‘Maximum Crisis Level’
One of this week's media narratives revolved around the juxtaposition between a still-dovish Fed and pretensions to policy tightening elsewhere, as the Bank of Korea hinted Thursday that a rate hike may come sooner than some expected.
"The need to deal with financial imbalances through monetary policy normalization is now greater than before," governor Lee said, after a meeting during which one member called for a hike.
That, despite record-high COVID cases and new virus restrictions that coul
“There’s always money in the banana stand”
– George Bluth
That’s all very frustrating, especially when you consider the Fed’s role in exacerbating the situation, but let’s not forget the role of American-style capitalism. If we hadn’t spent the last four decades stripping labor of its bargaining power, handing out tax cuts to corporates and otherwise greasing the wheels of predatory capitalism, the middle-class would be in better shape.
And that’s why it doesn’t matter if some Congresspeople are asking the right questions – they HAVE to give Powell a pass b/c otherwise it very much would look like they’re responsible and they have to do something to correct the mistakes they made in the last 20-40 years.
A Congressperson recognizing they’re at fault? Not a chance. And that’s before you even get to the 50% of the Congresspeople who think that, actually, wealth inequality is God’s way of telling the lazy moochers to work harder…
Powell, like all Fed Chairs from Greenspan onward, is basically in a lose-lose scenario. The best they can hope is to kick the can down the road and hope “something” solves the situation, ideally after they’ve retired.
Frankly, I’m amazed we’re still finding candidates to head the Fed…
Meanwhile, LA county (Democratic controlled), just passed a $527.1M to “fight” the homeless crisis….which, essentially, does not include new affordable housing. The homeless population is estimated to be over 66,000.
So, politics as usual- using “other people’s money” and “not in my backyard”.
I stay tuned to LA because my daughter lives there.
Descent into madness or completely unplug? I am weighing my options.
In my opinion watching the plight of the homeless as we start evicting people from apartments will be the greatest indicator of the economy going forward. I already see couples out there living by the river. Next and the biggest indicator will be families living out in the wild. Once the families have been pushed out of any safety nets or gainful employment we can go no lower. The only thing that can happen is more families get pushed out to the outdoors.
The reason this is all important is the money it takes for someone to exit the homeless situation and become employed is a major barrier. It is almost impossible for people to clean up their life without a few weeks and a normal situation.
There is a trend to watch as the winter weather turns. Thankfully that is a few months off from the end of the evictions.
The US homeless population is over 600,000. Much easier to point our finger at China, aghast at the way they treat the 1,000,000 Uighurs. I guess there is some justification because 1,000,000 is greater than 600,000.
Interesting concept; instead of keeping those who won’t (or don’t or can’t) comply with ‘predatory capitalism’ in internment camps, we leave them homeless on the streets. Perhaps it’s not apples to apples, but it makes one think.
The Xinjiang issue is an extraordinary liability for Xi. It effectively makes it impossible for the CCP to occupy the moral high ground on anything. It also makes it impossible to adopt a conciliatory tone towards Xi. My worry continues to be that if what we know about the situation is as bad as it is, what we don’t know could be considerably worse. And “considerably worse” in this context could entail revelations that would demand a military intervention by the western powers. That, I think, is perhaps the most underappreciated tail risk.
IMHO, the American people do not have any desire to back a military intervention to save the Muslims who are making the cheap crap we purchase at Walmart. Even if that number is 5M.
As per our Emptynester’s post – I often have wondered why the Trump admin finally took up the issue, though Bolton’s book includes an account that Trump was not all enthused about doing so. After all, the base hates Muslims, right?
Short of open air death camps (and even then…), I do not think western powers will intervene militarily against another nuclear power.
Having nukes give strong first mover advantage to any aggressor (USA in Iraq, Russia in Ukraine or Syria etc.) inasmuch as it forces the other side to ponder whether they’re willing to escalate over whatever the issue is. And, as long as the disagreement isn’t an actual threat to national survival, the response tends to be underwhelming… We knew the US was wrong about invading Iraq, but what could we do? So we let it happen and woe to the Iraqis etc.
Generally speaking, I trust the Chinese will proceed slowly enough to give us cover for our cowardice/inaction. They’ve colonized Tibet/destroyed Tibetans and their culture and, while we’ve disapproved mightily all along, we have been unable/unwilling to actually stop them. Ditto their swallowing of HK and betrayal of the promised “one country, two systems”.
So far, they’ve been pretty good at taking it slow and giving us no clear breaking point/bright red line that would force us into action… Taiwan seems one those underappreciated tail risk.
