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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the Fed’s interest rate announcement, the divided cultural experiences of America’s upper and lower class, and whether or not “the American way of life” still exists.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

U.S. Stocks Cheer Fed’s Rate Pledge
The New American Divide
Quiz: How Thick Is Your Bubble?

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech and Francis Cianfrocca are joined by Newt Gingrich to discuss his plans for entitlement reform, how he would change the Federal Reserve, the Eurozone crisis and more.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

David Brooks: The Gingrich Tragedy
Newt’s plans for healthcare reform
Newt Slams Media For Not Demanding Transparency Of The Fed
Newt.org
Newt Gingrich Judges You

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Brian Domitrovic author of a new paper published at The Laffer Center entitled, The Secret Term in the Fed’s Triple Mandate. We’ll discuss how Ben Bernanke’s Federal Reserve stacks up against those of the past, the role they’ve played in today’s stagnant economy, and how a shift of their policy could help push us out of the Great Recession.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

The Secret Term in the Fed’s Triple Mandate: A Critical History
Buy Brian’s book Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity on Amazon
Elastic Currency, With a Vengeance
Brian Domitrovic’s writings at Forbes
Brian Domitrovic at The Laffer Center

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Over the last five months the strength of the United States economy has surprised on the up-side. America posted its strongest quarterly economic growth since the end of 2006 and U.S. corporate profits hit an all-time record high. But with the end of 100% “bonus depreciation, government spending shrinking for the first time since the 1940s and rising tax rates”; I project America is falling into a recession that will drive up unemployment to a new highs during the 2012 election.

Although the U.S. economy officially emerged from recession twenty-six months ago, most Americans report that they believe there has been little or no growth and 75% believe the nation is headed down the economic wrong track. The “Great Recession” of 2007 to 2009 was the longest since the Great Depression and was the first time U.S Gross Domestic Product actually fell in any year since 1948. Unemployment according to the Labor Department peaked in October 2009 at 10.1% and then declined to 9% last month. But this statistic does not include those unemployed who have been out of work for so long they no longer “participate” in registering for unemployment benefits. As shown below; labor force “participation” shrank by 2% since 2009. Add in these jobless and real unemployment rate is at a record 11% right now:

The stimulus that has recently been driving GDP growth is a provision contained in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This tax incentive allows businesses to book 100 percent “bonus depreciation” for any qualified capital expenditures purchased and taken delivery by December 31, 2011. This explains why the industrial production index has jumped back up to its average level for the last 40 years. The good news is businesses substantially increased capital investments in everything from $25,000 new Ford cars to $335 million Boeing 747 airplanes. The bad news is that business investments are being pulled forward into 2011 and 2012 suffer an off-setting fall in demand. Next year the U.S. economy will surprise on the down-side and unemployment will be on the upswing.

To fund spending increases on salary and pension benefits during the Great Recession; state and local governments raised taxes so much the effective percentage of all taxes paid by the average household in America jumped from 17.5% to 17.9%. This $247 billion tax increase more than off-set the stimulus effects of the last year’s federal payroll tax cut stimulus; but was not enough to prevent the lay-off of over 900,000 workers. But with voters in revolt and tax collection falling; state and local governments will cut spending this year for the first time since 1944.

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From Newsweek:

One of the more dramatic episodes in the book recounts the trading activity of Republican Rep. Spencer Bachus, of Alabama, who, as the ranking member of the House Financial Services Committee, was privy to sensitive high-level meetings during the 2008 financial crisis and proceeded to make a series of profitable stock-option trades.

Bachus was known in the House as a guy who liked to play the market, and in fact he was pretty good at it; one year, he reported a capital gain in excess of $150,000 from his trading activities. More striking is that Bachus boldly carried forth his trading in the teeth of the impending financial collapse, the nightmarish dimensions of which he had learned about first-hand in confidential briefings from Treasury Secretary Henry Paulson and Fed chairman Ben Bernanke. On Sept. 19, 2008, after attending two such briefings, Bachus bought options in an index fund (ProShares UltraShort QQQ) that effectively amounted to a bet that the market would fall. That is indeed what happened, and, on Sept. 23, Bachus sold his “short” options, purchased for $7,846, for more than $13,000—nearly doubling his investment in four days.

