Immediately after the recession took a dramatic dive in
September 2008, the Bernanke Fed implemented a policy that continues to
further damage the incentive for banks to lend to businesses. On
October 6, 2008 the Fed's Board of Governors, chaired by Ben Bernanke,
announced it would begin paying interest on the reserve balances of
the nation's banks, major lenders to medium and small size businesses.
You don't need a Ph.D. economist to know that if you pay
banks ¼ percent risk free interest to hold reserves that they can obtain
at near zero interest, that would be an incentive to hold the
reserves. The Fed pumped out huge amounts of money, with the base of
the money supply more than doubling from August 2008 to August 2010,
reaching $1.99 trillion. Guess who has over half of this money parked
in cold storage? The banks have $1.085 trillion on reserves drawing
interest, The Fed records show they were paid $2.18 billion interest on
these reserves in 2009.
A number of people spoke
about the disincentive for bank lending embedded in this policy
including Chairman Bernanke.
***
Jim McTague, Washington Editor of Barrons,
wrote in his February 2, 2009 column, "Where's the Stimulus:"
"Increasing the supply of credit might help pump up spending, too.
University of Texas Professor Robert Auerbach an economist who studied
under the late Milton Friedman, thinks he has the makings of a
malpractice suit against Federal Reserve Chairman Ben Bernanke, as the
Fed is holding a record number of reserves: $901 billion in January as
opposed to $44 billion in September, when the Fed began paying interest
on money commercial banks parked at the central bank. The banks prefer
the sure rate of return they get by sitting in cash, not making loans.
Fed, stop paying, he says."
Shortly after this article appeared
Fed Chairman Bernanke explained: "Because banks should be unwilling to
lend reserves at a rate lower than they can receive from the Fed, the
interest rate the Fed pays on bank reserves should help to set a floor
on the overnight interest rate." (National Press Club, February 18,
2009) That was an admission that the Fed's payment of interest on
reserves did impair bank lending. Bernanke's rationale for interest
payments on reserves included preventing banks from lending at lower
interest rates. That is illogical at a time when the Fed's target
interest rate for federal funds, the small market for interbank loans,
was zero to a quarter of one percent. The banks would be unlikely to
lend at negative rates of interest -- paying people to take their money
-- even without the Fed paying the banks to hold reserves.
The next month William T. Gavin, an excellent economist at the St.
Louis Federal Reserve, wrote in its MarchApril 2009 publication:
"first, for the individual bank, the risk-free rate of ¼ percent must
be the bank's perception of its best investment opportunity."
The Bernanke Fed's policy was a repetition of what the Fed did in
1936 and 1937 which helped drive the country into a second depression.
Why does Chairman Bernanke, who has studied the Great Depression of
the 1930's and has surely read the classic 1963 account of improper
actions by the Fed on bank reserves described by Milton Friedman and
Anna Schwartz, repeat the mistaken policy?
As the
economy pulled out of the deep recession in 1936 the Fed Board thought
the U.S. banks had too much excess reserves, so they began to raise the
reserves banks were required to hold. In three steps from August 1936
to May 1937 they doubled the reserve requirements for the large banks
(13 percent to 26 percent of checkable deposits) and the country banks
(7 percent to 14 percent of checkable deposits).
Friedman and Schwartz ask: "why seek to immobilize reserves at that
time?" The economy went back into a deep depression. The Bernanke Fed's
2008 to 2010 policy also immobilizes the banking system's reserves
reducing the banks' incentive to make loans.
This is a bad policy even if the banks approve. The
correct policy now should be to slowly reduce the interest paid on
bank reserves to zero and simultaneously maintain a moderate increase
in the money supply by slowly raising the short term market interest
rate targeted by the Fed. Keeping the short term target
interest rate at zero causes many problems, not the least of which is
allowing banks to borrow at a zero interest rate and sit on their
reserves so they can receive billions in interest from the taxpayers
via the Fed. Business loans from banks are vital to the nations'
recovery.
