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Warren, Yellen, and Too Big to Fail

It appears they left the best for last yesterday as Sen. Elizabeth Warren (D-MA) closed out day one of Fed Chair Janet Yellen’s semi-annual monetary policy report to Congress with this wholly unsatisfying exchange about too-big-to-fail banks (hat tip Not Quant).

Skip to the 1:34:45 mark of the entire CSPAN video here to find another interesting exchange, this one with Sen. Tom Coburn (R-OK) where Yellen is asked whether it might not be a better idea to just not create so many asset bubbles to begin with.

Well, he didn’t exactly ask it like that…

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Now that the U.S. team has been eliminated from the World Cup, we ‘Mericans can focus on what we really do best – inflating asset bubbles – and that effort should be bolstered by what is shaping up to be a big number in the nonfarm payrolls data due out from the Labor Department on Thursday, just prior to the nation celebrating its 238th birthday on Friday.

From these two reports at Gallup come the charts below indicating all systems are go.

Of course, it doesn’t hurt that payroll processor ADP reported earlier today that the private sector added 281,000 jobs last month, the biggest job creation total since November 2012.

This should be much more fun than watching soccer…

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Private Sector Debt Still Unmanageable

Rex Nutting states the obvious (well, at least to anyone who isn’t an economist and who doesn’t work for the Federal Reserve) about private sector debt in this item at Marketwatch:

For the past six or seven years, most of what the Federal Reserve has done to fix the problem has been focused on getting the credit spigot turned back on: cutting interest rates and hectoring banks to start lending again, even though demand for loans was weak.

It’s a surreal policy because, while the proximate cause of the Great Recession was the collapse of borrowing in 2007-2008, the ultimate cause was the growth of unsustainable debt over many years, culminating in a doubling of debt between 2000 and 2007.

It’s nice to see that “unsustainable debt” as the root cause of our recent woes is an idea that is catching on and, it seems likely that, after another few years or so of tepid consumer spending, we’ll at least begin to rethink the whole idea of indebted American consumers as the primary engine of economic growth.

The Fed Has Been Wrong Everytime

Here’s a rather harsh (and well deserved) assessment of Federal Reserve policy from Sri Kumar, president at Sri-Kumar Global Strategies, who points out the central bank’s abysmal track record on forecasting economic growth and how they have a fantastic track record for “taking the punch bowl away” far too slowly.

His closing comments are interesting. Particularly after the recent developments in Iraq, 2014 is suddenly starting to feel a lot like six or seven years ago when stocks had reached all-time highs and then oil prices started rising rapidly. We all know how that turned out.

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