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Bernanke Says Interest Rates Are Low Because Industrial Economies Can’t Pay

2:22 pm in Economy by masaccio

We let you vote, leave us alone.


Fed Chair Ben Bernanke gave a speech recently in which he explained why long-term interest rates are so low. He started by saying that certainly central banks play a role in determining long-term rates, which seems right because the Fed is buying up long term securities Treasuries and mortgage backed securities issued by Fannie, Freddie and Ginnie Mae at a current rate of about $85 billion a month, for a total of about $2.8 trillion. First, he explains basic economic theory on setting rates, then moves to a recap.

Long-term interest rates are the sum of expected inflation, expected real short-term interest rates, and a term premium. Expected inflation has been low and stable, reflecting central bank mandates and credibility as well as considerable resource slack in the major industrial economies. Real interest rates are expected to remain low, reflecting the weakness of the recovery in advanced economies (and possibly some downgrading of longer-term growth prospects as well). This weakness, all else being equal, dictates that monetary policy must remain accommodative if it is to support the recovery and reduce disinflationary risks. Put another way, at the present time the major industrial economies apparently cannot sustain significantly higher real rates of return; in that respect, central banks–so long as they are meeting their price stability mandates–have little choice but to take actions that keep nominal long-term rates relatively low, as suggested by the similarity in the levels of the rates shown in chart 1. Finally, term premiums are low or negative, reflecting a host of factors, including central bank actions in support of economic recovery.

So that’s the reason savers are getting screwed: our fabulous economic system can’t pay decent interest, just like it can’t pay decent wages. The giant corporations that dominate our system, that are sitting on trillions of dollars, that don’t pay taxes, that hide money overseas, that cheat us at every step, that cut the pay of the average worker, that own the media and control public discourse, the poor babies just can’t afford to pay a decent interest rate to the dummies who scrimped and saved for a lifetime so they would be able to retire comfortably.

And there is nothing that the Fed, or any central bank, can do to help. They just sat there and watched the financial sector destroy the real economy. Housing Bubble? No such thing. Stock market froth? No, the market allocates capital wisely and generously. In the wake of the financial crisis, Bernanke has a simple suggestion: Screw you if you don’t want to put your money into the Wall Street casino; no returns for you. And @FixTheDebt adds to that: let’s cut Social Security, Medicare and Medicaid.

Now it’s only fair to point out that this means that those rancid corporations don’t get much in the way of a real return on their Treasuries. In fact, after inflation, they may be losing money. Maybe the point of low interest is to encourage them to invest. But that’s pushing on a string: with widespread underutilization of existing capital stock, why buy more capacity? And with the ability to screw workers, why pay more? It isn’t like the shareholders need the money; most of the stock is owned by the rich. It’s no different from blind support of banks in the hope they will increase lending.

Savers are toast in this brutal version of capitalism, but savers, like the unemployed, the foreclosed upon, people with underwater homes, government employees, corporate workers and just about everyone, except the feral rich, aren’t ever going to be helped by the captured Obama Administration, the vicious Republicans or the spineless Democrats. We’re all on our own. Read the rest of this entry →

Obama’s Common Sense Approach To Financial Reform Mirrors Health Care Reform: Hold On To Your Wallet

7:13 pm in Uncategorized by masaccio

In his Cooper Union Speech, President Obama called for common sense financial reforms. He was talking to a bunch of the thugs on Wall Street, voracious zombies who don’t deal in common sense any more than the leeches at Wellpoint. They deal in profits, and there is absolutely nothing they won’t do to protect their ability to profit at the expense of every single human on the planet, including their cubicle mates.

The common sense reforms the President supports are meaningless in the face of the depredations of Wall Street which have destroyed the lives and fortunes of millions of their fellow citizens.

1. A liquidation authority for institutions of a certain size, which will shut them down with the “… least amount of collateral damage to innocent people and businesses”. I’m sure you and your grandkids can afford that.

2. “Some limits” on the size of banks and the kinds of risks they can take, set by regulators who are appointed by the same people who did nothing last time.

3. Transparency in derivatives. These apply only to “standard” derivatives, an undefined term, to be defined by regulators appointed by the same people who watched Wall Street set fire to your money.

4. Consumer protection. The President thinks banks want to compete offering better products rather than selling confusing and expensive products. OK, that’s funny.

5. Shareholder “say on pay”, and more power to act in corporate elections if the SEC allows it. Mutual funds own most of the stock of these giants, and they have their hands in your pockets just like Wall Street does.

I’m having trouble believing my eyes. This pathetic set of reforms is the change we get to deal with the worst financial disaster in decades? The economy was crushed by an industry which functions on fraud, cheating consumers, wasting money on obviously fraudulent loans, paying itself gigantic bonuses, setting up transactions to screw their customers, raising interest and fees to the sky at the expense of a damaged group of workers, and this is what we get?

This is pathetic. No wonder the Republicans are willing to negotiate from this ludicrous starting point. By the time the negotiations are over, we can expect a mandate that each of us open three credit card accounts and use them for all purchases, paying 30% interest compounded daily, with no grace period. And if you don’t, the IRS will collect a fee equal to 1% of your income to pay for the salaries of the banksters and their lobbyists.