The fact that the Fed is suppressing lending
and inflation at a time when it says it is trying to encourage both
shows that the Fed is saying one thing and doing something else
entirely.
I have previously pointed out numerous other ways in which the Fed is working against its stated goals, such as:
- Reinforcing cyclical trends (when one of the Fed's main justifications is providing a counter-cyclical balance);
- Increasing unemployment (when the Fed is mandated by law to maximize employment); and
- Encouraging financial companies to make even riskier gambles in the future (when it is supposed to stabilize the financial system).
And see this.
Postscript: If the Fed really wants to stimulate the economy, it should try Steve Keen's idea.
“You wanna know what the mother of all bubbles was? Us. The human race.”
That’s Gordon Gekko in the distinctly-mediocre Wall Street: Money Never Sleeps.
This weekend brought a rush of stories about a “bubble” that may or may not be re-inflating in Silicon Valley. The New York Times kicked it off, venture capitalist Fred Wilson (who is featured prominently in the story) quickly responded, and then Newsweek weighed in just to make sure the “Bubble 2.0″ moniker was secure. Uh oh, right? Not so fast.
One giant nugget of information in the NYT piece (co-written by TechCrunch alum Evelyn Rusli) is a bit buried:
For starters, this is not a stock market bubble. None of the companies are publicly traded.
In other words, if this “bubble” were to pop, it wouldn’t be the mothers and fathers of the world hoping to put their children through school who would be getting screwed. It would be the private investors. It would be a handful of (mostly) rich people who would be out of some of their money.
I suppose the employees of the collapsing startups could also be screwed somewhat. But they’d undoubtedly find work again quickly. And the founders would start new companies. Just like after the first bubble.
Business Insider has a good rundown of the actually public tech companies — you know, the kind mom and pop can and do actually invest in. The consensus there? Pretty wonderful, actually. Not over-the-top outrageous, just very solid for the most part.
Now, that doesn’t mean a “Bubble 2.0″ couldn’t pop and adversely affect the overall ecosystem. In fact, I’m sure it would to some extent, mainly because less money coming in would mean less innovation across the board. But it wouldn’t cause everything to collapse.
We all just lived through a very real bubble. The housing bubble. The results of it popping almost completely brought down not only our own economy, but much of the world’s economy as well. Real people lost their life savings. People went to jail. More people should have been locked up forever. It’s almost insulting to mention this supposed new web bubble in the same breath as that.
Again, this “Bubble 2.0″, if it does exist, is mainly just troublesome for investors. Smaller angel investors, in particular, are getting squeezed out of deals because early stage valuations are getting ridiculously high in some cases.
Undoubtedly it’s true that some of those startups should not be accepting so much money at such valuations, but that’s on them. If they fail, it will be a lesson to other startups. Maybe the motto is: go big or go home (at least in the early stage).
Another underlying current here is that many private investors aren’t comfortable with the state of the startup ecosystem. And yet many of them continue to do deals that they may not be comfortable with. Again, that’s on them. They’re all doing due diligence. If they don’t think a deal is worth it, they obviously shouldn’t do it. But some don’t seem to be able to turn down their name being attached to a high-profile investment — even if projections have it panning out to be a 2x exit. (The horror!)
Maybe some of them would actually be more comfortable investing in what Wilson calls “The Mess“. That is, startups in their awkward years. They’re neither new and sexy nor mature and money-making. Not surprisingly, no one seems to want to invest in those, besides current investors. But maybe those are where some deals are to be found.
In the press, there are two kinds of sexy stories to write: over-exuberance and death. We just got done with a week’s worth of over–exuberance surrounding the Google/Groupon deal. Holy shit, $6 billion dollars for a company that has only really been at it for a little over a year? That’s awesome! Let the good times roll.
The deal ultimately fell apart and in came the death stories. There needs to be balance in the world, after all. We know this just as well as anyone. The $6 billion Groupon deal made web investing as hot as the sun for a few days. And now it’s a bubble.
