You knew the Fed had to do something or the talking heads on TV would have nothing to talk about. And a Talking Head with nothing to Talk About is a scary thing, indeed. You get Megyn Kelly arguing about whether Santa Claus is really a chubby white guy even though he came from Turkey.
But here was the fear. If the Fed starts tapering, Markets could take that as a Bad Signal. Of course, no one knew what the bad signal would be.
Would it be a signal that the Fed finally realized its multi-trillion dollar balance sheet would generate Zimbabwean hyperinflation, as all the goldbugs tell us?
Or would it be a signal that the Fed was going to hike interest rates and kill the incipient recovery?
You see, the Fed had reached what J.M. Keynes would call the “Nth Degree”, where “we devote our intellegences to anticipating what average opionion expects the average opinion to be. And there are some, I believe, who pratise the fourth, fifth and higher degrees”…. We reached the Nth Degree about 3 years ago.
The Fed actually promoted this nonsense, as it turned policy-making into managing the beliefs of Expectations Fairies. All monetary policy is now about trying to outguess what markets think the Fairies are thinking.
There really is no proactive monetary policy. It is all about trying to manage the Fairies and then doing what the Fairies want the Fed to do.ROFL
Economonitor — Great Leap Forward
L. Randall Wray | Professor of Economics, University of Missouri at Kansas City
4 comments:
It would be perfectly possible to continue with QE till the entire national debt had been bought back. That would take us to the situation advocated by Warren Mosler (see 2nd last paragraph of link below) where the only liability issued by government is monetary base. I.e. government would issue no interest yielding debt at all. Milton Friedman advocated the same regime.
That would probably be a bit too inflationary, but any inflation would be easily countered by tax increases (not that the QE program to date seems to have made tax increases necessary).
That would have the fairies and economically illiterate economists totally confused.
http://www.huffingtonpost.com/warren-mosler/proposals-for-the-banking_b_432105.html
The Fed was tired of doing nothing, so they decided to stop. :(
"That would probably be a bit too inflationary, but any inflation would be easily countered by tax increases (not that the QE program to date seems to have made tax increases necessary)."
Not that the QE so far has been much anything else than a tax increase functionally.
"The Fed was tired of doing nothing, so they decided to stop. :("
That's funny!
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