Obama doubles number of economists on FOMC

[Kurt_and_Hunter]

When Obama appoints Janet Yellen as Fed Vice Chairman it will double the number of economists on the Fed board and Fed open market committee.

To two.

The other economist is, of course, Ben Bernanke. The rest are former bankers and other "business leader" types.

The single government action likeliest to most determine whether Obama is re-elected is whether the Fed raises rates in the next two years.

Some members of the board and the FOMC are already champing at the bit to raise rates because it seems like "common sense."

The argument for keeping rates at zero even if some inflation develops is very, very strong but also very academic.

Bernanke is likely to get it and Yellen will add another "gets it" voice.

This is particularly important because gas is likely to hit $3.00 this summer, increasing the erroneous public perception that inflation exists. (There is no core inflation in this economy. Really.)

[vaberella]

1. Markopolos talked about the lack of changes in SEC and said they needed economists and bankers.

And stockbrokers in these fields. Hopefully Obama will move these changes to the SEC section and fill them with these ex bankers who can make some changes.

[AllentownJake]

2. There is both inflation and deflation occurring at the same time in our economy

Houses, business real estate, and wages are deflating. Energy prices, food, and some manufactured goods are inflating.

At the end of the day, my belief is that this is related to one thing. The price of energy.

Our entire economy over the past 30 years was built on the stool of low energy prices. One of two things needs to happen, either energy is made cheaper, or people need to consume less.

I'm also of the belief the Federal Reserve, short of building power plants, public transportation, and more energy efficient machines can do little about this.

[Kurt_and_Hunter]

3. Thought experiment...

Thought experiment: If gasoline dropped to $0.50/gallon would it cause wages to drop? Would it cause housing to drop?

I don't think it would. Since we are a net importer of energy it wouldn't be deflationary so much as just be a good deal on gas.

The stock market would shoot through the roof. People would have more money to chase goods that are priced domestically and flexibly. (Unlike energy on both counts.)

Compare an energy price collapse to a real estate price collapse in their effect on our economy and it seems that energy is a very special case... it seems to behave more like a tax than like systemic inflation.

In the USA.

In Russia, a net exporter, an energy price collapse would be deflationary and soaring energy prices inflationary.

Higher energy=less American money in USA=non-inflationary in USA.

Or at least that's my top-of-the-head take.