But wait. “Bubble 2.0″ has existed before. Here it is in 2005 — with Wilson worrying about some of the same things he’s still worried about. And here it is again in 2007 — with John Dvorak worrying that social media among other things would pop the bubble. And wasn’t it for sure a bubble later that year when Microsoft invested in Facebook at a $15 billion valuation? I was sure I heard that over and over and over again. Turns out, that was a pretty damn awesome investment, strategic or not.
There are dozens of other examples as well.
So maybe this is actually “Bubble 4.0″ or “Bubble 5.0″. Or maybe it’s not a big bubble at all. After all, if it pops and gum gets over only a few faces, will anyone do anything other than point and laugh, then go on with their lives?
[image: 20th Century Fox]
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Campamento Carnahan Para Fox News <b> </ b>: ¿Por qué solo nosotros fuera? | TPMMuckrakerLawyers para el ex candidato al Senado Robin Carnahan argumentan que la cadena Fox News es singularizar el demócrata de Missouri en su demanda alegando su campaña violado los derechos de autor de la red.
Sarah Palin pasa RNC - El NoteSarah Palin no se está ejecutando ... para un puesto de trabajo por lo menos. Ella no parece ser un candidato para presidir el Comité Nacional Republicano. En la nota, escrito por Rick ABC News Klein, abarca la política, la Casa Blanca, el Congreso, los demócratas, ...
Consumer Reports: AT & T ocupó el último lugar entre las compañías aéreas EE.UU. | iLounge <b> Noticias </ b> de noticias iLounge discutir de Consumer Reports: AT & T ocupó el último lugar entre las compañías aéreas EE.UU.. Buscar más noticias de los principales iPhone iPod independiente, el iPhone, y el sitio de IPAD.
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Immediately after the recession took a dramatic dive in
September 2008, the Bernanke Fed implemented a policy that continues to
further damage the incentive for banks to lend to businesses. On
October 6, 2008 the Fed's Board of Governors, chaired by Ben Bernanke,
announced it would begin paying interest on the reserve balances of
the nation's banks, major lenders to medium and small size businesses.
You don't need a Ph.D. economist to know that if you pay
banks ¼ percent risk free interest to hold reserves that they can obtain
at near zero interest, that would be an incentive to hold the
reserves. The Fed pumped out huge amounts of money, with the base of
the money supply more than doubling from August 2008 to August 2010,
reaching $1.99 trillion. Guess who has over half of this money parked
in cold storage? The banks have $1.085 trillion on reserves drawing
interest, The Fed records show they were paid $2.18 billion interest on
these reserves in 2009.
A number of people spoke
about the disincentive for bank lending embedded in this policy
including Chairman Bernanke.
***
Jim McTague, Washington Editor of Barrons,
wrote in his February 2, 2009 column, "Where's the Stimulus:"
"Increasing the supply of credit might help pump up spending, too.
University of Texas Professor Robert Auerbach an economist who studied
under the late Milton Friedman, thinks he has the makings of a
malpractice suit against Federal Reserve Chairman Ben Bernanke, as the
Fed is holding a record number of reserves: $901 billion in January as
opposed to $44 billion in September, when the Fed began paying interest
on money commercial banks parked at the central bank. The banks prefer
the sure rate of return they get by sitting in cash, not making loans.
Fed, stop paying, he says."
Shortly after this article appeared
Fed Chairman Bernanke explained: "Because banks should be unwilling to
lend reserves at a rate lower than they can receive from the Fed, the
interest rate the Fed pays on bank reserves should help to set a floor
on the overnight interest rate." (National Press Club, February 18,
2009) That was an admission that the Fed's payment of interest on
reserves did impair bank lending. Bernanke's rationale for interest
payments on reserves included preventing banks from lending at lower
interest rates. That is illogical at a time when the Fed's target
interest rate for federal funds, the small market for interbank loans,
was zero to a quarter of one percent. The banks would be unlikely to
lend at negative rates of interest -- paying people to take their money
-- even without the Fed paying the banks to hold reserves.