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We at MRCTV were in New York City’s Zuccotti Park in late October, and one of the things we wanted to do was see how much the people protesting actually knew about…what they were protesting.

Shortly before we left, New York Magazine conducted an experiment called, “Are You Smarter than a Wall Street Protester?” in which they asked a series of questions to the brave soldiers in attendance.

Given the study was done with a pen and paper, Joe Schoffstall figured he’d ask questions and record it on video. In fact, the questions are almost exactly the same- so most of these people could have been polled by the magazine, having an advantage to this basic knowledge quiz.

Joe asked 6 questions to the protesters, in which we’re breaking down into 2 videos of 3 questions each for length reasons. The following questions are in this video (Part I):

1. What is the Dodd-Frank Act?

2. Who is the Chairman of the Federal Reserve?

3. Who is Elizabeth Warren?

Here are their responses:

The Answers:

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Now we’re begging: Will someone PLEASE bring back Glass-Steagall? The Glass-Steagall Act was, of course, the legislation passed in the early 1930s in response to a certain banking crisis that led to a particular Great Depression. Among other things, the Act erected a “Chinese wall” between a financial institution’s investment banking and merchant banking functions. In less complicated terms, the law forced banks to separate any business it was transacting on behalf of clients from the speculative moves it made with its own money. For the layman: banks can’t make dumb bets with clients’ money.

Sort of makes sense, doesn’t it?

Well apparently it seemed a bit stingy for President Clinton and the Republicans in Congress in 1999. We have Senator Phil Gramm and Representative Jim Leach to thank for that one. Here’s the problem: The heads of big banks have this terrible habit of thinking that they’re the smartest guys in the room. Anyone who doesn’t believe that need only watch Ben Bernanke talk for more than 30 seconds. Actually, let’s refine that a bit. The problem isn’t that banking executives think they’re savants, the real problem is that they aren’t.

In the modern financial age, a lot of very highly paid guys with impressive titles who look at way too many numbers and think they make sense have concocted some very complex “hedging” strategies for “managing risk.” They think they understand the crafty derivatives they’ve invented – which are completely unregulated and totally opaque – and all the counterparty risk involved. They don’t, and therein lies the rub.

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It was a year and a half ago (May 17, 2010) when we first warned about Greece and hypothesized just how close France and the UK might be to the continental vortex we thought was in the process of spinning out of control. We also warned that we could expect the same result here if we persisted on pursuing the same economic model in the United States. Well, things have not improved.  Not there, and not here. Things have only gotten worse.

Greece is in violation of the covenants that were imposed as conditions of the first tranche of the bailout it received just last July. Italy just experienced a severe downgrading of its debt as did two of the three largest banks in France, with France’s largest bank having been placed on a negative watch list by the rating agencies. A major French/Belgian-owned bank is in a state of near collapse over its exposure to Greek debt as we write this. Concurrently, The Fed has embarked on what can be described as “QE 3 light” (…if at first — or second — you don’t succeed…), with Chairman Bernanke warning just last week that the US economy “is close to faltering.”

Let’s review the anatomy of the persistent and growing dilemma in Europe as well as the vacuous, if not clueless, approach the White House is pursuing to deal with our own deteriorating situation in the United States.

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From the Associated Press:

Federal Reserve Chairman Ben Bernanke says the economic recovery “is close to faltering” and the central bank is prepared to take further steps to support it.

The economy is growing more slowly than the Federal Reserve had expected, Bernanke said Tuesday before the congressional Joint Economic Committee. He said the biggest factor depressing consumer confidence is poor job growth.

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Stocks collapsed roughly 700 points over two days after the Federal Reserve launched its “Operation Twist.” The market correctly perceives that the central bank’s plan to swap $400 billion of short-term notes for long-term bonds adds no new reserves to the financial system. So it wasn’t QE3, that’s for sure. No stimulus. In fact, with the Treasury yield curve flattening, the Fed’s sterilized asset swap actually tightened financial markets.

