The White House is floating a new stimulus, though the Fed chief seemed to rule it out. But does he have any other tools?

Everyone was pretty glum about US GDP growth between March and June, when it was thought to be 2.4%. But due to the wonders of statistical revision, it now turns out that it was only 1.6%. Of course, those out of work do not care what the statistics say because they know exactly what the economy feels like to them now. All the same, these numbers are no doubt confirming people's fears that the dreaded second dip (of on-going depression) is on the way.

Coinciding with the revised GDP numbers, though, Fed chairman Ben Bernanke has announced that he is going to do all that he can, using all the tricks available, to fight deflation. So, what are those tricks and how successful might they be?

Trick number one: continue with quantitative easing (QE). In layman's terms, this means that he will continue to buy securities in the market place in order to keep their price up, and he will create funds (with the press of a button) at the Fed in order to pay for these purchases. This is good old-fashioned money-printing, and the Fed had already made it clear that it is what they intended to keep doing. Their aim with this policy is ensure that bond prices do not fall, because, if they do, private banks will find their asset base falling, their capital adequacy declining; and if one thing led to another, we would all find ourselves back in the financial maelstrom.

Necessary as this policy is, it is not a "stimulus", for this "high-powered money": that the Fed is creating is not, in fact, very high-powered at all; it does nothing to incentivise banks to lend and nothing to stimulate entrepreneurs and consumers to borrow and spend. It is a desperate policy to stop things getting worse.

Trick number two: tell everyone that you intend to keep rates low for a long time. Well, everyone knows already that the Fed is committed to fighting deflation and ensuring that banks' assets do not fall in value too much. A commitment by the Japanese to keeping their interest rates low (at almost zero) has not helped them in the past 10 years.

Trick number three: paying no interest on the private banks' excess deposits of money at the Fed. Well, the Fed is already only paying 0.25%, so cutting to zero is not going to make much difference. If these low returns are not incentivising banks to lend at the moment, this "change" in policy is going to make no difference at all.

Trick number four: targeting higher inflation. The chance of higher inflation would be a fine thing! One can target any number one likes, but if the current policy of printing money and setting policy rates at near zero is having no effect on consumer prices (which are rapidly heading towards deflation territory), then what use is a new target going to be? In fact, I can only imagine that it would be counterproductive; after all, how better to signal the fact that essentially you have no new tools left and are unable to fight deflation than to demonstrate clearly that you have no ability to hit your own targets.

So what does all this mean? It means that unless the Fed plans to print money and actually start buying real housing stock and real goods and services (because that would be a sure way of bringing inflation; probably hyperinflation, in fact), there is nothing left for them to do. Except what they have been doing, which is helping to ensure that the banking system does not implode again.

In other words, monetary policy is, for the time being, over. Either you believe that the private sector will recover in due course of its own accord or you believe that what we really need is a proper fiscal stimulus, the likes of which we are yet to see.

]]>

The White House is floating a new stimulus, though the Fed chief seemed to rule it out. But does he have any other tools?

Everyone was pretty glum about US GDP growth between March and June, when it was thought to be 2.4%. But due to the wonders of statistical revision, it now turns out that it was only 1.6%. Of course, those out of work do not care what the statistics say because they know exactly what the economy feels like to them now. All the same, these numbers are no doubt confirming people's fears that the dreaded second dip (of on-going depression) is on the way.

Coinciding with the revised GDP numbers, though, Fed chairman Ben Bernanke has announced that he is going to do all that he can, using all the tricks available, to fight deflation. So, what are those tricks and how successful might they be?

Trick number one: continue with quantitative easing (QE). In layman's terms, this means that he will continue to buy securities in the market place in order to keep their price up, and he will create funds (with the press of a button) at the Fed in order to pay for these purchases. This is good old-fashioned money-printing, and the Fed had already made it clear that it is what they intended to keep doing. Their aim with this policy is ensure that bond prices do not fall, because, if they do, private banks will find their asset base falling, their capital adequacy declining; and if one thing led to another, we would all find ourselves back in the financial maelstrom.

Necessary as this policy is, it is not a "stimulus", for this "high-powered money": that the Fed is creating is not, in fact, very high-powered at all; it does nothing to incentivise banks to lend and nothing to stimulate entrepreneurs and consumers to borrow and spend. It is a desperate policy to stop things getting worse.