The next month William T. Gavin, an excellent economist at the St.
Louis Federal Reserve, wrote in its MarchApril 2009 publication:
"first, for the individual bank, the risk-free rate of ¼ percent must
be the bank's perception of its best investment opportunity."
The Bernanke Fed's policy was a repetition of what the Fed did in
1936 and 1937 which helped drive the country into a second depression.
Why does Chairman Bernanke, who has studied the Great Depression of
the 1930's and has surely read the classic 1963 account of improper
actions by the Fed on bank reserves described by Milton Friedman and
Anna Schwartz, repeat the mistaken policy?
As the
economy pulled out of the deep recession in 1936 the Fed Board thought
the U.S. banks had too much excess reserves, so they began to raise the
reserves banks were required to hold. In three steps from August 1936
to May 1937 they doubled the reserve requirements for the large banks
(13 percent to 26 percent of checkable deposits) and the country banks
(7 percent to 14 percent of checkable deposits).
Friedman and Schwartz ask: "why seek to immobilize reserves at that
time?" The economy went back into a deep depression. The Bernanke Fed's
2008 to 2010 policy also immobilizes the banking system's reserves
reducing the banks' incentive to make loans.
This is a bad policy even if the banks approve. The
correct policy now should be to slowly reduce the interest paid on
bank reserves to zero and simultaneously maintain a moderate increase
in the money supply by slowly raising the short term market interest
rate targeted by the Fed. Keeping the short term target
interest rate at zero causes many problems, not the least of which is
allowing banks to borrow at a zero interest rate and sit on their
reserves so they can receive billions in interest from the taxpayers
via the Fed. Business loans from banks are vital to the nations'
recovery.
The fact that the Fed is suppressing lending
and inflation at a time when it says it is trying to encourage both
shows that the Fed is saying one thing and doing something else
entirely.
I have previously pointed out numerous other ways in which the Fed is working against its stated goals, such as:
- Reinforcing cyclical trends (when one of the Fed's main justifications is providing a counter-cyclical balance);
- Increasing unemployment (when the Fed is mandated by law to maximize employment); and
- Encouraging financial companies to make even riskier gambles in the future (when it is supposed to stabilize the financial system).
And see this.
Postscript: If the Fed really wants to stimulate the economy, it should try Steve Keen's idea.
“You wanna know what the mother of all bubbles was? Us. The human race.”
That’s Gordon Gekko in the distinctly-mediocre Wall Street: Money Never Sleeps.
This weekend brought a rush of stories about a “bubble” that may or may not be re-inflating in Silicon Valley. The New York Times kicked it off, venture capitalist Fred Wilson (who is featured prominently in the story) quickly responded, and then Newsweek weighed in just to make sure the “Bubble 2.0″ moniker was secure. Uh oh, right? Not so fast.
One giant nugget of information in the NYT piece (co-written by TechCrunch alum Evelyn Rusli) is a bit buried:
For starters, this is not a stock market bubble. None of the companies are publicly traded.
In other words, if this “bubble” were to pop, it wouldn’t be the mothers and fathers of the world hoping to put their children through school who would be getting screwed. It would be the private investors. It would be a handful of (mostly) rich people who would be out of some of their money.
I suppose the employees of the collapsing startups could also be screwed somewhat. But they’d undoubtedly find work again quickly. And the founders would start new companies. Just like after the first bubble.
Business Insider has a good rundown of the actually public tech companies — you know, the kind mom and pop can and do actually invest in. The consensus there? Pretty wonderful, actually. Not over-the-top outrageous, just very solid for the most part.
Now, that doesn’t mean a “Bubble 2.0″ couldn’t pop and adversely affect the overall ecosystem. In fact, I’m sure it would to some extent, mainly because less money coming in would mean less innovation across the board. But it wouldn’t cause everything to collapse.
