Desiderata

Insider Trading Probe

– The SEC and the Manhattan DA are in the midst of a massive insider trading probe. It’s early in this one, so we can follow it from the beginning. Initial focus is in part on “expert networks” that trading companies put together to bolster the information they have on certain industries and companies. No charges yet. Let’s guess how the story is cast in the B-press: 1) overzealous prosecutors with some anti-Obama administration angle; 2) the ever changing face of insider trading rules; 3) insider trading rules are so complex even sophisticated investors don’t understand them. This should be fun. Stay tuned.

War of the Worlds (brought to you by a moron)

– Some clown at Yahoo wrote a piece about how the world would end if the Chinese stopped buying US Treasuries. Presumably, this is part of the rhetoric being put up to slow down QE2. Not mentioned by this moronic fear monger is what happens if the US stops buying Chinese goods, why the Chinese would benefit from total chaos in world financial markets, why others wouldn’t buy US Treasuries or the fact that these same stories were written 20 years ago, only then the villain was Japan, not China. Japan, with a structurally fucked up economic system went down. China will too, but it will take some time.

The World Isn’t Going to End

– Meanwhile, back at the ranch, or in this case the Cleveland branch of the Federal Reserve, a report says that inflation will stay low for the next couple of decades. OK, we have a bias against professional economists, but it is fun to see a group of economists saying inflation isn’t a big worry when there is a constant drumbeat from politicians that the Fed’s program of buying Treasuries to put money into the economy to increase investment (and thus economic activity) is going to turn the US into the Weimar Republic. The only group less dependable than economists is politicians. Particularly any group or politicians which includes the dumbest, most consistently wrong person alive today Billy William Kristol of the National Review. Whatever this gas bag says…bet on the opposite.

William Kristol is Opposed so Quantitative Easing Must be OK

We are not political. However, when a political hack like William Kristol takes a position on economic policy, it’s got to be wrong. An open letter in today’s WSJ by “economists” takes issue with the Fed’s recent approach to monetary policy of buying up Treasuries (this is what is called “quantitative easing”) saying that it will debase the currency and drive up inflation. I put economists in quotes because although they were billed as the authors of the letter, it was signed by gasbags like Kristol as well.

Since the goal of this site is to translate this sort of nonsense into something understandable, let’s start with a couple of easy observations.

First, there are economists on both sides of the argument. There is NO agreed upon position by economists as to the efficacy of this approach.

Second, there are Fed economists on both sides of the argument. While this is closely related to the first point, it is worth noting that in this case, the Fed isn’t a monolith. In fact, there are right-leaning economists at the Fed who support the policy.

Third, one impact of this policy that nearly everyone agrees on is that the dollar will be devalued. What that means for ordinary working people is that our exports will be less expensive overseas, and we should be able to sell more of them. That should translate into more jobs.

Fourth, there is no indication that this will lead to rampant inflation. The economy is very weak at the moment; a situation which will act as a damper on inflationary pressures.

Bottom line: Many US economists adhere to a mantra of keeping inflation down at all costs and at all times. This is not a universally shared outlook. There is no reason to think that the second round of quantitative easing will lead instantly to rampant inflation. None.

Oh, and for what it’s worth, the dollar rose today, as investors put their money in this safe haven currency as problems continued in the Euro Zone. I guess the people who wrote this letter were disappointed in that.