About 10 years ago I had to fly from Beijing to Kazakhstan and discovered that I could break my flight and do an overnight in Urumqi, the capital of Xinjiang. It was immediately apparent that the Uyghur population is being overwhelmed by the influx of Han Chinese. The official stats say the ratio is 6-1, but probably higher in cities. I was able to follow my nose to the bazaar (the scent of grilled lamb), which was underdeveloped, picturesque, and felt very Middle Eastern or Central Asian. The rest of the town was much like any other small Chinese city of a few million people. Interestingly, there was graffiti spray painted on walls in Uyghur using words like “freedom” and “revolution”. I didn’t feel comfortable taking photos of that. Conditions have tightened since then.
Urumqi is the town that is the furthest in the world from any body of salt water, which leads one to wonder how Western powers would intervene to help the Uyghurs. Sanctions? Well, maybe, but our track record there is decidedly mixed. Selective default of repayment of maturing treasuries? Not likely. Military? Isn’t there a maxim about staying out of land wars in Asia? It’s a tough one.
https://www.theatlantic.com/the-uyghur-chronicles/
I read this yesterday, the CCP has been gradually instituting tighter and tighter controls on the Uyghurs. At this point anything is a crime and any new arrest is going undocumented. Reading this felt like a similar journey that the Nazi’s took with the Jews. I’m not sure how far away they are from just mass exterminating these people and how long it will be until anyone finds out with how tightly controlled the news is in China? Scary stuff.
To the point on Western military engagement, I think it would unfortunately take evidence of mass exterminations coming out for anyone to step up and take action (US included). It’s ironic to me that we spring headlong into conflict when it’s over oil but when human lives are on the line we prefer to look the other way.
Bill W. – I truly admire your sense of adventure and curiosity about the world. Only 37% of Americans have a valid passport.
Emptynester – Thanks – I was lucky enough to have a job that allowed me to do that.
Having seen some of our countrymen operate overseas, it might be good if we lowered that 37%. I really don’t mean that – exposure to other cultures is always a good thing, even if the benefit is not always immediately apparent.
The money it takes to get back into rental property after eviction is prohibitive for many. First and last month’s rent. Deposits for each utility – plus the highest rates on usage for being a bad risk. Easily $2000 – $4000. For people who go bankrupt over an unexpected bill of $200, it is daunting.
Why can’t they be more frugal and save some of that $12/hour they are being (over) paid?
A living wage in the United States was $16.54 in 2019, we’ve seen massive inflation this year so that would likely not hold up now. You really think 12 per hour is over-compensated?
I think (hope) PJDPHD was being sarcastic.
In any case, I can’t think of a more surefire way of breaking the economy than an outbreak of frugality.
Absolute sarcasm. Sorry not to have been clear. Studies show that to move off all forms of public assistance a person needs a job paying over $25/hour. That is a lateral move with no improvement in standard of living. People who gripe about minimum wage don’t know a soul who works for it.
Foreign policy is always going to be a serious challenge. In the meantime, if we govern our country as if we’re planning to continue living here, things will get better. Climate change, water and electricity, agriculture , education, healthcare, etc. Theres is no shortage of domestic issues. Would the public support this instead of blaming people they don;t like four situation? I don’t konw….
The Fed’s tools are powerful but cannot be targeted. Powell has no ability to direct monetary stimulus to the lower-income; all he can do is pump stimulus into the financial system. The power lies with Congress, and to a lesser extent the White House, to steer the benefits of monetary stimulus to those who need it the most. That is where the ire should be directed.
True that the Fed is hamstrung, but step 1 is halting their purchases in the MBS markets. Pricing many people out of the opportunity to build lifetime equity and ownership even with ultra-low interest rates is not solving any problems.
I disagree with all the commentary about the Fed being trapped no matter what. If we get into a recovery (where our economy exceeds the previous peak by definition), the FOMC can announce an extremely gradual reduction of Q/E- Yellen did this and announced that it would be so boring you would rather watch paint dry. Like go from 120 billion a month to 110 billion a month, then next quarter 100 billion a month etc. And you make the announcement in January and start in April- along those lines. Maybe it takes you a year or two to completely exit. If all goes well maybe you go faster. It is an iterative process- nothing says you have to exit quickly. Maybe it takes you until 2024 to lift off the zero bound of short term rates too…. The FOMC has options- as long as they have the wisdom to go about things gradually they should be able to exit slowly without rocking the boat too much.