We all just lived through a very real bubble. The housing bubble. The results of it popping almost completely brought down not only our own economy, but much of the world’s economy as well. Real people lost their life savings. People went to jail. More people should have been locked up forever. It’s almost insulting to mention this supposed new web bubble in the same breath as that.
Again, this “Bubble 2.0″, if it does exist, is mainly just troublesome for investors. Smaller angel investors, in particular, are getting squeezed out of deals because early stage valuations are getting ridiculously high in some cases.
Undoubtedly it’s true that some of those startups should not be accepting so much money at such valuations, but that’s on them. If they fail, it will be a lesson to other startups. Maybe the motto is: go big or go home (at least in the early stage).
Another underlying current here is that many private investors aren’t comfortable with the state of the startup ecosystem. And yet many of them continue to do deals that they may not be comfortable with. Again, that’s on them. They’re all doing due diligence. If they don’t think a deal is worth it, they obviously shouldn’t do it. But some don’t seem to be able to turn down their name being attached to a high-profile investment — even if projections have it panning out to be a 2x exit. (The horror!)
Maybe some of them would actually be more comfortable investing in what Wilson calls “The Mess“. That is, startups in their awkward years. They’re neither new and sexy nor mature and money-making. Not surprisingly, no one seems to want to invest in those, besides current investors. But maybe those are where some deals are to be found.
In the press, there are two kinds of sexy stories to write: over-exuberance and death. We just got done with a week’s worth of over–exuberance surrounding the Google/Groupon deal. Holy shit, $6 billion dollars for a company that has only really been at it for a little over a year? That’s awesome! Let the good times roll.
The deal ultimately fell apart and in came the death stories. There needs to be balance in the world, after all. We know this just as well as anyone. The $6 billion Groupon deal made web investing as hot as the sun for a few days. And now it’s a bubble.
But wait. “Bubble 2.0″ has existed before. Here it is in 2005 — with Wilson worrying about some of the same things he’s still worried about. And here it is again in 2007 — with John Dvorak worrying that social media among other things would pop the bubble. And wasn’t it for sure a bubble later that year when Microsoft invested in Facebook at a $15 billion valuation? I was sure I heard that over and over and over again. Turns out, that was a pretty damn awesome investment, strategic or not.
There are dozens of other examples as well.
So maybe this is actually “Bubble 4.0″ or “Bubble 5.0″. Or maybe it’s not a big bubble at all. After all, if it pops and gum gets over only a few faces, will anyone do anything other than point and laugh, then go on with their lives?
[image: 20th Century Fox]
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Carnahan Camp To Fox <b>News</b>: Why Single Us Out? | TPMMuckraker
Lawyers for former Senate Candidate Robin Carnahan are arguing that the Fox News network is singling the Missouri Democrat out in its lawsuit alleging her campaign violated the network's copyrights.
Sarah Palin Passes On RNC - The Note
Sarah Palin isn't running…for one job at least. She doesn't appear to be a candidate to Chair the Republican National Committee. The Note, authored by ABC News' Rick Klein, covers politics, the White House, Congress, Democrats, ...
Consumer Reports: AT&T ranked last among U.S. carriers | iLounge <b>News</b>
iLounge news discussing the Consumer Reports: AT&T ranked last among US carriers. Find more iPhone news from leading independent iPod, iPhone, and iPad site.
bench craft company rip off
Immediately after the recession took a dramatic dive in
September 2008, the Bernanke Fed implemented a policy that continues to
further damage the incentive for banks to lend to businesses. On
October 6, 2008 the Fed's Board of Governors, chaired by Ben Bernanke,
announced it would begin paying interest on the reserve balances of
the nation's banks, major lenders to medium and small size businesses.
You don't need a Ph.D. economist to know that if you pay
banks ¼ percent risk free interest to hold reserves that they can obtain
at near zero interest, that would be an incentive to hold the
reserves. The Fed pumped out huge amounts of money, with the base of
the money supply more than doubling from August 2008 to August 2010,
reaching $1.99 trillion. Guess who has over half of this money parked
in cold storage? The banks have $1.085 trillion on reserves drawing
interest, The Fed records show they were paid $2.18 billion interest on
these reserves in 2009.