Trick number two: tell everyone that you intend to keep rates low for a long time. Well, everyone knows already that the Fed is committed to fighting deflation and ensuring that banks' assets do not fall in value too much. A commitment by the Japanese to keeping their interest rates low (at almost zero) has not helped them in the past 10 years.

Trick number three: paying no interest on the private banks' excess deposits of money at the Fed. Well, the Fed is already only paying 0.25%, so cutting to zero is not going to make much difference. If these low returns are not incentivising banks to lend at the moment, this "change" in policy is going to make no difference at all.

Trick number four: targeting higher inflation. The chance of higher inflation would be a fine thing! One can target any number one likes, but if the current policy of printing money and setting policy rates at near zero is having no effect on consumer prices (which are rapidly heading towards deflation territory), then what use is a new target going to be? In fact, I can only imagine that it would be counterproductive; after all, how better to signal the fact that essentially you have no new tools left and are unable to fight deflation than to demonstrate clearly that you have no ability to hit your own targets.

So what does all this mean? It means that unless the Fed plans to print money and actually start buying real housing stock and real goods and services (because that would be a sure way of bringing inflation; probably hyperinflation, in fact), there is nothing left for them to do. Except what they have been doing, which is helping to ensure that the banking system does not implode again.

In other words, monetary policy is, for the time being, over. Either you believe that the private sector will recover in due course of its own accord or you believe that what we really need is a proper fiscal stimulus, the likes of which we are yet to see.

]]> http://best-mp3-music.com/2010/09/ben-bernankes-monetary-policy-poverty-chris-payne/feed/ 0 http://best-mp3-music.com/2010/09/chile-codelco-seeks-to-retire-up-to-3000-staff/ http://best-mp3-music.com/2010/09/chile-codelco-seeks-to-retire-up-to-3000-staff/#comments Sat, 04 Sep 2010 13:26:45 +0000 admin http://www.foxbusiness.com/markets/2010/09/04/chile-codelco-seeks-retire-staff/

SANTIAGO (Reuters) - Chile's Codelco, the world'sNo.1 copper producer, will offer up to 15 percent of itsworkforce retirement in a bid to shed as many as 3,000 jobs bythe year-end to boost efficiency, new CEO Diego Hernandez saidin a newspaper interview published Saturday.

Codelco is restructuring its staff andmanagement to help increase productivity and enable it tobetter compete with leaner private sector rivals.

While seen unlikely for now, any labor action could hurtsupply of the red metal.

"We have a special situation compared to our miningcompetition," Hernandez told newspaper La Tercera, saying theaverage age of the company's staff was 48. He added that 21percent of the workforce is either on sick leave or chronicallyill.

"That clearly affects productivity ... That means Codelcocan't definitely count on a fifth of its workforce," he added."We are talking about offering (retirement) to 10-15 percent ofCodelco's workforce."

Despite using state help to increase waning output, whileother miners cut production during the global economicdownturn, Codelco is challenged with cutting costs.

Industry experts often compare Codelco's productivity tothat of Escondida, the world's biggest copper mine operated byBHP Billiton <BHP.AX><BLT.L> and Rio Tinto <RIO.L><RIO.AX>,which out-produces Codelco's giant Chuquicamata mine with fewerthan half the workers.

Some of Codelco's workers are already past retirement age,and Hernandez wants to implement generational change in theworkforce.

Hernandez said he wasn't personally in favor of retirementplans, that said the restructuring needed to be done in thenext 3-4 months.

"We can't wait, we don't have time," he said. "They shouldbe finished by Dec.31, and during that time we will also makenew hires. So the workforce will fall, but we don't know by howmuch."

Hernandez has reorganized the company's mining divisionsand scrapped two vice-presidencies in a bid to boostefficiency. For more, see [ID:nN02240332]

The company's Federation of Copper Workers stopped short ofthreatening protests following the management restructuring,but called on its 15,000 members to be on a "state of alert forany calls from our organization to defend our rights."

The federation says the new divisions could take awayresources from aging units, which could trigger layoffs andhamper operations.

Unions have also threatened to take action if PresidentSebastian Pinera moves on campaign pledges to sell part of thecompany. Pinera, a billionaire businessman, has since scrappedplans to allow private investors into the company.

Hernandez added Codelco had no plans to liquidate futurescontract hedges given current high copper prices.

"Today we have hedges in place, and the price of copper hasremained relatively high. So I don't think this is the time toclose those positions," he said.

(Writing by Simon Gardner, Editing by Sandra Maler)