Fed vs. Fed

The Federal Reserve has a dissident in their midst who is about to get FOMC voting rights. spyvsspy Philadelphia Federal Reserve President Charles I. Plosser gave one wallop of a speech making it very clear he disagrees with the Federal Reserve bailing out the Banksters and the Housing Market. He also disagrees with intervention in assets as well as giving the illusion the Federal Reserve can really do something about unemployment. From the speech:

I have suggested that the System Open Market Account (SOMA) portfolio, which is used to implement monetary policy in the U.S., be restricted to short-term U.S. government securities. Before the financial crisis, U.S. Treasury securities constituted 91 percent of the Fed’s balance-sheet assets. Given that the Fed now holds some $1.1 trillion in agency mortgage-backed securities (MBS) and agency debt securities intended to support the housing sector, that number is 42 percent today. The sheer magnitude of the mortgage-related securities demonstrates the degree to which monetary policy has engaged in supporting a particular sector of the economy through its allocation of credit. It also points to the potential challenges the Fed faces as we remove our direct support of the housing sector.

PPI for October 2010

The Producer Price Index for finished goods increased 0.4% in October 2010. The PPI measures prices obtained for U.S. goods. Intermediate goods prices increased 1.2% and crude or raw materials prices went up 4.3%. PPI is often called wholesale inflation by the press.

The reason finished goods prices increased was all energy, up 3.7% in one month.


Stiglitz argues for the U.S. to get on the global reserve currency bus

In a new op-ed Joseph Stiglitz argues that due to the national debt (projected to be $9.05 trillion over the next 10 years), America should get on the we need a new reserve currency beyond the dollar bus. Kind of a if you can't beat 'em, join 'em message. (see China and the Dollar for details on the Chinese game of chicken while pushing for a new reserve currency).

Our budget deficit, as well as the Federal Reserve's ballooning lending programs and other financial obligations, will accelerate a process already well underway -- a changing role for the U.S. dollar in the global economy.

Producer Prices decline 2.8% in October!

Producer prices for finished goods declined (-2.8%) on a non-seasonal basis in October, a much greater decrease than expected. On a year-over-year basis, the rate of producer price inflation has declined from 9.8% in July to 5.1% in October. We can expect this decline to continue when this month's number is released in a month, because producer prices had increased 2.6% in November 2007 alone.

This is a slice of good news. Typical post-WW2 recessions have ended at roughly the time when both the rate of producer price and consumer price inflation are declining (check), producer prices are declining faster than consumer prices (almost certainly check), and producer price inflation is less than consumer price inflation (not yet, but maybe in a month). That means producer profits margins are increasing, which makes business expansions more likely.

Cross your fingers that the decline isn't simply measuring our trajectory towards a full-fledged deflationary spiral.