Skip to comments.The Fedís Slippery Ascent of the Fiscal Cliff
Posted on 08/20/2012 3:44:50 PM PDT by whitedog57
According to Bloomberg News, Banks Use $1.77 Trillion to Double Treasury Purchases. The gap between U.S. bank deposits and loans is growing at the fastest pace in two years, providing lenders with more funds to buy bonds and temper the biggest sell-off in Treasuries since 2010.
Well, perhaps it worked. The US Treasury 10 year yield finally came down today after several weeks of rising rates.
The Fed may feel pressured into more monetary stimulus and pushing the 10 year (and other Treasury maturities), yet it will do little good. The Fiscal Cliff facing the US is covered with ice.
The Fed has a difficult mission in trying to 1) reduce unemployment while managing inflation, particularly when the Obama Administration has gone on a binge of regulation and taxation. Unless the Administration (and Congress) make a decision to unshackle the economy, it is difficult to use monetary policy to make a decided difference.
Thus, The Feds ability to scale the fiscal cliff is limited and they will not receive any help from the Administration or Congress.
The Fed has a dual mandate to lower unemployment and manage inflation. But given the U.S.aging population and the growth of government entitlement programs, The Fed is going to have incredible difficulty moving the employment to population rate above 58.4 (the level at which it has been stuck during the Obama Administration. That implies a NON employment to population ratio of 41.6%.
Complicating The Feds climbing of the fiscal cliff is the historically low M2 Money Velocity.
The final patch of ice on the fiscal cliff is that wages and salary continue to decline as a percentage of GDP.
(Excerpt) Read more at confoundedinterest.wordpress.com ...
Obama/Bernanke - please go away!!!!!!!!!!!!!!!!1
He that goes a-borrowing goes a-sorrowing.
Expirations of tax cuts, automatic spending cuts, higher oil and more on the way. Have fun. Think of it more as a free-fall down that fiscal cliff with the only chance being to grab the side of it and haul ourselves back up.