Ed’s Daily Notes for December 18th   Leave a comment

CNBC: Taper or no taper, the Fed will never end QE

With the Federal Reserve’s announcement due today, here is one prediction:

When the Federal Reserve announces its next move on Wednesday, some expect it to reduce its $85 billion monthly bond-buying program, targeting an eventual end to quantitative easing in late 2014. Others expect the Fed to begin to reduce the program in early 2014, or to finish it off by 2015. But Marc Faber has a different take altogether .

“The Fed will never end QE for good,” the editor and publisher of the Gloom, Boom & Doom report said Tuesday on CNBC’s “Futures Now.” “They will continue because these programs, once they’re introduced, usually keep on going.”

The Fed will announce its decision at 12:30 p.m. EST on Wednesday, and Fed Chairman Ben Bernanke will follow that up with a 2:30 p.m. news conference. Expectations for the meeting are mixed, but more that 50 percent of Wall Streeters expect the Fed to taper its QE program in either December or January, according to the CNBC Fed Survey. As economic data have improved, many investors are guessing that the Fed no longer considers QE to be as vital as before.

But Faber said the good times cannot last.

“The economic recovery, or so-called recovery, by June of next year, will be in the fifth year of the recovery,” Faber said. “So at some stage the economy will weaken again, and at that point, the Fed will argue, ‘Well, we haven’t done enough, we have to do more.'”

The noted bear has little admiration for the economists at the Federal Reserve.

“The Federal Reserve—all of them—could be sitting on a barrel of dynamite, and then pouring gasoline on top of it, and then light a cigar with matches, throw the match into the gasoline, and then not notice that there is any danger,” Faber said. “That is the state of mind of the professors at the Fed, who never worked a single [day] in business.”

And while Faber actually believes that a reduction in QE could happen, he wouldn’t view it as a true tapering, as he says it will be a largely meaningless, one-time move that will eventually be reversed as the economy worsens.

“They may do some cosmetic adjustments, but in my view, within a few years, the asset purchases will be substantially higher than they are today,” Faber said.

I lean towards Faber’s view. Historically, when a country begins to debase it’s currency, it doesn’t stop until the currency becomes worthless. The Fed may have some high-sounding justification for debasing the dollar, but their actions aren’t any different than what other empires have done in history.

Having said that, I should also note that it doesn’t mean the dollar will become inflationary overnight, or even within the next year. As the world’s reserve currency, the dollar has a lot of economic factors impacting it, not the least of which is the growth of China. But Faber has the analogy correct: The Fed is playing with fire.

The Guardian: Merkel compared NSA to Stasi in heated encounter with Obama

In an angry exchange with Barack Obama, Angela Merkel has compared the snooping practices of the US with those of the Stasi, the ubiquitous and all-powerful secret police of the communist dictatorship in East Germany, where she grew up.

The German chancellor also told the US president that America’s National Security Agency cannot be trusted because of the volume of material it had allowed to leak to the whistleblower Edward Snowden, according to the New York Times.

Good for her! I am glad at least one world leader understands the danger which the NSA represents.

But this gets better:

Snowden is to testify on the NSA scandal to a European parliament inquiry next month, to the anger of Washington which is pressuring the EU to stop the testimony.

…Senior Brussels officials say the EU is struggling to come up with a coherent and effective response to the revelations of mass US and British surveillance of electronic communication in Europe, but that the disclosure that Merkel’s mobile had been monitored was a decisive moment.

A draft report by a European parliament inquiry into the affair, being presented on Wednesday and obtained by the Guardian, says there has to be a discussion about the legality of the NSA’s operations and also of the activities of European intelligence agencies.

Good for the EU! It is a sad day when the Europeans get the concepts of “liberty” and “freedom” better than Americans, but I am glad to see somebody does. Personally, I hope the EU thumbs it’s nose at the U.S. and grants Snowden asylum there.

Fox News: Sen. Coburn’s Wastebook: extravagant government spending amid claims cupboard is bare

This year’s installment of Senator Tom Coburn’s annual Wastebook may make politicians on both sides of the aisle squirm with discomfort: it documents extravagant federal government waste in a year when many complained that sequestration left nothing to cut.

