Comments on: IMF: US Economy Stagnant, Recommends Hold on Rates http://www.nakedcapitalism.com/2008/06/imf-us-economy-stagnant-recommends-hold.html Mon, 23 Nov 2009 02:08:55 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Yves Smith http://www.nakedcapitalism.com/2008/06/imf-us-economy-stagnant-recommends-hold.html#comment-9895 Yves Smith Sun, 22 Jun 2008 02:49:00 +0000 http://www.nakedcapitalism.com/2008/06/imf-us-economy-stagnant-recommends-hold-on-rates/#comment-9895 S,<br/><br/>I don't disagree, in fact we've featured <a HREF="http://www.nakedcapitalism.com/2008/04/demythologizing-central-bankers-and.html" REL="nofollow"> Thomas Palley</a>, who argues that economic policy since the 1980s moved away from promoting worker income growth and being attentive to the trade balance to producing growth driven by asset inflation and financial innovation, which he views as unsustainable.<br/><br/>That said, we have to get over this preoccupation with trying to hold off an unavoidable downturn and start dealing with the real issues. S,

I don’t disagree, in fact we’ve featured Thomas Palley, who argues that economic policy since the 1980s moved away from promoting worker income growth and being attentive to the trade balance to producing growth driven by asset inflation and financial innovation, which he views as unsustainable.

That said, we have to get over this preoccupation with trying to hold off an unavoidable downturn and start dealing with the real issues.

]]> By: S http://www.nakedcapitalism.com/2008/06/imf-us-economy-stagnant-recommends-hold.html#comment-9894 S Sun, 22 Jun 2008 02:29:00 +0000 http://www.nakedcapitalism.com/2008/06/imf-us-economy-stagnant-recommends-hold-on-rates/#comment-9894 Yes deflation is ongoing in major asset classes. Neverthless, what does it say when an economy literally can not take 50 bps of rate increase. What does it say about the state of how earnings are/were being generated via leverage recaps based on cost of capital arbitrage. (might I suggest a chart of the most eggregious examples of dilutive repurchase over the past few years (hummm, banks) Further what does it say about the resiliance and diversification of the US economy?<br/>Also what does it say when the IMF a shill basically is speaking out against Trichet who is the singly reason that Bernanke ha to go on his most recent jawboning tour. For heavons sake Mexico raised rates. Why is it that the right medicine for the rest of the world is not the right medicine for us. <br/><br/>I think your recession call for longer and deeper is correct, but a recession is not going to suddenly reengineer what is a sickly old man. Recession is a little like the TAFY - a short term palliative measure. The cause of the current disaster is a deathly brew of trade policy, poltical expediancy and monetary policy. The biggest beneficiary of rate cuts is the US gov no? of the 9 Trillion a 100 bps lower avg funding costs saves them (WAIT US) close tro 100 billion. Now they are front loading short term issuance to drive down the weighted average cost of funds...All that said, higher rates are not just necessary, they would encourage a culture of savings and justly reward savers- read less need to import capital! Yes deflation is ongoing in major asset classes. Neverthless, what does it say when an economy literally can not take 50 bps of rate increase. What does it say about the state of how earnings are/were being generated via leverage recaps based on cost of capital arbitrage. (might I suggest a chart of the most eggregious examples of dilutive repurchase over the past few years (hummm, banks) Further what does it say about the resiliance and diversification of the US economy?
Also what does it say when the IMF a shill basically is speaking out against Trichet who is the singly reason that Bernanke ha to go on his most recent jawboning tour. For heavons sake Mexico raised rates. Why is it that the right medicine for the rest of the world is not the right medicine for us.

I think your recession call for longer and deeper is correct, but a recession is not going to suddenly reengineer what is a sickly old man. Recession is a little like the TAFY – a short term palliative measure. The cause of the current disaster is a deathly brew of trade policy, poltical expediancy and monetary policy. The biggest beneficiary of rate cuts is the US gov no? of the 9 Trillion a 100 bps lower avg funding costs saves them (WAIT US) close tro 100 billion. Now they are front loading short term issuance to drive down the weighted average cost of funds…All that said, higher rates are not just necessary, they would encourage a culture of savings and justly reward savers- read less need to import capital!

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