The Fed: Money For Nothing

[KrazyHorse]

Tentatively, you could also introduce a nationally standardized 'man-hour', and make the currency, in addition to commodities and energy, be backed directly by a contractually-obligated amount of labour, which could be redeemed by the bearer from the government if desired.

On the other hand, unit labour cost targeting is actually not a bad idea (rather than consumer inflation targeting as is generally currently practiced).

[Victor Galis]

This can only be the first installment. how much is too much?

It's not like we're going to go from close to deflation to hyper-inflation in a single step.

I think the biggest reason not to use electricity to back one's currency is that it's not something you can stockpile. Backing a stock of money with a flow of electricity would have tons of unforseen consequences. Not to mention that delivering said electricity overseas would be pretty impossible or grossly inefficient. Gold had the advantage of being incredibly durable (it never goes bad or falls apart), relatively light for the amount of money represented, etc.

[Aeson]

Easy solution: "My money is backed by NUCLEAR WEAPONS!"

[The Mad Monk]

Zimbabwe's money is backed by rocks...

[Kidlicious]

I think this would reintroduce stability and trust, greatly reduce manipulation, and constrain interest rates to a narrow band.

Interest rates wouldn't be constrained at all. In fact, they would fluctuate wildly.

[DanS]

So reading skills.

No, it's just a dumb idea. I told you why. KH reinforced it. It's simple to grasp.

[The Mad Monk]

How do you guys read these stories?

Crude Oil Rises as Fed Announcement Spurs Inflation Concern
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By Mark Shenk

March 20 (Bloomberg) -- Crude oil rose for a second day on speculation that the U.S. Federal Reserve’s plans to spend more than $1 trillion buying back debt will spur inflation.

Oil is heading for a 12 percent gain this week as the Fed announced measures on March 18 to help end the recession and credit crisis. Every commodity in the Reuters/Jefferies CRB Index of 19 prices climbed yesterday, while the dollar tumbled.

“The Fed’s announcement on Wednesday changed everything,” said John Kilduff, senior vice president of energy at MF Global Inc. in New York. “The massive injection of liquidity will spur inflation. The commodity markets are pricing this in.”

Crude oil for April delivery rose 31 cents, or 0.6 percent, to $51.92 a barrel at 10:51 a.m. on the New York Mercantile Exchange. Oil touched $52.25 yesterday, the highest since Dec. 1. Prices are up 16 percent this year.

The April contract expires today. The more-active May futures contract increased 53 cents, or 1 percent, to $52.57 a barrel.

Prices are poised to gain for a fifth consecutive week, the longest streak of increases in 11 months.

The Organization of Petroleum Exporting Countries deferred another production cut for at least 11 weeks at its March 15 meeting in Vienna. OPEC is scheduled to meet again on May 28.

OPEC has reduced daily output targets by 4.2 million barrels since September to prevent a supply glut. Members need to trim about 800,000 barrels a day to comply with the quotas that went into effect in January.

“When you consider where the market was a month ago, the changes are remarkable,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “We were trading in the high $30s a month ago and are now in the low $50s. I think the primary reason for this change is that the OPEC production cuts are really making a difference.”

Brent crude oil for May settlement rose 56 cents, or 1.1 percent, to $51.23 a barrel on London’s ICE Futures Europe exchange

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net.

Last Updated: March 20, 2009 11:05 EDT

http://www.bloomberg.com/apps/news?pid=20601101&sid=aO4_vTI.davI&refer=japan

Dollar Gains on Bets Record Decline on Fed Too Big to Sustain
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By Ye Xie

March 20 (Bloomberg) -- The dollar rose from almost a two- month low versus the euro as some traders bet the greenback’s record plunge on the Federal Reserve’s plan to buy Treasuries was too big to sustain.

The U.S. currency lost almost 5 percent in the past two days and was headed for a record weekly decline on concern the Fed is flooding the market with dollars. The Australian and New Zealand currencies were poised for a third weekly advance on speculation investors sought higher-yielding assets.

“We’ve seen a sharp sell-off in the dollar, and it’s overdue for a correction,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon, the world’s largest custodial bank, with more than $23 trillion in assets under administration. “I don’t expect the most recent sell-off is the beginning of a sustained dollar decline.”

The dollar appreciated 0.6 percent to $1.3591 per euro at 10:51 a.m. in New York, from $1.3665 yesterday, when it touched $1.3738, the weakest level since Jan. 9. The U.S. currency rose 1.1 percent to 95.53 yen from 94.51. The euro increased 0.5 percent to 129.85 yen from 129.17.

