Many Adults Would Struggle to Find $400 in an emergency, the Fed Finds

From today’s New York Times:

Four in 10 American adults wouldn’t be able to cover an unexpected $400 expense with cash, savings or a credit-card charge that could be quickly paid off, a new Federal Reserve survey finds.

About 27 percent of people surveyed would need to borrow or sell something to pay for such a bill, and 12 percent would not be able to cover it at all, according to the Fed’s 2018 report on the economic well-being of households, which was released Thursday.

The share that could cover such an expense more easily has been climbing steadily and now stands at 61 percent, up from just half when the Fed started this annual survey in 2013. Still, the finding underlines the fact that many Americans remain on the edge financially even as this economic expansion is approaching record length and people have become more optimistic.

Household finances over all have shown a marked improvement over the life of this report, thanks in large part to an improving labor market that has lifted wages and left more Americans with jobs. Three-quarters of adults said they were “doing O.K.” or “living comfortably” when asked about their economic well-being, up from 63 percent in 2013.

Underlying disparities persist. Just 52 percent of rural residents said their local economy was doing well, compared with 66 percent of city dwellers. And while nearly seven in 10 white adults viewed their area’s economy as good or excellent, only six in 10 Hispanic adults and fewer than half of black adults said the same thing.

Read the complete article here.

With Summers out, Yellen is now favored to lead the Federal Reserve

In the last month, a groundswell of opposition from economists and the public alike has led to positive development. After a major announcement last week by 3 key Democratic Senators who said they would oppose the nomination of Larry Summers, it looks like Janet Yellen, currently the second in command at the Fed, is now favored to be President Obama’s pick to lead the Federal Reserve.

Watch this video on the nomination of Janet Yellen, the first woman nominated to the Chair of the Fed.

Nobel laureate criticizes Summers for deregulation leading to recession

Nobel laureate economist Joseph Stiglitz makes a case for Janet Yellen to head the Federal Reserve, and criticizes Larry Summers, who is President Obama’s alleged first choice, for his support of economic deregulation of the financial sector, which precipitated the 2008 recession.

Read the full article in Stiglitz’s weekly NYT blog, “The Great Divide.”

Summers opposed as pick for Fed Chair by Editorial Board of the NYT

The editorial board of the New York Times makes a clear and convincing case that Lawrence Summers should not be nominated as the Chair of the Federal Reserve. I couldn’t agree more. Summers has not only shown himself to be a complacent economist that relies on standard views and tactics, he has also shown a lack of leadership at both Harvard (where sexist remarks about women in the hard sciences got him ousted by outraged faculty) and on improving the economy as President Obama’s senior economic advisor.

By all accounts Summer is an arrogant jerk who is out of touch with the way the real economy works for most Americans. It’s time to put someone at the helm of the Fed who has a conscience and the social skills to help lead America to an era of prosperity that is shared not enjoyed exclusively by the wealthy and privileged classes.

Here is the full editorial from today’s New York Times:

In July, when news broke that President Obama might nominate Lawrence Summers to be the next chairman of the Federal Reserve, several Democratic senators wrote a letter to the president in praise of Janet Yellen, the current Fed vice chairwoman who many presumed would be the nominee. The letter didn’t mention Mr. Summers; rather, it recounted Ms. Yellen’s formidable qualifications and urged the president to nominate her. Perhaps it was too subtle.

Mr. Obama is expected to announce his nominee soon, and, by all accounts, Mr. Summers is still a contender. It is time for senators of both parties who appreciate the importance of this nomination to tell the president that Mr. Summers would be the wrong choice.

Mr. Summers’s reputation is replete with evidence of a temperament unsuited to lead the Fed. He is known for cooperation when he works with those he perceives as having more power than he does, and for dismissiveness toward those he perceives as less powerful. Those traits would be especially destructive at the Fed, where board members and regional bank presidents all bring their own considerable political power and intellectual heft to the Fed’s decision-making on monetary policy and financial regulation. Putting Mr. Summers in charge would risk institutional discord or worse, dysfunction.

His record on financial regulation is abysmal, and he has not acknowledged the errors. In the late 1990s, Mr. Summers was instrumental in deregulating derivatives and in repealing the Glass-Steagall banking law. He has said that the resulting financial crisis was unforeseeable, which is wrong. He waged public battles against regulators who correctly argued for regulating derivatives and disparaged the comments of a prominent economist who early on identified risks in the too-big-to-fail banking system. This is precisely the wrong background for the next Fed leader, who will take charge in the middle of the delayed rule-making for the Dodd-Frank financial reform law.

More recently, as the top economic adviser to Mr. Obama in the first term, Mr. Summers only belatedly supported reforms under the Volcker Rule to curb bank size and recklessness, a rule that still has not been put in place. Under the law, the next Fed leader is supposed to work with other regulators to dismantle big banks on the verge of failure, rather than prop them up. Given his background, Mr. Summers would be more likely to use the implicit and explicit powers of the Fed to shield and preserve the too-big-to-fail system.

