Fed Does Nothing Much

The Fed Did Nearly Nothing Today

Interest rate held at 0 to 1/4 %. Stock market continues to do nearly nothing.

OK, the most interesting thing they said was that they would hold the level of assets on the balance sheet nearly constant via buying treasuries as the mortgage holdings run off. That is monetizing the debt. Inflation is about 1%, so they are feeling like it’s safe to monetize AND are more worried about a drop of 1+% into deflation than they are about a rise of 1+% to a ‘near normal 2%’ inflation rate.

All very reasonable. Especially given that they expect the economy to remain sluggish.

But all this leaves the present ‘Sovereign Risk” of the present government spending binge and desire to tax business into poverty as the dominant issues. So we’re going to continue a bit of doldrums for a while longer. My guess is about the 2nd week of November…

OK, I’ll put up a WSW posting ‘soon’ now that this is out of the way.

My first blush is that the market will likely drift a tiny bit higher as folks come to expect a recovery, and then really start to rise if it looks like a Republican win is likely in November. (Please note: This says nothing about what I want from my government. It’s just a statement of what happens in this kind of context. One party running rampant and a swap to the other to restrain it results in improved markets. Republicans cutting some of the tax and regulation burden results in improved markets; just as it did when John Kennedy did the same thing… Why the present Democrats run from the lessons of JFK I’ll never know.)

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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8 Responses to Fed Does Nothing Much

  1. boballab says:

    Thats something I always point out about todays Dems: They like to point at JFK, but run from his policies.

    Now here is my seat of the pants prediction: market uptick as the election gets closer, how much of an up tick depends on what comes out about the lame duck session prior to the election.

    After the election (if a dem loss of at least part of congress) everything gained in the uptick is lost during the Lame Duck session as the Dems try to cram 1 or 2 big bills through before leaving. After the next congress is seated expect an increase in the market due to expecting the Repubs to gridlock the Dems Tax and Spend ideas like what happend in 95 and 96.

    If the dems win watch a larger drop as the market prepares for the loss of the Bush tax cuts and expecting the Dems to push tax increases through.

  2. j ferguson says:

    @Boballab,
    Odd. I always point to JFK and say, “See we aren’t all like you say.” But then, most the other libs never understood what he actually did – cut taxes.

    Better to be a wolf in sheep’s clothing than the other way around, don’t you think?

  3. KevinM says:

    Other than the Cuban Missile Crisis, did JFK do anything right? I remember most prominently Bay of Pigs and the ramping of Vietnam.

  4. j ferguson says:

    @KevinM
    Bay of Pigs, Viet Nam? Gosh, Kevin, nobody’s perfect. ;)

  5. boballab says:

    @ KevinM

    Actually JFK didn’t ramp up the troops in Vietnam. Oh he put troops in there but it was a small and based on Special Forces (900 Eisenhower to 16,000 under JFK). Basically alot of the early Afghan war strategy is how JFK wanted to fight the Vietnam War: Special Forces working with local forces, don’t use conventional forces (unfortunately the corrupt Diem government was riddled with communist agents including the South Viet officer incharge of the Strategic Hamlet program).

    In Southeast Asia, Kennedy followed Eisenhower’s lead by using limited military action as early as 1961 to fight the Communist forces led by Ho Chi Minh. Proclaiming a fight against the spread of Communism, Kennedy enacted policies providing political, economic, and military support for the unstable French-installed South Vietnamese government, which included sending 16,000 military advisors and U.S. Special Forces to the area. U.S. involvement in the area escalated until Lyndon Johnson, his successor, directly deployed regular U.S. forces for fighting the Vietnam War.

    http://en.wikipedia.org/wiki/John_F._Kennedy

    All indicators and words by Robert McNamara and LBJ was that by the middle of 1963 JFK was planning to pull 1,000 troops from Vietnam by the end of 63, with a possible total pull out something which LBJ opposed.

    His economic policies were also very successful:

    The economy, which had been through two recessions in three years and was in one when Kennedy took office, accelerated notably during his brief presidency. Despite low inflation and interest rates, GDP had grown by an average of only 2.2% during the Eisenhower presidency (scarcely more than population growth at the time), and had declined by 1% during Eisenhower’s last twelve months in office.[74] Stagnation had taken a toll on the nation’s labor market, as well: unemployment had risen steadily from under 3% in 1953 to 7%, by early 1961.[75]

    The economy turned around and prospered during the Kennedy administration. GDP expanded by an average of 5.5% from early 1961 to late 1963,[74] while inflation remained steady at around 1% and unemployment began to ease;[75][76] industrial production rose by 15% and motor vehicle sales leapt by 40%.[77] This rate of growth in GDP and industry continued until around 1966, and has yet to be repeated for such a sustained period of time

    http://en.wikipedia.org/wiki/John_F._Kennedy

  6. Gary says:

    JFK only wanted to be President; his successors want to be Masters of the Universe. It’s a matter of hubris.