The Fed should have listened to the GOP congressional leadership, which in a letter advocated no more stimulus and no more market-subverting interference.

But the real issue is the new FOMC forecast: “There are significant downside risks to the economic outlook, including strains in global financial markets.” That was the killer statement.

So let me repeat: We are on the front end of a recession. The profits picture is very much in doubt. More Obamanomics tax hikes are in the air. Europe is unsolved. U.S. finances are a mess. All this is being discounted by slumping stocks.

Corporate credit risk spreads have been widening, which is a negative for the profits picture, as economist Michael Darda has pointed out. Profits are the mother’s milk of stocks. And the European funding markets have tightened substantially, as their much-wider financial-stress spreads all indicate.

(more…)

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the collapse of the European markets over the past six weeks, the Fed’s “Operation Twist” and the crazy philosophies of Elizabeth Warren.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

U.S. Stock-Index Futures Trim Losses After Four-Day Rout
€gads!
Fed’s ‘Operation Twist’ Fails to Convince Investors It Will Boost Growth
My Dog Owns My House? I don’t think so…

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In a move that some are calling QE3, the Federal Reserve announced yesterday that it will engage in a policy called “the twist” – selling short-term bonds and buying long-term bonds in hopes of artificially reducing long-term interest rates. If successful, this policy (we are told) will incentivize more borrowing and stimulate growth.

I’ve freely admitted before that it is difficult to identify the right monetary policy, but it certainly seems like this policy is – at best – an ineffective gesture. This is why the Fed’s various efforts to goose the economy with easy money have been described as “pushing on a string.”

Here are two related questions that need to be answered.

1. Is the economy’s performance being undermined by high long-term rates?

Considering that interest rates are at very low levels already, it seems rather odd to claim that the economy will suddenly rebound if they get pushed down a bit further. Japan has had very low interest rates (both short-run and long-run) for a couple of decades, yet the economy has remained stagnant.

Perhaps the problem is bad policy in other areas. After all, who wants to borrow money, expand business, create jobs, and boost output if Washington is pursuing a toxic combination of excessive spending and regulation, augmented by the threat of higher taxes.

2. Is the economy hampered by lack of credit?

Low interest rates, some argue, may not help the economy if banks don’t have any money to lend. Yet I’ve already pointed out that banks have more than $1 trillion of excess reserves deposited at the Fed.

Perhaps the problem is that banks don’t want to lend money because they don’t see profitable opportunities. After all, it’s better to sit on money than to lend it to people who won’t pay it back because of an economy weakened by too much government.

The Wall Street Journal makes all the relevant points in its editorial.

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Obama finally got something right. Can you believe it? In a recent interview, Obama said he is confident we will not enter a double dip recession. Brilliant Sherlock. No, we are not entering a double dip. That is because we never left the first dip. Only Obama could get something so right, because he is so wrong.

While Obama, Fed Chief Bernanke, Treasury Secretary Geithner, and various other Obama economists, lackeys and socialist cabal members drone on about double dip, or not to double dip, common folks on Main Street understand that there has never been a recovery.

The continuing Great Recession started on Bush’s watch in 2007 and has never ended. Like Herbert Hoover, another Republican President who panicked, and failing Capitalism 101, abandoned fiscal conservative principles, George W. Bush turned to big government to “save us.” And as usual, the more government tries to save us, the worse it gets. So Bush channeled Hoover, starting the bailouts, stimulus, and insane levels of spending and government intervention.

Then, just when you thought it could not get any worse, along came Obama with his “Axis of Evil” game plan. What is the “Axis of Evil,” you ask? It is the principles to which Obama’s life is dedicated: Taxation, Regulation, Government Strangulation, Unionization and Litigation.