Mr. Summers has also shown an indifference to the effects of economic decisions on ordinary people — the opposite of what is needed in a Fed leader at a time of high unemployment. He advised the president to support a stimulus that other economists correctly warned was too small. He resisted bankruptcy relief for underwater homeowners that would have forced banks into mortgage modifications — even as the administration spared no expense to bail out the banks.

Senators who have endorsed Ms. Yellen would do well to let Mr. Obama know, either publicly or through back channels, that their endorsement translates into a no vote for Mr. Summers.

Fed Chair calls out Congress for fiscal policy frustrating recovery

FED Chair Ben Bernanke is widely believed to be stepping down at the end of his second term in January. Today he appeared before Congress to give his last biannual update on the economy to the House Financial Services Committee, reaffirming the Fed’s monetary policies but warning that federal fiscal policy remains the single largest obstacle to revitalized growth.

He noted that federal spending cuts of the kind supported by the GOP are reducing growth this year by about 1.5 percentage points.

“The risks remain that tight federal fiscal policy will restrain economic growth over the next few quarters by more than we currently expect, or that the debate concerning other fiscal policy issues, such as the status of the debt ceiling, will evolve in a way that could hamper the recovery.”

Read his remarks to Congress here.

Discord on the Fed over stimulus signals lack of direction for recovery

Recent public disclosures of the minutes from the Federal Reserve’s board meetings indicate a growing rift between proponents of a gradual withdrawal of the Fed’s stimulus policy of “quantitative easing” with opponents who want to end the policy by the close of the fiscal year.

Ben Bernanke, the Chair of the Fed, recently announced that it would wrap up its monthly bond-buying program as the unemployment rate continues decline. His public disclosure on June 21 led to a steep downturn of stocks as investors worried about the future of an economy without government backed securities to buoy its lackluster performance. The Fed’s announcement also sent 10-Year Treasury notes into a downward spiral, helping to push interest rates to their highest rate since March 2012.

The stimulus campaign has received mixed reviews to be sure. The Fed has been adding bonds at the rate of $85 million per month since 2009, but last month took the unusual step of announcing it would end this program when the unemployment rate reached 6.5 percent. However, the current rate of unemployment at 7.6 percent has declined by only .06 since June 2012. If that rate of decline remains constant, it means another 2 years of stimulus before the intended target is reached.

The Fed currently has 19 sitting officials but only 12 of them are voting members. According to recent disclosures about half the Fed’s members oppose continuation of quantitative easing, even though more than half of voting members support a later withdrawal.

Much of this disagreement stems from the lack of evidence about whether the Fed’s policy is doing any good. One argument that it has made for its modest stimulus policy is that there are uncertain benefits and even more uncertain consequences. One way for investors to look at the issue is that Fed stimulus money signals a weak economy:  if the Fed continues the policy, or pursues more a aggressive strategy, it appears to be keeping the economy from tanking again. Another way of looking at it is that withdrawal of stimulus signals an improving economy to investors. Of course, that turned out not to be the case in the short term when the Fed’s announcement sent the DOW into a tailspin last month, resulting in the single largest sell-off of stocks this year. Numerous speeches by Fed officials and a highly publicized spin campaign by the Obama Administration helped restore investor confidence over the last few weeks, although this did not lead to a subsequent decline in the spike on interest rates.

John Williams, who is the president of Federal Reserve Bank of San Francisco, urged caution:  “The claim that the Fed is responding insufficiently to the shocks hitting the economy rests on the assumption that policy is made with complete certainty about the effects of policy on the economy. Nothing could be further from the truth. Once one recognizes uncertainty, some moderation in monetary policy may well be optimal.” (Read his paper on moderation in monetary policy here.)

The bottom line is murky. The fact remains that the economic recovery has not been driven much by private firms who are more interested in short term profiteering, dodging taxes, and hiding money overseas in tax havens. Neither has the recovery been driven by the Fed and other government programs, in part, because there has been little to no effort to get people back to work.

With the unemployment rate at 7.6 percent and barely shrinking from last year, perhaps other measures are needed such as President Obama’s Jobs Bill or other serious efforts to improve the dismal labor market. Since Congressional Republicans have squashed any effort aimed at helping American workers by appealing to the bogus “big government, wasteful spending” straw-man argument, it appears that the real stumbling block to lasting economic recovery is the political gridlock in Congress that is bought and well paid for by the interests of big business.

Fed warnings on economic recovery accentuate stark political choices

In the minutes from its June meeting several Fed policymakers warned that the economy could worsen due to a number of factors, including Congressional failure to avert tax hikes and deep spending cuts that start at the end of this fiscal year. In addition, the minutes revealed a deep concern that Europe’s debt crisis will continue to hamper U.S. growth.

