Although the U.S. economy has largely escaped any deflation since World War II, there are some well-founded reasons to presume that deflation is more of a threat to economic growth than is inflation. --------
*Deflation is our concern,and this is a growing problem worldwide.We are not moving backwards,the Gold standard is not coming back.The Basil Accord holds.
The expansion of the monetary base can proceed even if overnight rates are driven to their zero lower bound. The Federal Reserve has authority to purchase Treasury securities of any maturity and indeed already purchases such securities as part of its procedures to keep the overnight rate at its desired level. This authority could be used to lower interest rates at longer maturities.Between 1942 and 1951, the Federal Reserve put a ceiling on longer-term Treasury yields at 2-1/2 percent.
*The fed is prepared to buy long term treasuries to protect itself,which in turn will drive mortgage rates further lower.
negatives-errosion of the U.S.Teasuries as the safest investments in the world will be gone......
Clearly, it would be desirable to avoid deflation. But if deflation were to develop, options for an aggressive monetary policy response are available.
* Everyone in the world needs to get behind us to stave off world wide deflation.The path that Japan took and Germany is heading is wrong...the New Deal Program is a failure.
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Hence, a further necessary condition for the emergence of a bubble is the passage of sufficient time to erode the traumatic memories of earlier post-bubble experiences.
* This leaves room for more liquidations of the weak so the strong will survive.
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Most standard macroeconomic models fitted to the experience of recent decades imply that a distortion in valuation ratios induced by a bubble can be offset by adopting a sufficiently restrictive monetary policy. According to such models, a tighter monetary policy, on average, credibly constrains demand and lowers asset prices, all else being equal. These models can also be interpreted to suggest that incremental monetary tightening can gradually deflate stock prices. But that conclusion is a consequence of the model's construction. It is not based on evidence drawn from history. In fact, history indicates that bubbles tend to deflate not gradually and linearly but suddenly, unpredictably, and often violently. In addition, the degree of monetary tightening that would be required to contain or offset a bubble of any substantial dimension appears to be so great as to risk an unacceptable amount of collateral damage to the wider economy.
*The analysts and money center money managers,cannot continue using the models they have been using or they will fail..Monatary policy can stop inflation ."If you put your trust in me". WE are heading for worldwide monetary anarchy.We can stop all of this if you get on board."----
The evidence of recent years, as well as the events of the late 1920s, casts doubt on the proposition that bubbles can be defused gradually. --
The notion that a well-timed incremental tightening could have been calibrated to prevent the late 1990s bubble is almost surely illusion."---*Irrational Exuberance
Faced with this uncertainty, the Federal Reserve has focused on policies that would, as I testified before the Congress in 1999, "...mitigate the fallout [of an asset bubble] when it occurs and, hopefully, ease the transition to the next expansion."---*Where we are now.TAX CUTS
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To be sure, the mortgage debt of homeowners relative to their income is high by historical norms. But, as a consequence of low interest rates, the servicing requirement for that debt relative to homeowners' income is roughly in line with the historical average. Moreover, owing to continued large gains in residential real estate values, equity in homes has continued to rise despite very large debt-financed extractions. Adding in the fixed costs associated with other financial obligations, such as rental payments of tenants, consumer installment credit, and auto leases, the total servicing costs faced by households relative to their income appears somewhat elevated compared with longer-run averages. But arguably they are not a significant cause for concern.
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In conclusion--As it stands right now a Debt Bubble will not occur,go out there and refinance your house put this money back in the economy and get the economy going again. |
