Articles in major media that don't see the big picture

[cowmadagan]

Here's an article where the guy obviously has no concept of the roles of currency valuation and the central bank's job.

He misses that foreign investment happens because of high interest rates, and lots of foreign investment means growth. He also misses that low interest means a flow of money out of the country looking for higher yields.

Sure, low valued currencies are great for exports, but whatever.

 

[Pharaoh]

I agree with the point that politicians (who tend to have a very short-term view of the economy) shouldn't be manipulating central banks to help rig the next election. It just would be good if he could be a little more on target with the supporting text.

Most people miss the paradox that inflation devalues a currency while simultaneously increasing interest rates, thus making investors more likely to want to buy that currency. It's a delicate balance and either side can predominate when it's not well maintained by a strong central bank. It's strange how the world works, but people who write fiscal commentaries like this need to know these things. Sadly, most focus exclusively on one side or the other of this complex picture.

Hey Cowmadigan, we could do a series on "What's wrong with this article?"

 

[cowmadagan]

Sure, that's what I was hoping for. A thread of links where they see the square but can't tell it's a cube.

 

[clem699]

Politicians And Central Bankers

I agree with the point that politicians (who tend to have a very short-term view of the economy) shouldn't be manipulating central banks to help rig the next election. It just would be good if he could be a little more on target with the supporting text.

Most people miss the paradox that inflation devalues a currency while simultaneously increasing interest rates, thus making investors more likely to want to buy that currency. It's a delicate balance and either side can predominate when it's not well maintained by a strong central bank. It's strange how the world works, but people who write fiscal commentaries like this need to know these things. Sadly, most focus exclusively on one side or the other of this complex picture.

Hey Cowmadigan, we could do a series on "What's wrong with this article?"

Which ever way we look at it,fiscal policies are naturally expected to be formulated by professionals and then endorsed or ratified by the government.But on the second hand,just like international politics and diplomacy,fiscal policies cannot be left solely in the hands of professionals.Politicians will always want to be in the good books of the public by trying as much as possible not to burden the people with unpopular policies and programmes because of their political interest and future.Politicians will,often,tend to scrutinize or not give absolute independence to the central bankers.

This is not synonymous to the US or Korea Japan but the world over.

 

[cowmadagan]

The US was built on checks and balances. We all know that just because we don't hold a political post doesn't mean we don't have political positions.

I watched the DPP deliberately do several steps during their last weeks in office to drive the Taiwanese economy down, just so that they could blame it on the KMT, as their approval ratings couldn't have been much worse. An example is lowering the subsidy on gas. That shows that if central bankers are swayed even by the party that isn't in power, they still really have their feet on our necks.

 

[cowmadagan]

Here's a new one.

My complaint is about this section:
“The key point is that the Fed should raise short-term interest rates from near zero to modest levels—say 2 percent. Long ten- or thirty-year bond rates would be largely unaffected or could even fall. But in the current zero- interest liquidity trap, such a modest increase in short rates has distinct advantages.

“First, in the huge but still constricted wholesale interbank market, constraints on borrowing or lending at medium terms to maturity would be largely relaxed. Only then can general bank credit at “retail,” that is, to firms and households, increase. Surprisingly, retail bank credit in both the United States and Europe is still declining."

The fact is, if you're watching the reforms that are being proposed by the BIS (if you don't know that acronym then I'd contend that you don't know the current situation...I say that because after I found out about it, my understanding completely changed...that means I'm not being elitist...it's a group of banks and the international standards they decide on to make it so that credit and capital holding of banks hold some meaning) you'll find out that banks are playing a game of hopscotch in anticipation for the new regulations that are likely to be imposed this year on tier 1 capital and deductions.

The fact is, banks won't be allowed to take the risk they have.

Now, to be the devil's advocate, I'd like to make one point. Mostly because of the competitiveness of banks, and also because we don't pay attention when banks are making record low profits (we notice when they're high), the only way to have a profitable bank is to take risks that no person would be willing to take.
If you don't, then you'll get a reputation for denying loans, where the soon-to-be big boys will make the loan because they 'have enough money to write it off.'

I personally believe that the average joe sunk both the big banks, and the economy. That said, I also believe that the big banks took their blow and their bailout, then paid their loans with interest only at fair market value. They didn't pay for the investment losses or more importantly the job losses of the public.

One thing we should all learn in our experience as traders, and also because of the pending ban of proprietary trading by banks, is that because you can't rely on a single trader to be right enough to make your quarterly income, or even a group of one hundred traders, it's not as simple as people believe it is to consistently give competitive rates.

Blah blah blah. At the end of the day, I'm saying I don't believe in monsters.

I guess I can also say that I don't believe in lifelong supermans either. (neat word, huh? supermans)

As a matter of fact, not raising interest rates is one of the biggest pieces of 'look out for the little guy' in government that I tend to see.