Where is the US economy headed?

H20 says:

Unless you think that you, the frog in your pocket, and okie constitute "the vast majority of Americans", you're talking through your hat again.

http://www.nytimes.com/2011/09/22/business/fed-to-shift-400-billion-in-holdings-to-spur-growth.html?hp

Cycloptichorn

Interest rates can only go up from where we are, and most likely will go up a lot, turning as much of our short term debt into long term debt before they do thus locking in the low rates is common sense. How this is supposed to boost the economy right now though I have no idea.

I am starting to hear a lot of chatter about the stupidity of locking away money long term by buying US debt at these low rates, that if the upside is less than 2% a year then why bother to take the chance that we move into a high inflation environment and thus loose a ton of money? Better the keep the money in cash, and be ready to roll once we figure out where this economy is going. Now is not the time to take any risk, to include US Bonds. Long term US Bond interest rates will move up soon I expect.

The mood on Wall Street was not positive about the Fed's action. The Dow was down 20 0r 30 points before the announcement but now looks to close down some 250 points.

My quick take: this is a small program ($400Bn) which on balance is a good idea.

My quick take:

$400 billion is not a small amount of money.

Is it your understanding that this is $400Bn of "new money" or a $400Bn redirection of money from the short-term to long-term bond markets?

what is good for the American Tax Payer and what is good for the corporate class are not always aligned..in this case I think the problem is that the US has announced that it will tie up long term $400 billion, which is money that will not be available to fund corporate debt, or other nations debt. We shall see if there is another reason why the markets dont like this move, I will be interested to read the analysis over the coming days.

EDIT: I see now that the reason for the sell-off seems to be that the major American banks were down-graded by Moody's..this comes after several recent reports of a gathering run on the European Banks....it looks like Global banks will be tested in the next few days.

MJackoff, are you wanting to put your hand in our pockets?

Hawks (lol) such as yourself have been saying this for many years now and it has yet to happen. With the Euro collapsing as fast as we can see, I highly doubt what you predict will be the case.

Cycloptichorn

It's only $1,333 rec. each. A bit less because I used 300 million for easy reckoning. About £900. Over twenty years.

It's not a large amount either.

In therms of the Fed's past actions this is very small stuff indeed. I believe this is an indicator of the fact that there is very little else the Fed can do without harming other aspects of their responsibilkities. We (and they) are increasingly in a corner, with very limited room for choice)
.
We have a combined and complex problem involving both current economic performance and high & fast growing public debt -
=>slow economic growth & persistently high unemploymentt
=> currently very high deficits, amounting in FY 11 to almost 45% of Federal annual outlays - an unprecenented level of deficit spending. Coupled with accumulated public debt well over 100% of GDP (not counting potential liabilities under huge quantities of guaranteed federal loans, like that for Solyndra, that could quickly turn into liabilities. Couple that with a total public debit of over 100% of GDP and we are fast getting into Greek territory.

The pernicious combination of these problems limits the short term remedies we can apply to each of them. We are seeing this issue now in the very small actions being taken by the Fed.

Clearly we need significant limitations in entitlements to reflect the profound demographic changes that have occurred, and which are driving our future total public debt projections. We also need significant cuts in discretionary spending and elimination of duplicative and/or wasteful Federal programs that we can no longer afford. Finally we probably also need some added tax revenues.

Unfortunately our elected leaders are sacrificing their public duties to their personal political interests. Just the arithmnetic of the problem tells us there is no possible solution to these problems without significant entitlement reform. Despite this our feckless President is ducking his responsibilities and campaigning on false promises to his supporters about SS & medical care that he cannot possibly fulfill. For their part Republicans are refusing to consider tax increases, even though they are likely a necessary part of the combined solutiuon.

Yes, and it reinforces the growing consensus that the central banks have shot their wad already and it did not work, so if Governments cant get their acts together fast and institute major reforms (to include either ditching the Euro or full European integration) then there will be no stopping the global economic collapse. We see no sign that government will be able to function well enough soon enough to get this done.

My understanding is that long-term U.S. bond prices rose today, driving down their bond yields - just as the Fed intended with its action today. I am not attaching too much significance to one day's performance.
The theory is that this will result in lower mortgage rates and rates on loans to businesses for long-term investments in plant and
equipment. I am still a bit skeptical about the banks expanding lending.
Republican leaders - and perhaps Georgeob here - argue that the Fed's actions are largely irrelevant. The focus should be on the government cutting expenses and red tape.
> An argument is made that we - through the Fed's actions - are facing inflation. I don't see that happening and I would go so far as to say that a 3% inflation rate, if it got into wages, wouldn't be all that bad.
> Some suggest that really low interest rates drive down the value of the dollar. A low dollar is keeping our exports alive right now.
> A low dollar contributed to the spike in oil costs. Could be, but the price of oil is affected by many factors. $85BBl seems to be the norm lately. Is that "too high?"

The House of Representatives just defeated the shitty CR bill the Republicans had put forth, which attempted to cut spending in other places to fund FEMA cleanup operations on the east coast.

Cycloptichorn

As an aside, I note today that existing home sales rose 7.7% in August.
Much of that was due to investors who paid cash, perhaps expecting to take advantage of a rise in rental rates. In many cases the selling prices were below the outstanding mortgage balances.

I concur with your opinion about the costs of medical care in the US.

I agree that. Reducing interest rate will do nothing for our economy when consumers have no extra cash and corperations are hording their money.

being a slumlord is a good move when compared to the other possible ways to make money with money currently. Solid upside with low downside, and the more years we pile up not building much the better so far as they are concerned....these boys are placing a high probability on extended recession or depression....

Its true that short term interest rate will not change until next year, but we are already at zero interest rate,and the feds have played their stupid games to no avail except to injure consumers who do the right thing to save.