Some of the weaknesses highlighted included the following:

  • The economy created 80,000 jobs in June, which is the third consecutive month of weak job reports. The unemployment rate stands fixed at 8.2 percent, which is also a conservative estimate of the true and much larger toll taken during this so-called jobless recovery.
  • Employers added an average of 75,000 jobs a month in the last quarter, and only 1/3 of the 225,000 jobs a month created in the first three months of the year, showing that hiring and job creation has slowed to a near standstill.

While several Fed Members claimed the economy might continue to grow moderately, that assessment was significantly weakened last week when the Fed lowered its growth forecast due to the weak labor market and slow consumer spending. The Fed also stated that it does not expect the unemployment rate to fall any further this year, so the fact that unemployment remains significantly high has put the economy squarely at the center of this presidential election, a fact that will unlikely change between now and November when voters cast their ballots for two radically different economic perspectives.

Despite criticism that President Obama’s economic policies are doing little to help, and may be harming economic growth, the Romney alternative of returning America to the economic policies that initiated a decade of corporate greed, followed by the Great Recession, seems less viable than sticking to the course Obama has laid out.

The President sharpened his differences with Romney this week on the campaign trail, claiming in no uncertain terms that voting for Romney would be putting the same people back into power that helped create the economic mess. That message will be hard to sell the closer we get to the election as voters’ inevitably vote with the vicissitudes of their pocketbooks rather than their reflective conscience.

FED to continue twist, without shout

The economic recovery has become even more sluggish, particularly in the labor market where hiring in both the private and public sectors has slowed to a near standstill. Weak job reports, deep debt among consumers and governments, the evolving crisis in the euro zone, and of course the uncertainty of a presidential election are all conspiring to undermine investor confidence in the near term. The markets have been slow to bounce back, and when they do it is an erratic “one-step forward, two-steps back” form of recovery.

Yesterday’s announcement from the chairman of the FED, Ben Bernanke, that it would moderately expand its policy called “Operation Twist” to stimulate growth did little to bolster that confidence. With the economy stumbling into the summer months after the false promise of a relatively strong winter, the Fed announced a modest expansion of its efforts to stimulate growth. The central bank pledged to buy $267 billion in long-term Treasury securities over the next six months in order to reduce borrowing costs. The intended consequence of reducing borrowing costs is to stimulate consumers and small businesses to borrow more money and spend it.

In its report the Fed stated it now expected growth of 1.9 percent to 2.4 percent this year, half a percentage point lower than they forecast in April. In addition, it predicted the unemployment rate would not drop below 8 percent this year, and that inflation would not go above 1.7 percent. Bernanke noted in the press conference that the outlook could worsen if events in the euro zone worsen, unnerving financial markets, or if politicians in Washington failed to resolve a stalemate over fiscal policy.

It remains an open question whether the 17 governments of the EU can coordinate their talents to overcome the euro’s financial morass, but the stalemate in Congress between Democrats and Republicans is sure to continue well past November. Political impasse to resolve this nation’s pressing financial woes is, if anything is in this world, a sure bet. This means more hard times ahead for America’s middle class and even worse times for the least well off among us.

FED stands ready, but does not make a change

In a closely watched speech in Jackson Hole, WY this morning, FED Chairman Ben Bernanke tried to boost investor confidence without announcing a new round of anticipated “quantitative easing” (QE). QE is an unconventional and controversial monetary policy in which central banks infuse a fixed quantity of newly created reserve cash into the economy by buying the assets of banks and “synthetically” inflating their value. In effect, this increases the money supply, and so long as banks begin lending again, stimulates economy activity. The policy is unconventional because it is a policy of last resort, and it has become the preferred way of central banks including the FED to address the ongoing financial crisis.

Quantitative Easing Explained (6 min. video)

The cartoon explanation is funny, but the facts on the ground are not so funny. Whether the FED has too much power over the economy, and whether it is good that its chair is insulated from democratic accountability, is a good independent question. After all, many people accused former FED Chair Alan Greenspan of having too much power.

However, in today’s political climate this means more direct politicization of this position, which is dangerous for the economy and American democracy. Gov. Rick Perry of Texas is now publicly brow beating and belittling Bernanke’s policies of economic stimulus. While on the campaign trail in Iowa last week, Perry said that if Bernanke “prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we would treat him pretty ugly down in Texas.” He went on to say that if Bernanke printed more money, the act would be “almost treasonous in my opinion.”

Bernanke made clear in Jackson Hole that the FED stands ready to assist, and investors jumped at the news with the DOW climbing steadily all morning and the NASDAQ seeing some forward momentum. But with anemic job growth and investors wary of the political impasse in Washington, the economy continues to falter. The news swings both ways from day to day, leaving investors and markets in the schizophrenic position of changing their minds with the news cycle. Perhaps Bernanke’s speech has made investors excited about the prospect of more public aid in the service of private profit? Depending what’s on the news tomorrow, only time will tell. ::KPS::