The greenback was headed for a 5.1 percent decline versus the euro this week, the biggest drop since the 16-nation currency was introduced in 1999. The dollar decreased 2.5 percent versus the yen, the largest decline since Dec. 5. The euro advanced 2.6 percent versus the yen, its fifth weekly gain.

The dollar dropped a record 3.4 percent versus the euro on March 18, when the U.S. central bank said its balance sheet will increase by as much as $1.15 trillion as it buys government debt and increases mortgage-bond purchases.

Relative Strength

The 14-day relative strength index on the euro versus the dollar, a chart used by analysts to project trends, was at 74.4 yesterday, the highest level in three months. A level above 70 tends to signal a currency’s gain is too fast to be sustained. The dollar’s gain today lowered the index to 71.75.

Poland’s zloty rose 1.5 percent to 4.5643 per euro and the Hungarian forint appreciated 0.4 percent to 300.73. European Union leaders agreed to double a credit line for countries in financial distress, trying to shore up former Communist economies hit by the worst slump in 60 years.

The currencies are among the worst performers against the euro in the past six months, with the zloty tumbling 28 percent and the forint losing 20 percent.

Eastern Europe’s central banks will cut interest rates to record lows this year, slackening the defense of currencies, Bloomberg surveys show. Poland’s benchmark rate will fall to 3 percent by year-end from 4 percent, according to forecasts gathered by Bloomberg. The Czech rate will drop to 1.5 percent from 1.75 percent and Hungary’s will fall to 7.5 percent from 9.5 percent.

Australian Dollar

The Australian dollar gained 4.6 percent to 68.84 U.S. cents this week, extending its advance in March to 7.7 percent as the Fed’s move to keep yields low encouraged investors to seek higher returns outside the U.S. New Zealand’s dollar rose 6.6 percent this week and touched 56.24 U.S. cents, the highest level since Jan. 13.

Currencies of emerging markets from Asia to Latin America rallied this week. The Colombia peso increased 4.8 percent to 2,331 per dollar, while the South Korean won appreciated 5 percent to 1,412.17.

Stocks rose this week while crude oil headed for a fifth week of gains, the longest winning streak in 11 months. The MSCI World Index climbed 5.5 percent and the Standard & Poor’s 500 Index increased 3.6 percent. Oil rose above $50 a barrel yesterday.

‘Risk Appetite’

“The rise in risk appetite may be sustained in the near term, which would make the dollar weaker still,” a team led by Vincent Chaigneau, head of fixed-income and currency strategy at Societe Generale SA in London, wrote in a research note today. “We remain skeptical about the durability of that run, but still believe that the newly found dollar weakness could last.”

The dollar may be poised to rise against a basket of currencies including the euro, yen, pound and Australian dollar because the U.S. economy may begin to outperform forecasts, according to UBS AG.

A UBS index denoting economic data surprises climbed above a level yesterday at which “data tends to start outperforming what are very low expectations,” analysts at UBS, the world’s second-biggest foreign-exchange trader, wrote in a note yesterday. “From that point, U.S. yields tend to increase, and then the dollar outperforms.”

U.S. housing starts unexpectedly rose in February to an annual rate of 583,000 homes after the longest streak of declines in 18 years, the Commerce Department reported March 17.

To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net

Last Updated: March 20, 2009 10:52 EDT

http://www.bloomberg.com/apps/news?pid=20601101&sid=aDIhiipDiAuI&refer=japan

[Victor Galis]

Zimbabwe's money is backed by rocks...

And to think, NGR and KH were suggesting they sell eachother rocks for mere millions in that other thread.

How do you guys read these stories?

The first one:
The second one, I kind of skimmed. It looks like the dollar overshot in its initial fall and is edging up a bit. The Economist says the Swiss are going to start deliberately devaluing their currency soon.

[The Mad Monk]

$1 trillion deficits seen for next 10 years

Mar 20 12:20 PM US/Eastern
By ANDREW TAYLOR
Associated Press Writer

WASHINGTON (AP) - President Barack Obama's budget would generate deficits averaging almost $1 trillion a year over the next decade, according to the latest congressional estimates, significantly worse than predicted by the White House just last month.
The Congressional Budget Office figures, obtained by The Associated Press Friday, predict Obama's budget will produce $9.3 trillion worth of red ink over 2010-2019. That's $2.3 trillion worse than the White House predicted in its budget.

Worst of all, CBO says the deficit under Obama's policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.

The latest figures, even worse than expected by top Democrats, throw a major monkey wrench into efforts to enact Obama's budget, which promises universal health care for all and higher spending for domestic programs like education and research into renewable energy.

The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his allies controlling Congress would have to consider raising taxes after the recession ends or paring back his agenda.

But without referencing the figures, Obama insisted on Friday that his agenda is still on track.