(more…)

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss Hurricane Irene, Warren Buffett’s mysteriously timed investment in Bank of America, and the Fed meeting in Jackson Hole, Wyoming.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Track Hurricane Irene on Stormpulse
Berkshire Hathaway Invests $5 Billion in Bank of America
Obama talks to corporate titans on economy
Buffett to Host Obama Fundraiser in New York
Economic Growth Slows to Crawl, GDP Increase at 1%
What Do Markets Expect From Jackson Hole? (more…)

[As the Republican nominee begins his opening statement, President Obama reflects.*]

I

Ooooh . . . he speaks, the right’s Orion!

Expel your foul dis-charges—phew!

Could glares steal breath, Paulie Ryan,

‘Bout now you’d be turning blue!

Huh?  Big spending cuts are needed?

Ah, Fed tax rates mustn’t rise.

And these . . . “facts” I’ve not conceded?

Why?  They’re falsehoods, damn your eyes!

II

In the past we’ve had discussions–

“Paul–thanks for coming!”—I must bear

Rants on Market repercussions,

Treas’ry futures, budget snares.

Our job outlook’s pathetic; rarely

Has it been this bad, I think.

Want a deal to face this squarely?

Want emetics in your drink? (more…)

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On today’s edition of Coffee and Markets, Francis Cianfrocca and Ben Domenech talk about Rick Perry’s comments on the Fed, and Florida’s Adam Hasner talks about his run for the Senate.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Perry Doubles Down on Fed: Open Up and Be Transparent
GOP Field Launches Sharp Attacks on the Fed
Florida Senate Race Heats Up Early
Adam Hasner Speaks at Redstate
(more…)

Gov. Rick Perry scorched the political pot on Tuesday with a red-hot rhetorical attack on Fed-head Ben Bernanke. When asked about the Fed reopening the monetary spigots, Perry said, “If this guy prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we — we would treat him pretty ugly down in Texas.”

And that wasn’t all. In a more controversial slam, Perry said, “Printing more money to play politics at this particular time in American history is almost treacherous — or treasonous — in my opinion.” (Italics mine.)

Pretty rough stuff. Very aggressive language. And undoubtedly way too strong. It was poorly received in the financial world.

No, Ben Bernanke is not a traitor. This is a policy dispute; it’s not a matter of patriotism. However, and this is an important however, the rest of Perry’s statement suggests that his analysis of Fed policy is right on target. In other words, wrong words, right analysis.

The Texas governor, who by some polls is the new Republican presidential frontrunner, went on to say, “We’ve already tried this. All it’s going to be doing is devaluing the dollar in your pocket. And we cannot afford that.”

Well, to me that is exactly right.

(more…)

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On today’s edition of Coffee and Markets, Brad Jackson and Ben Domenech are joined by Francis Cianfrocca to discuss the European credit crisis, the possibility of a QE 3 and Obama’s plan to be Landlord in Chief.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:

Short Selling Ban Will Not Deter Bears
Fed Now More Likely to Do Third Round of Easing
The Aura Of the Fed Is Gone, Good Riddance
Gov’t considers turning foreclosures into rentals

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Ben Bernanke’s shocking FOMC announcement on Tuesday — that its zero-interest-rate target would be extended for two more years through the middle of 2013 — drove Dow stocks up over 400 points. But this new policy had no stock market carry-over on Wednesday, when the Dow plunged over 500 points.

But we have not heard the last from Ben Bernanke — not by a long shot.

Buried in the last paragraph of this week’s surprise FOMC announcement was this huge statement: “The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability.”

This is a brand-new statement. And in all likelihood it was purposefully open-ended. A Fed source suggests that this sort of stuff is usually left out of sight and buried in Fed committee minutes, released well after the FOMC meeting, and not put boldly in the actual policy statement. So clearly, it’s very important.

What might it mean?

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From The Associated Press:

The deal reached by Congress to raise the debt ceiling and cut more than $2 trillion in public spending should have only a minor impact on the economy for the next two years.

Almost all the cuts would be made in 2014 or beyond. The approach heeds a warning by Federal Reserve Chairman Ben Bernanke and many private economists: Cutting too much too soon could harm the weak economic recovery.

Yet the deal won’t do much to help the economy, either, at least in the short term, economists said.

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