Also, too:

Meeting participants again discussed the extent of slack in labor markets. Some participants judged that the unemployment rate was being substantially boosted by structural factors such as mismatches between the skills of unemployed workers and those required for available jobs, a view that would imply less slack in labor markets than suggested by a simple comparison of the current unemployment rate to participants’ estimates of its longer-run normal level.

See, the Fed doesn’t have to worry about the employment half of its dual mandate,
because whatever rumors you might have heard about a bad job market in fly-over country are due to would-be workers having poor skill sets. Next.

OK, so what should the Fed do?

skills of unemployed workers and those required for available jobs

What “available jobs” would those be?

A less that 2% inflation protects the value of the rents paid for loans.

Inflation is also a tax on assets.

They are avoid a repeat of the ’70s, when the economy was bad for all income classes.

I wonder who the Fed Governors represent?

Oh, I think the Fed is neither surprised nor unaware of what it is doing. It wants austerity and if the economy stays crappy they can keep people scared enough to cut pretty much anything without riots in the streets.
The other part of this is demagoguing righties into to #1- believing there IS a debt crisis #2- thinking that the poor/spending are the problem.

With all the lies this government, both sides, have told us/sold us, you’d think people would be a bit more skeptical of ANYTHING that comes out of their mouths, but we keep falling for their terrorism time and again

My bet’s on Bilderberg/Rothschilde…the international banking cartel whose name must not be mentioned

You have to look at the composition of the Board, which is made up almost exclusively now of conservative economists going back to the Bush administration and conservative bankers. Janet Yellen is the only Keynesian on it, and Peter Diamond, as everyone recalls, was filibustered by the Republicans. Bernanke is relatively middle of the road on that scale, which makes him conservative on any sensible scale. Given the way these people understand the economy and economics, it would be unrealistic to expect anything different than what they are doing. It is just pitiful.

As to inflation, if the heat wave continues (as seems more than likely), we will see an actual negative supply shock working its way through the price of food and fuel (via ethanol). Given the kind of models that Bernanke grew up with, the Fed will almost certainly turn on the breaks to prevent what it incredibly will interpret as ‘cost-push’ inflation. Hard to see unemployment not rising in that circumstance, just before the election.

They obviously haven’t taken the time to read Krugman’s new book, or even his columns. Not that it is necessary. Anyone besides a Fed asshole would be looking for wage increases in the sectors where there is a shortage (which has to be the case if there is a ‘mismatch’). This is what passes for economic analysis at the Fed?

Another question is how valid are their criteria for determining inflation? Who chooses the inflation indicators? In my experience, cost of living raises are seldom consistent with maintaining the status quo.

If countries could get rich by printing money, Zimbabwe would be the wealthiest nation on earth today.

This is an essential fact that Ben Bernanke, unlike a lot of other people, seems to be coming to grips with–despite his early assertions that a printing press could solve any problem.

Maybe you should try putting yourself in Ben’s shoes?

Wages must never rise. True for the last 30 years.
Investments/capital gains must never be restricted. True for the last 30 years.
Bleed the peasant class but not to the point of rebellion.

Maintain that balance point forever.

Another question is how valid are their criteria for determining inflation?

The criteria are invalid IMO, detached from reality.

Maintain that balance point forever.

It sure is looking that way, Shutterbuggery. Hard to see how it will end without some real progressive grassroots. But, people may not be suffering quite enough for that yet.

the Fed believes it will miss its target for inflation for the next several years… This is the central problem with our central banks

I respectfully disagree.

I think that the central problem is — and always has been and always will be — centralization of power.

As Lord Acton said

Power corrupts. Absolute power corrupts absolutely.

If we want to see what’s happening behind the curtain, I suggest we begin by Auditing the Fed and their initial ante of $16 trillion in bailouts… House vote later this month.

The “mismatch” is intentional. I know for a fact that some of the advertised jobs are designed to exploit people and/or to make it look like they’re hiring. First they write a long set of requirements and skills, then when you interview they offer a pittance. I’ve been through this several times. Example: Staples interviewed me for a part-time Print Production Manager job in a major metro area, and the requirements included substantial knowledge of software and print processes, evening & weekend hours — it turned out they were offering only $8.75 an hour with no benefits.

Quantitative easing uses made-up electronic money. That sounds like “printing money” to me.

Bingo! In today’s LAT Business Section, they report that the forecast of the corn harvest in the Midwest will be 12% less than was forecast just a month ago. The price of ethanol and “corn sugar” are going to skyrocket, just in time for the election. Win-win!

DD I have no idea what you said. But I do agree the fed (along with the plutocrats they represent) want to keep inflation low, very low since that is consistent with high unemployment. You know the old NAIRU thing. And it means rents are high and lots of free fed money. (of course, they would like to see the rates on bonds increased.) It is another kind of austerity. If we really want to improve the economy, it more than likely means increasing inflation unless you can start hiring off the bottom, which seldom happens. (you know military Keynesians.)

Problem here is most people will agree with them and will find another reason to blame Obama if inflation ticked up to five percent while unemployment went down to five percent. Gotta ask: what is it you want?

That is a kind of inflation you can’t stop, but the fed will certainly try their damndest. If they put enough people out on the street, it could work I guess.

It actually does little or nothing.

The Full Employment & Balance Growth Act of 1978 actually sets inflation target of 3% and unemployment target of 4% (if both are too high, the Act says fighting unemployment prioritized over inflation). Once full employment is reached, inflation target then goes to 0% (thanks to an oddball Orrin Hatch amendment) however, again, its subordinate to the 4% U3 rate. So inflation mandate is either 3% or, at full employment, 0%; there is no legal basis for the Fed’s 2% target.