A number of people spoke
about the disincentive for bank lending embedded in this policy
including Chairman Bernanke.
***
Jim McTague, Washington Editor of Barrons,
wrote in his February 2, 2009 column, "Where's the Stimulus:"
"Increasing the supply of credit might help pump up spending, too.
University of Texas Professor Robert Auerbach an economist who studied
under the late Milton Friedman, thinks he has the makings of a
malpractice suit against Federal Reserve Chairman Ben Bernanke, as the
Fed is holding a record number of reserves: $901 billion in January as
opposed to $44 billion in September, when the Fed began paying interest
on money commercial banks parked at the central bank. The banks prefer
the sure rate of return they get by sitting in cash, not making loans.
Fed, stop paying, he says."
Shortly after this article appeared
Fed Chairman Bernanke explained: "Because banks should be unwilling to
lend reserves at a rate lower than they can receive from the Fed, the
interest rate the Fed pays on bank reserves should help to set a floor
on the overnight interest rate." (National Press Club, February 18,
2009) That was an admission that the Fed's payment of interest on
reserves did impair bank lending. Bernanke's rationale for interest
payments on reserves included preventing banks from lending at lower
interest rates. That is illogical at a time when the Fed's target
interest rate for federal funds, the small market for interbank loans,
was zero to a quarter of one percent. The banks would be unlikely to
lend at negative rates of interest -- paying people to take their money
-- even without the Fed paying the banks to hold reserves.
The next month William T. Gavin, an excellent economist at the St.
Louis Federal Reserve, wrote in its MarchApril 2009 publication:
"first, for the individual bank, the risk-free rate of ¼ percent must
be the bank's perception of its best investment opportunity."
The Bernanke Fed's policy was a repetition of what the Fed did in
1936 and 1937 which helped drive the country into a second depression.
Why does Chairman Bernanke, who has studied the Great Depression of
the 1930's and has surely read the classic 1963 account of improper
actions by the Fed on bank reserves described by Milton Friedman and
Anna Schwartz, repeat the mistaken policy?
As the
economy pulled out of the deep recession in 1936 the Fed Board thought
the U.S. banks had too much excess reserves, so they began to raise the
reserves banks were required to hold. In three steps from August 1936
to May 1937 they doubled the reserve requirements for the large banks
(13 percent to 26 percent of checkable deposits) and the country banks
(7 percent to 14 percent of checkable deposits).
Friedman and Schwartz ask: "why seek to immobilize reserves at that
time?" The economy went back into a deep depression. The Bernanke Fed's
2008 to 2010 policy also immobilizes the banking system's reserves
reducing the banks' incentive to make loans.
This is a bad policy even if the banks approve. The
correct policy now should be to slowly reduce the interest paid on
bank reserves to zero and simultaneously maintain a moderate increase
in the money supply by slowly raising the short term market interest
rate targeted by the Fed. Keeping the short term target
interest rate at zero causes many problems, not the least of which is
allowing banks to borrow at a zero interest rate and sit on their
reserves so they can receive billions in interest from the taxpayers
via the Fed. Business loans from banks are vital to the nations'
recovery.
The fact that the Fed is suppressing lending
and inflation at a time when it says it is trying to encourage both
shows that the Fed is saying one thing and doing something else
entirely.
I have previously pointed out numerous other ways in which the Fed is working against its stated goals, such as:
- Reinforcing cyclical trends (when one of the Fed's main justifications is providing a counter-cyclical balance);
- Increasing unemployment (when the Fed is mandated by law to maximize employment); and
- Encouraging financial companies to make even riskier gambles in the future (when it is supposed to stabilize the financial system).
And see this.
Postscript: If the Fed really wants to stimulate the economy, it should try Steve Keen's idea.
“You wanna know what the mother of all bubbles was? Us. The human race.”
