Most of us understand that things as they exist today are the product of tinkering, the product of politics; that at the Fed (and the administration) the notion to simply refrain from further damage did not/does not register. Most of us understand further that a simple set of rules – Volker-style – would have had us on a smooth recovery long ago.
Kumbaya is not a market-crowd favorite. This crowd, like any other, understands only blunt trauma, applied force. Anything less telegraphs timidity; the market crowd reserves only scorn and rejection for Bernanke’s effort to apply a great big hug. This crowd is in need of the likes of a Ulysses S. Grant at Vicksburg or Ft Donelson and until it gets that is will continue to behave irrationally, violently.
When as a central banker you try to be a pal to the market, when you try to communicate as a friend, you get knifed. For example, we know for a fact that Bernanke still cannot fathom the market’s reaction to his recent announcement. We can sympathize. It is tough to reason with a crowd (so don’t try it!). We recall at one point during Greenspan’s tenure when he was literally despondent, even near tears regarding the FI market’s reaction to a policy change - a lift of 25bp’s, FF’s - that the market crowd judged an act of timidity, not force, and then did exactly the opposite of what Greenspan intended it to do.
Some policy makers never seem to get it. To be effective, the Fed chair must remain aloof and detached. He must remember to set rules and to report to Congress twice a year on progress or lack of. But he must not tinker. He sets the rules of conduct (nominal GDP for example), then steps aside. Resources will find their proper home without his help.
Robert Craven
Kumbaya is not a market-crowd favorite. This crowd, like any other, understands only blunt trauma, applied force. Anything less telegraphs timidity; the market crowd reserves only scorn and rejection for Bernanke’s effort to apply a great big hug. This crowd is in need of the likes of a Ulysses S. Grant at Vicksburg or Ft Donelson and until it gets that is will continue to behave irrationally, violently.
When as a central banker you try to be a pal to the market, when you try to communicate as a friend, you get knifed. For example, we know for a fact that Bernanke still cannot fathom the market’s reaction to his recent announcement. We can sympathize. It is tough to reason with a crowd (so don’t try it!). We recall at one point during Greenspan’s tenure when he was literally despondent, even near tears regarding the FI market’s reaction to a policy change - a lift of 25bp’s, FF’s - that the market crowd judged an act of timidity, not force, and then did exactly the opposite of what Greenspan intended it to do.
Some policy makers never seem to get it. To be effective, the Fed chair must remain aloof and detached. He must remember to set rules and to report to Congress twice a year on progress or lack of. But he must not tinker. He sets the rules of conduct (nominal GDP for example), then steps aside. Resources will find their proper home without his help.
Robert Craven
No comments:
Post a Comment