There will be little substantive accomplished for the US economy through the Fed’s latest program.
There is a spark for equity types (the 20% who own 93% of equities) and a bit of a boost for mortgage types, but only a bit. Lower, longer rates make hardly any difference. And we are awash in liquidity.
Bernanke is a fine, fair and honest guy; he is a stranger to deceit. Thus we saw his appointment as a welcome change. He is however, as is true with most of his colleagues (Fisher and a few others excepted), out of his league in understanding the auction markets. These markets, like any crowd, demand a god; only a lightning bolt from time to time gets their attention. Bernanke’s Kumbaya-around-the-campfire, soft and cuddly approach does not allow for that. And so he is in a fix, the very fix we predicted in earlier posts.
And this is not lost of most policy makers. Behind closed doors they know there is little they can do, except favor a few pockets of activity, and, further penalize seniors.
Most policy makers know it is up to Congress but they aren’t sure that Congress will do much. That is why the Fed itself is trying to make fiscal policy of the stealth variety.
Most of us who have observed the Fed for years know what they should do – sit on their hands (and stop the foolishness of paying interest on reserves).
We have plenty of evidence, thanks to Friedman, Schwartz and others that rule-based monetary policy works and random interventionism does not. Naturally the Fed is there for another 2008 if need be. But aside from crisis, a general trend to planning at the Fed is bound to fail. No one can do it; it is beyond any single individual’s competence, either in central banking or government.
The prosperous 80’s and 90’s were birthed by a steady-as-you-go monetary policy (they were also birthed by the reduction of gov’t interventionism and an end to suffocating regulations). We may return to that next year, but now what? That is, how do we translate today’s announcement to the bottom line? We will take that up in tomorrow’s sketch.
Robert Craven
There is a spark for equity types (the 20% who own 93% of equities) and a bit of a boost for mortgage types, but only a bit. Lower, longer rates make hardly any difference. And we are awash in liquidity.
Bernanke is a fine, fair and honest guy; he is a stranger to deceit. Thus we saw his appointment as a welcome change. He is however, as is true with most of his colleagues (Fisher and a few others excepted), out of his league in understanding the auction markets. These markets, like any crowd, demand a god; only a lightning bolt from time to time gets their attention. Bernanke’s Kumbaya-around-the-campfire, soft and cuddly approach does not allow for that. And so he is in a fix, the very fix we predicted in earlier posts.
And this is not lost of most policy makers. Behind closed doors they know there is little they can do, except favor a few pockets of activity, and, further penalize seniors.
Most policy makers know it is up to Congress but they aren’t sure that Congress will do much. That is why the Fed itself is trying to make fiscal policy of the stealth variety.
Most of us who have observed the Fed for years know what they should do – sit on their hands (and stop the foolishness of paying interest on reserves).
We have plenty of evidence, thanks to Friedman, Schwartz and others that rule-based monetary policy works and random interventionism does not. Naturally the Fed is there for another 2008 if need be. But aside from crisis, a general trend to planning at the Fed is bound to fail. No one can do it; it is beyond any single individual’s competence, either in central banking or government.
The prosperous 80’s and 90’s were birthed by a steady-as-you-go monetary policy (they were also birthed by the reduction of gov’t interventionism and an end to suffocating regulations). We may return to that next year, but now what? That is, how do we translate today’s announcement to the bottom line? We will take that up in tomorrow’s sketch.
Robert Craven
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