  7. KevinM says:

    boballab,

    Having served only 2 years, Kennedy can’t take much credit for adjusting the US economy.

    To detach that political left-right name calling, I’ll say that I don’t blame the current economy on Obama, the 1988 recession on GHW Bush, or the 1980 recession(s) on Carter either.

    It takes time, the complicity of congress and favorable technology/demographic/international externalities to go from crappy times (like now) to strong ones (like the mid sixties) or the reverse.

    Also putting 16k soldiers in Vietnam was not a small thing, and it was absolutely under his control. The argument that he “was going to” remove the soldiers soon, and that they were intended to be advisors not fighters is nice, but it did not work out that way. No credit for good intentions.

    He kicked the Russian military out of Cuba with great skill, but thats about all. I see three strikeouts and a home run, which is middle of the road for US presidents.

  8. boballab says:

    @KevinM

    Actually Kennedy total involvement with the Vietnam war was classified until the Pentagon Papers leak tot he NYT’s
    His role didn’t get the attention it normally would have in the press becasue of LBJ lying through his teeth during the 1964 campaign saying he had no plans to send troops to Vietnam when he had already made that decision.

    Kennedy on the other hand is on a tape recording of LBJ confirms that Kennedy was going to pull out after the 64 election and Kennedy had signed a National Security Action Memorandum ordering the withdrawal of 1,000 troops in 63. It’s not a maybe, it was fact.

    Fueling the debate are statements made by Kennedy and Johnson’s Secretary of Defense Robert McNamara that Kennedy was strongly considering pulling out of Vietnam after the 1964 election. In the film “The Fog of War”, not only does McNamara say this, but a tape recording of Lyndon Johnson confirms that Kennedy was planning to withdraw from Vietnam, a position Johnson states he strongly disapproved of.[54] Additional evidence is Kennedy’s National Security Action Memorandum (NSAM) 263, dated October 11, 1963, which ordered withdrawal of 1,000 military personnel by the end of 1963.[55][56]

    http://en.wikipedia.org/wiki/John_F._Kennedy

    You got a false idea that Kennedy got us into Vietnam. If you want to go by the president that sent the first troops, then it is Eisenhower. If you want to go by the president that made the largest commitment that is LBJ.

    The Pentagon Papers, officially titled United States–Vietnam Relations, 1945–1967: A Study Prepared by the Department of Defense, was a top-secret United States Department of Defense history of the United States’ political-military involvement in Vietnam from 1945 to 1967. The papers were first brought to the attention of the public on the front page of the New York Times in 1971.[1]

    http://en.wikipedia.org/wiki/Pentagon_Papers

    And yes 16,000 troops is a small number, it might be enough to knock off say Monaco but not much else, especially compared to LBJ’s 34 battalion plan. The Vietnam War began with the Gulf of Tonkin Incident, when LBJ was President, that is when LBJ ordered the first US Combat unit, not small groups of US military advisers and Green Berets.

    President Johnson, who was up for election that year, ordered retaliatory air strikes and went on national television on August 4. Although Maddox had been involved in providing intelligence support for South Vietnamese attacks at Hon Me and Hon Ngu, Johnson denied, in his testimony before Congress, that the U.S. Navy had supported South Vietnamese military operations in the Gulf. He thus characterized the attack as “unprovoked” since the ship had been in international waters.

    As a result of his testimony, on August 7, Congress passed a joint resolution (H.J. RES 1145), titled the Southeast Asia Resolution, which granted President Johnson the authority to conduct military operations in Southeast Asia without the benefit of a declaration of war. The Resolution gave President Johnson approval “to take all necessary steps, including the use of armed force, to assist any member or protocol state of the Southeast Asia Collective Defense Treaty requesting assistance in defense of its freedom.”
    http://en.wikipedia.org/wiki/Gulf_of_Tonkin_Incident

    Johnson caused that war no one else, he used confusion after the Tonkin Gulf Incident to ram through Congress the authority to act militarily (something Eisenhower and Kennedy didn’t have) in Vietnam. Eisenhower and Kenndey were both trying to do what Truman did in Greece during the Greek Civil War, when Communist insurgents tried to take over that country. They didn’t want another Korea, which LBJ trip off.

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