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Yellen said the Fed was justified to be careful and cautious about raising interest rates further given the uncertainties facing the economy and mixed readings from the labor markets and economic growth seen this year.”
Perhaps the biggest news was the Fed Chairwoman’s firm rejection of negative interest rates as a potential policy tool in the event of a downturn in the economy.
Markets took Yellen’s first day of testimony in stride. Investors don’t think the Fed will hike rates until December.
Breaking economic news: Sales of previously owned homes increased in May to the highest level in nearly a decade.
Yellen says labor force participation has been flat over the past year and this is a sign of strength in the labor market.
“I am sorry, we are not trying to benefit the rich,” Yellen replied. Fed policy has fostered 14 million jobs since early 2010, she noted. Middle-class Americans have also benefited from rising home prices, Yellen said.
Yellen repeats that negative rates would not be in the Fed’s tool-kit to combat a potential economic downturn.
Could the American economy tank in 2016?
Laurence J. Kotlikoff, a William Fairfield Warren professor and professor of economics at Boston University The country’s greatest economic risk resides in the financial markets as well as the general public
A) learning precisely how broke the U.S. government is,
B) realizing how much money the Federal Reserve has printed since 2007 to pay the government’s bills,
and C) putting A and B together and realizing that the combination of ongoing political stalemate, Enron-type fiscal accounting, fiscal insolvency and a vast ocean of money, sitting in bank reserves and ready to be released into the economy’s blood stream at any moment, spells big trouble—including high inflation (if not hyperinflation) and sky-high interest rates.
This is not hyperbole.
The nation’s fiscal gap (the present value difference between Congressional Budget Office-projected future spending and taxes) stands at $200 trillion. This is our nation’s true fiscal debt, not the mere $13.5 trillion in the hands of the public that successive presidential administrations and Congresses have deemed to put on the books. And were we to see a return to the normal monetary conditions of 2007 (for econ geeks, this means the same money multiplier and the same velocity of money), prices would be 300 percent higher than is now the case. The country’s second greatest risk is from smart machines putting so many people out of jobs or out of good jobs that too few people can afford to buy what those machines make or save enough to maintain, let alone grow, our nation’s capital stock.
When the heads of Amazon and Google salivate over drone delivery vehicles and driverless vehicles, they might think about how many of their customers they will be firing.
The third big problem is our nation’s net domestic investment rate. We are saving next to nothing and, as a result, investing next to nothing. The postwar has witnessed a massive increase in household consumption relative to national income, primarily by older generations whose consumption has been financed by a massive off-the-books generational Ponzi scheme. Our low rate of investment helps explain the fact that real weekly earnings, apart from fringe benefits, are no higher today than they were 50 years ago. The last problem is that we’ve had and can expect to have no real reform of our tax, banking, Social Security, welfare or health care systems, all of which can be quickly fixed. All of these institutions have devolved into making work programs for fatuous bureaucrats. Economists are called dismal scientists for a reason, and the above is about as dismal a picture as one could paint. Unfortunately, it’s all true.