“We’ve had the Defense Department and people in the other non-Defense discretionary departments screaming the cupboard is bare. There’s nothing else to cut. The fact is that just isn’t true,” the Oklahoma Republican told reporters as he unveiled the 2013 Wastebook on Tuesday.

The Department of Defense comes under special scrutiny in Coburn’s report.

Despite a warning last July 31 from Secretary of Defense Chuck Hagel that under sequestration, “We risk fielding a force that is unprepared due to a lack of training, maintenance, and the latest equipment,” Coburn found DoD is leaving 2,000 MRAP’s – Mine-Resistant Ambush Protected vehicles — behind in Afghanistan to be destroyed rather than delivered to other bases.

MRAP’s were rushed through the procurement process in 2007, as I.E.D attacks took an increasing toll on NATO forces in Iraq and Afghanistan. Each MRAP cost $500,000 to build, Coburn’s report says.

The report documents how Congress authorized the purchase of 21 C-27 transport planes manufactured in Italy, despite testimony from a former Air Force chief of staff in August of 2012 that under sequestration cuts, the Air Force didn’t want the plane. He also testified the C-130 could do the job better.

Stuck with the $631 million purchase, the Air Force mothballed the C-27’s in the desert before any of them flew a single operational mission. “When we buy $700 million worth of airplanes and half of them we’re going to cut up and half of them we’re going to put in the desert? It doesn’t fit with common sense,” Coburn said.

Coburn doesn’t just pick on the Defense Department. Read the rest of the article.

I only have a 3 word response: COBURN FOR PRESIDENT!

Los Angeles Times: Happiness is overrated: It’s better to be right, study finds

It is better to be right than to be happy – at least for one husband on the cutting edge of science.

As part of an unusual experiment, the husband was instructed to “agree with his wife’s every opinion and request without complaint,” and to continue doing so “even if he believed the female participant was wrong,” according to a report on the research that was published Tuesday by the British Medical Journal.

The husband and wife were helping a trio of doctors test their theory that pride and stubbornness get in the way of good mental health. In their own medical practices in New Zealand, they had observed patients leading “unnecessarily stressful lives by wanting to be right rather than happy.” If these patients could just let go of the need to prove to others that they were right, would greater happiness be the result?

Enter the intrepid husband. Based on the assumption that men would rather be happy than be right, he was told to agree with his wife in all cases. However, based on the assumption that women would rather be right than be happy, the doctors decided not to tell the wife why her husband was suddenly so agreeable.

Both spouses were asked to rate their quality of life on a scale of 1 to 10 (with 10 being the happiest) at the start of the experiment and again on Day 6. It’s not clear how long the experiment was intended to last, but it came to an abrupt halt on Day 12.

“By then the male participant found the female participant to be increasingly critical of everything he did,” the researchers reported. The husband couldn’t take it anymore, so he made his wife a cup of tea and told her what had been going on.

That led the researchers to terminate the study.

Over the 12 days of the experiment, the husband’s quality of life plummeted from a baseline score of 7 all the way down to 3. The wife started out at 8 and rose to 8.5 by Day 6. She had no desire to share her quality of life with the researchers on Day 12, according to the report.

Admittedly, this study is anecdotal. But as a married man, I would add the real key isn’t a matter of being right or submissive. It is a matter of picking your battles wisely. Sometimes, even if my wife is wrong, I find it is easier to just go along because she isn’t seriously wrong. No harm will be done by going along, so I do. However, if I think there is a much better way, or if she is seriously wrong, I will object. Because we communicate easily, and because we trust each other, we can usually come to either a reasonable middle ground, or (shock of shocks!) she will agree with me. How does this work? Don’t make it a matter of personal pride. Lording it over your wife is not a good idea, even if you are extremely right and she was extremely wrong. It is ok to be right, just don’t let it go to your head. A wife is not just a “significant other”; She’s your partner in life. Being right benefits both of you, not just one of you.

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Posted December 18, 2013 by edmcgon in Federal Reserve, News, Philosophy, Politics

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