Its not only the Federal Reserve that ignores this Act of Congress, Congress’s own in-house CBO ignores the 4% U3 target. CBO budgetary numbers are predicated on 5.2% U3 as full employment. In other words, the output gap isn’t (per the CBO), $750 billion, its more like $1.05 trillion.

“It” being the “extra electronic money”?

Does nothing, because it just props up investment banks?

Thanks. Did not know what the legal targets were. I sort of doubt we could ever get to 4% unemployment with 3% inflation. But it’s worth a shot I guess. CBO has given up well short of the legal number. Maybe they know something we don’t.

I have been told it is just a swap of one asset for another. Banks give up the t bond. Fed gives them reserves. I suppose there is a differential in the interest rates. But short term bonds don’t pay much these days.

Fed creates electronic money that did not exist in the money supply, before that moment.

Fed buys commercial financial instruments, using that new money.

Seller of the financial instruments achieves profit.

Seller then sits on the profit? Gives it to executives as bonus? Keeps it out of general circulation?

It still sounds like new money got created. Perhaps the only reason why it would have no effect on inflation, is that the money stays out of general circulation. (Some economist, please jump in here.)

This thread is all over the place, with everything from tinfoil hat stuff about Bilderburg to Zimbabwe, to denunciations of QE. The question remains: what should the Fed do? QE3 so it can make a round trip onto its balance sheet after the usual carry trade? Set a verbal “inflation target” of 6% (Krugman on steroids) in the hope that this will suddenly send final demand through the roof, even though we have 16% unemployment? Seriously. The problem is political: the political branches, especially Congress, are broken because the Republicans will do nothing to try and fix the economy, and the Dems are too sold out to make an issue of it. The Fed cannot run a Keynesian demand management program by itself. Capitalism is caught up in its own contradictions.

That’s exactly right. QElight didn’t work. QE1 didn’t work. QE2 didn’t work. and now the “sterilized” operation twist 1 and 2 aren’t working. And meanwhile the prices of commodities are exploding, particularly the in-no-way-at-all-monetary Commodity gold, despite rampant manipulation downward.

What we are talking about here is currency destruction. as in the end of the US dollar–which Ben Bernanke is now perfectly well aware of. It’s not simply a matter of him pushing ctrl+p and getting automatic economic growth anymore. Because we are now at the Limit to Growth.

Thanks!

I concur, this is the limit to growth WITHOUT actually making tangible items of value. Just shuffling money back and forth won’t work anymore.

So much about this thread is embarassing.

1) FDL repeats the lie that inflation is a couple of percent. So it buys into the Fed’s dishonest measure that excludes food and fuel. Perhaps Mr. Dayen could remind his readers what the more inclusive figure is? Shouldn’t “progressives” try and be honest?

2) Now, Krugman on steroids would lead to food riots in the southern hemisphere. Shouldn’t “progressives” care about that?

3) Krugman on steroids would also send precious metals to the moon causing the mother of all short squeezes thereby imploding JP Morgan and thereby the whole financial system. But just as Krugman doesn’t care about fraud, be it mortgage or LIBOR, the manipulation of the metals market is something he seems completely ignorant of.

4) Bernanke has done QE three times. So, it is unclear what the explanation for that is if Bernanke has the motives that are ascribed to him here.

5) People really need to start thinking for themselves. It is OK to say “I don’t know”. It is OK to think out loud. In fact, it is desireable. “Progressives” really really need to get beyond the embarassing derivation that goes:

Krugman says P
————–
Therefore P

Krugman is an insecure boy who will is incapable of admitting that he doesn’t know something. Has he ever admitted to being wrong about anything? People like that shouldn’t be followed blindly. It’s not just that FDL follows Krugman, its that it follows him so blindly. Nobody should be given that kind of authority. Especially, not a fucking economist.

If you or the bank owned a t bond and wanted to spend the money, you could do so anytime by selling it. It doesn’t take the fed doing QE to let you spend money. so when the fed buys those bonds they are mostly exchanging one asset for another. No new money has been put in circulation. except for perhaps a differential in interest (I dont know who gains or losses.).The bank ends up with reserves at the fed and fewer t bonds. At least that’s how I see it.

the political parties are locked in a death grip complicated by the fact that neither of them understands what they are doing. We have two empty suits competing for the job. Hey, but don’t feel bad. Europe has the same problem.

Who chose the wrong profession to save the world.

Bernanke has done QE three times. So, it is unclear what the explanation for that is if Bernanke has the motives that are ascribed to him here.

I just reread every instance of a “Bernanke” comment. I infer the following points being made:

1. Bernanke fears/wants-to-avoid inflation.
2. Bernanke like QE.
2a. QE props up investment banks.
2b. Investment banks seem not to be putting the QE cash into circulation. We observe that this absence of circulation helps avoid inflation.
3. Bernanke manages to avoid inflation, and prop up banks.

I don’t see a conceptual flaw, there. What else do you see, regarding Bernanke?

QE is not cash. It is reserves at the fed. If you want cash you can sell the bond anytime. You don’t need Ben. The added reserves could support more bank lending but banks don’t really need reserves to lend money. They loan first and if they need to they borrow the reserves. No one is going borrow unless they see a profit – - meaning sales of something. And banks are not going to lend unless they see a profit on the loan.

And banks are not going to lend unless they see a profit on the loan.

Like when they borrowed from Bernankster at 0% and loaned to Geithner at 3%. Before debating economics, people belong in jail… starting with Obama’s henchmen.

true dat.