We predicted in our last post that Fed commentary over the near term would not support the notion of an early withdrawal, a near-term change in policy; that policy makers would hold the course – known hawks would remain hawks, and know doves would remain doves. That worked. The April 30 - May/1 FOMC minutes released 5/22 supported our notion even further. Fine.
Then things went haywire. We witnessed Bernanke’s testimony yesterday, which was consistent UNTIL the q&a, half an hour later, when Bernanke said, “If we see continued improvement and we have confidence that that’s going to be sustained, then we could in the next few meetings, we could take a step down in our pace of purchases.” Bond prices collapsed.
What a mess. Central bankers do not understand how to communicate with the market crowd and they never will. Thus, discretionary policy making is a fool’s errand.
Bernanke doesn’t know any more than most of us what to expect of the economy just ahead. But any crowd demands a god; the days of the Bastille and butchery on the streets have passed but there is still butchery to what was once a thriving economic machine, where decisions were based on known rules, and supply and demand were the clearing mechanisms. Now we have the decentralized auction arena replaced by a command center. Bernanke is the market’s god and when he is wrong, and he will be, the market will turn on him with a vengeance.
Market violence is good stuff for Street types, who buy and sell volatility for a living for example. But there is a higher calling. This higher standard is not a dream; it is a realty, one 226 years of age; it is that insight of a few individuals placed on paper one muggy summer in Philadelphia, from which we understand that we Americans can expect to conduct our lives free of constraint, free of discretionary government, free of interventionism, with anchorage provided by a rule of law; and, that we are to respect the intent and the property of those others so occupied.
With a government agency (independent or not) picking winners, there will be hell to pay.
Robert Craven
Then things went haywire. We witnessed Bernanke’s testimony yesterday, which was consistent UNTIL the q&a, half an hour later, when Bernanke said, “If we see continued improvement and we have confidence that that’s going to be sustained, then we could in the next few meetings, we could take a step down in our pace of purchases.” Bond prices collapsed.
What a mess. Central bankers do not understand how to communicate with the market crowd and they never will. Thus, discretionary policy making is a fool’s errand.
Bernanke doesn’t know any more than most of us what to expect of the economy just ahead. But any crowd demands a god; the days of the Bastille and butchery on the streets have passed but there is still butchery to what was once a thriving economic machine, where decisions were based on known rules, and supply and demand were the clearing mechanisms. Now we have the decentralized auction arena replaced by a command center. Bernanke is the market’s god and when he is wrong, and he will be, the market will turn on him with a vengeance.
Market violence is good stuff for Street types, who buy and sell volatility for a living for example. But there is a higher calling. This higher standard is not a dream; it is a realty, one 226 years of age; it is that insight of a few individuals placed on paper one muggy summer in Philadelphia, from which we understand that we Americans can expect to conduct our lives free of constraint, free of discretionary government, free of interventionism, with anchorage provided by a rule of law; and, that we are to respect the intent and the property of those others so occupied.
With a government agency (independent or not) picking winners, there will be hell to pay.
Robert Craven
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