That’s Gordon Gekko in the distinctly-mediocre Wall Street: Money Never Sleeps.
This weekend brought a rush of stories about a “bubble” that may or may not be re-inflating in Silicon Valley. The New York Times kicked it off, venture capitalist Fred Wilson (who is featured prominently in the story) quickly responded, and then Newsweek weighed in just to make sure the “Bubble 2.0″ moniker was secure. Uh oh, right? Not so fast.
One giant nugget of information in the NYT piece (co-written by TechCrunch alum Evelyn Rusli) is a bit buried:
For starters, this is not a stock market bubble. None of the companies are publicly traded.
In other words, if this “bubble” were to pop, it wouldn’t be the mothers and fathers of the world hoping to put their children through school who would be getting screwed. It would be the private investors. It would be a handful of (mostly) rich people who would be out of some of their money.
I suppose the employees of the collapsing startups could also be screwed somewhat. But they’d undoubtedly find work again quickly. And the founders would start new companies. Just like after the first bubble.
Business Insider has a good rundown of the actually public tech companies — you know, the kind mom and pop can and do actually invest in. The consensus there? Pretty wonderful, actually. Not over-the-top outrageous, just very solid for the most part.
Now, that doesn’t mean a “Bubble 2.0″ couldn’t pop and adversely affect the overall ecosystem. In fact, I’m sure it would to some extent, mainly because less money coming in would mean less innovation across the board. But it wouldn’t cause everything to collapse.
We all just lived through a very real bubble. The housing bubble. The results of it popping almost completely brought down not only our own economy, but much of the world’s economy as well. Real people lost their life savings. People went to jail. More people should have been locked up forever. It’s almost insulting to mention this supposed new web bubble in the same breath as that.
Again, this “Bubble 2.0″, if it does exist, is mainly just troublesome for investors. Smaller angel investors, in particular, are getting squeezed out of deals because early stage valuations are getting ridiculously high in some cases.
Undoubtedly it’s true that some of those startups should not be accepting so much money at such valuations, but that’s on them. If they fail, it will be a lesson to other startups. Maybe the motto is: go big or go home (at least in the early stage).
Another underlying current here is that many private investors aren’t comfortable with the state of the startup ecosystem. And yet many of them continue to do deals that they may not be comfortable with. Again, that’s on them. They’re all doing due diligence. If they don’t think a deal is worth it, they obviously shouldn’t do it. But some don’t seem to be able to turn down their name being attached to a high-profile investment — even if projections have it panning out to be a 2x exit. (The horror!)
Maybe some of them would actually be more comfortable investing in what Wilson calls “The Mess“. That is, startups in their awkward years. They’re neither new and sexy nor mature and money-making. Not surprisingly, no one seems to want to invest in those, besides current investors. But maybe those are where some deals are to be found.
In the press, there are two kinds of sexy stories to write: over-exuberance and death. We just got done with a week’s worth of over–exuberance surrounding the Google/Groupon deal. Holy shit, $6 billion dollars for a company that has only really been at it for a little over a year? That’s awesome! Let the good times roll.
The deal ultimately fell apart and in came the death stories. There needs to be balance in the world, after all. We know this just as well as anyone. The $6 billion Groupon deal made web investing as hot as the sun for a few days. And now it’s a bubble.
But wait. “Bubble 2.0″ has existed before. Here it is in 2005 — with Wilson worrying about some of the same things he’s still worried about. And here it is again in 2007 — with John Dvorak worrying that social media among other things would pop the bubble. And wasn’t it for sure a bubble later that year when Microsoft invested in Facebook at a $15 billion valuation? I was sure I heard that over and over and over again. Turns out, that was a pretty damn awesome investment, strategic or not.
There are dozens of other examples as well.
So maybe this is actually “Bubble 4.0″ or “Bubble 5.0″. Or maybe it’s not a big bubble at all. After all, if it pops and gum gets over only a few faces, will anyone do anything other than point and laugh, then go on with their lives?
[image: 20th Century Fox]
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