Federal Reserve | timiacono.com - Part 4

Here’s the data on student loans and home ownership that’s been getting a lot of attention in the last day or so in chart form from its original source at the New York Federal Reserve.

Just in case it isn’t already obvious, many of those youngsters aged 27  to 30 who should be most able to buy property because they went to college and are making more money than they would otherwise are not doing so, in part at least, due to their student loan debt.

What’s really surprising about this is that, over the last few years, the implied home ownership rate of those with student loans has actually fallen below those who have no student loans, a group that, presumably, includes lots of college graduates who got through college with little or no debt along with those who never felt the need for higher education.

Of course, the bigger picture here is that overall home ownership amongst the younger set has fallen precipitously since the financial crisis, dropping by nearly a third, from over 30 percent to just over 20 percent.

Senator Rob Portman (R-OH) offered up one of the more insightful comments/observations during yesterday’s session with Federal Reserve Chairman Janet Yellen, at least according to this New York Times account of the gathering.

You don’t hear much talk about the relationship between relatively low capital investment and the actions of the central bank to prop up the economy and financial markets, but maybe we will after remarks like this.

“I worry that the Federal Reserve is trying to use its monetary policy hammer to solve a problem that’s really not a monetary problem and at some risk of doing so,” said Senator Rob Portman of Ohio.

Companies, he said, would not invest “no matter how low interest rates go” because they were frozen by uncertainty about the economic outlook.

Mr. Portman suggested the Fed could help by ending its stimulus campaign because it had become a crucial source of the uncertainty.

Of course, Yellen responded by saying monetary policy is not a panacea and, since I didn’t witness this exchange, it’s impossible to know if there were any body language cues that might shed more light on what she really thinks about the subject.

It makes sense that, after 20 years of increasingly large asset bubbles that all ultimately meet their pins, business owners would be increasingly cautious, particularly after the latest one and the Fed’s response to it. The issue is further complicated (and not in a good way) by the fact that just about everyone in the world except the Fed thinks central bank policy has been a major factor in inflating said bubbles and it’s also worth pointing out that this group doesn’t have a very good track record of spotting bubbles as they’re developing.

Jim Grant of Grant’s Interest Rate Observer shares a few thoughts about Federal Reserve Chairman Janet Yellen’s appearance yesterday before the Joint Economic Committee.

Grant explains how Yellen could make herself more clear during such visits:

If she said, for example, we believe in price control, we believe in market manipulation, and we believe in the Phillips curve, the Phillips curve being the trade-off between employment and inflation. Each of these ideas is widely discredited.

Each is dearly embraced by the federal reserve and you can in fact tease out from her remarks that she is a believer in all three of these heresies. It’s not chairman Yellen, but the entire fed is built around these doctrines.

Note that the oddity discussed in the opening seconds is occurring yet again today as bond prices are rising (somewhat disturbingly, along with stock prices) despite the certainty of the central bank buying fewer bonds next month than they did last month. It appears the bond market knows something that neither the Fed or the stock market know.

There’s a fascinating romp through the history of U.S. coinage in Coins that Go Clunk at The American that held even a few surprises for someone like me, who is pretty familiar with the whole American progression from sound money to a pure fiat currency.

Author Alex Pollock gets to the first surprise in his first sentence in the little known (and ironic) Golden anniversary of the move away from silver coins that has led to the one dollar silver coin below being worth about twenty times that amount at coin shops (it’s still only worth a dollar at a bank where, as I understand it, they must accept it as legal tender).

The year 2014 is a little noticed 50th anniversary: the anniversary of the disappearance of U.S. silver coins from circulation in 1964. In that year, the American people decided that silver was probably going to be a better store of value than paper dollars, regardless of the pronouncements of the central bankers and politicians of the time. The people were right. At silver’s year-end 1960 price of 91 cents an ounce, the 0.77 ounces of silver in a silver dollar had been worth about 70 cents. But by late 1963, it was worth a dollar. Today, with silver at approximately $20 an ounce, the silver in a silver dollar is worth more than $15. (Silver has been as high as $49 an ounce.)

Up to the 1960s, American dimes and quarters (as well as half-dollars and silver dollars in those days) rang when you dropped them on a table. Now they go clunk. This change from coins made of silver, it might be said, is of little practical importance. Yet it symbolizes a profound shift in the behavior of the U.S. government with respect to money, a precursor to the immensely destructive Great Inflation of the 1970s.

Long before the 1960s, all the gold coins and bullion of American citizens had been confiscated by their government under its diktat of 1933. At the same time, the same government defaulted on the bonds it had promised to pay in gold. It took the extreme, indeed despotic, step of making any possession of gold coins or bullion by American citizens illegal and a punishable, criminal offense! It became harder for Americans to protect themselves against money printing. This law, which today is hard to believe was real, lasted four decades, until 1974.

Silver certificates, the collapse of Bretton Woods, and a host of other topics are covered in a report that is well worth reading in its entirety, even if you think you know the whole story.

Another thing I didn’t know was that the 1965 coinage act was the first fundamental change in U.S. coinage since 1792 – during George Washington’s first term as the first president.

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