"What we will not cut are investments that will lead to real growth and prosperity over the long term," Obama said. "That's why our budget makes a historic commitment to comprehensive health care reform. That's why it enhances America's competitiveness by reducing our dependence on foreign oil and building a clean energy economy."

Many Democrats were already uncomfortable with Obama's budget, which promises to cut the deficit to $533 billion in five years. The CBO says the red ink for that year will total $672 billion.

The worsening economy is responsible for the even deeper fiscal mess inherited by Obama. As an illustration, CBO says that the deficit for the current budget year, which began Oct. 1, will top $1.8 trillion, $93 billion more than foreseen by the White House.

The 2009 deficit, fueled by the $700 billion Wall Street bailout and diving tax revenues stemming from the worsening recession, is four times the previous $459 billion record set just last year.

The CBO's estimate for 2010 is worse as well, with a deficit of almost $1.4 trillion expected under administration policies, about $200 billion more than predicted by Obama.

By the end of the decade, the deficit under Obama's blueprint would go back up to $1.2 trillion.

Long-term deficit predictions have proven notoriously fickle—George W. Bush inherited flawed projections of a 10-year, $5.6 trillion surplus and instead produced record deficits—and if the economy outperforms CBO's expectations, the deficits could prove significantly smaller

Democrats in Congress are readying Obama's budget for preliminary votes next week, and they promise to cut the deficit in half within five years.

Democrats are likely to curb somewhat Obama's request for a 9 percent increase in non-defense agency budgets.

Obama's $3.6 trillion budget for the 2010 fiscal year beginning Oct. 1 contains ambitious programs to overhaul the U.S. health care system and initiate new "cap-and-trade" rules to combat global warming.

Both initiatives involve raising federal revenues sharply higher, but those dollars wouldn't be used to defray the burgeoning deficit.

Republicans say Obama's budget plan taxes, spends and borrows too much, and they've been sharply critical of his $787 billion economic stimulus measure and a just-passed $410 billion omnibus spending bill that awarded big increases to domestic agency budgets.

The administration says it inherited deficits totaling $9 trillion over the next decade and that its budget plan cuts $2 trillion from those deficits. But most of those spending reductions come from reducing costs for the war in Iraq.
Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

http://www.breitbart.com/article.php?id=D971T0RG0&show_article=1

Don't worry though, the Fed's got it covered!

[Dauphin]

We're probably going to have one hell of an inflation hangover from all of this.

It'll wipe out those debts.

[chequita guevara]

The Feds feel the danger of deflation is worse than the danger of inflation.

In reality, the governments of the world can do little to stabilize markets and restore growth. What they can do is attempt to ameliorate the effects of the crisis on people, so that, in the imperialist world at least, we don't see mass homelessness and starvation as a result of following the conservative mantra.

In reality, the only solution is to abolish the market and private enterprise and move to a worker owned and managed society, i.e., socialism.

[DanS]

[chequita guevara]

Sez the man whose ideas have given us the current chaos.

[Seeker]

Thank god I got a laugh outta KH, it seems to have a relationship to my investments.

The mathematical modeling of economic behaviour, as taught in almost every economics department around the world, will one day be exposed as a delusion.

[Impaler[WrG]]

Pointed this out when ImpalerWTG proposed it...

Thats WrG! Oh and while I'm at it, welcome back KH.

I've always said it was something to look at and explore not as something I was sold on. And it would have to be a very very broad basket of commodities with large reserves to back up the currency thus greatly reducing volatility.

I've most recently become enamored with another novel monetary concept, Demurrage which is a steady decrease in the FACE value of money over time. The effect is to encourage spending and discourages savings which increases the 'velocity' of money. Because the money supply is always decreasing the government can create (from thin air) and spend an amount equal to the loss in supply without causing any inflation. Read more on the wiki page. Again this is something to explore not an idea I'm committed too, I want to keep an open mind as to WHAT money could or should be in our society, its already been changed several times and without much seemingly any foresight in how the nature of the money shapes society and the economy for good or ill.

http://en.wikipedia.org/wiki/Demurrage_(currency)

As for the Fed I'm not optimistic about these moves, the money is going from the Fed into companies like AIG and their their it goes out to pay CDS's to Banks which would otherwise be completely Insolvent. Essentially everyone is going to be being covertly taxed through inflation (or reduced deflation which would otherwise enrich them) and the money is going to make whole bunch of Banks which basically made huge unregulated side-bets whole. Society is under no obligation what so ever to protect those banks or guarantee contracts which come from insolvent institutions. The banks should be Nationalized and the CDS's voided to remove the un-payable debts from the system. I'm remaining very skeptical of the Fed.