Resident
alarmist allahramist sri AEP is on a terrible rock'nroll here. Ne'er quite seen anything like this screed from this veteran commentator....
Shut Down the Fed (Part II) (Telegraph, UQ)
I apologise to readers around the world for having defended the emergency stimulus policies of the US Federal Reserve, and for arguing like an imbecile naif that the Fed would not succumb to drug addiction, political abuse, and mad intoxicated debauchery, once it began taking its first shots of quantitative easing.
My pathetic assumption was that Ben Bernanke would deploy further QE only to stave off DEFLATION, not to create INFLATION. If the Federal Open Market Committee cannot see the difference, God help America.
We now learn from last week’s minutes that the Fed is willing “to provide additional accommodation if needed to … return inflation, over time, to levels consistent with its mandate.” NO, NO, NO, this cannot possibly be true.
Whoa, whoa, whoa...go easy on the regrets and rig-rats, will ya, AEP dude....
So all those hillsmen in Idaho, with their Colt 45s and boxes of krugerrands, who sent furious emails to the Telegraph accusing me of defending a hyperinflating establishment cabal were right all along. The Fed is indeed out of control. The sophisticates at banking conferences in London, Frankfurt, and New York who aplogized for this primitive monetary creationsim – as I did – are the ones who lost the plot.
My apologies. Mercy, for I have sinned against sound money, and therefore against sound politics. I stick to my view that Friedmanite QE ‘a l’outrance‘ is legitimate to prevent a collapse of the M3 broad money supply, and to prevent outright deflation in economies with total debt levels near or above 300pc of GDP. Not in any circumstances, but where necessary, and where conducted properly by purchasing bonds outside the banking system (not the same as Bernanke “creditism”).
Aaah, ever more sane janta rediscover religion in these troubled times, seems like. Hey, in my own little way, Moi too had several wrenching moments of gyan that all my past models and frameworks and understandings of how the world worked were all and all-ways wrong only. Not a happy scene, that.
We have a very odd world. The IMF has doubled its global growth forecast to 4.5pc this year, and authorities everywhere have ruled out a serious risk of a double dip recession. Yet at the same time the Bank of Japan has embarked on unsterilised currency intervention, which amounts to stimulus, and both the Fed and the Bank of England are signalling fresh QE.
You can’t have it both ways. If the US is not in deep trouble, the Fed should not be thinking of extra QE. It should step back and let the economy heal itself, if necessary enduring several years of poor growth to purge excess leverage.
Hear, hear. But its not even as if what the Fed is doing is keynesianism. At least there, the gubmint spends on projcts that translate into wages for mango people - recall FDR's policies. Here, by lending money away @ 0% to banks, the FEd doesn;t even have the keynesian figleaf of concern and action on behalf of mango joes and janes anymore.
Yes, U6 unemployment is 16.7pc. But as dissenters at the Minneapolis Fed remind us, you cannot solve a structural unemployment crisis with loose money. Fed is trying to conjure away the hangover from the last binge (which Greenspan/Bernanke caused, let us not forget), as if to vindicate its prior claim that you can always clean up painlessly after asset bubbles.
Are the Chinese right? Are the Americans and the British now so decadent that they will refuse to take their punishment, opting to default on their debts by stealth?
{Err, what do you mean? Of course anglosaxonia would have to default on unpayable debt - didya doubt that ever or what??}
Sooner or later we may learn what the Fed’s hawkish bloc of Fisher, Lacker, Plosser, Hoenig, Warsh, and Kocherlakota really think about this latest lurch into monetary la la land, with all that it implies for moral hazard and debt contracts. If I have written harsh words about these heroic resisters, I apologise for that too.
oh, read it all....read it all...
Disclaimer: all opinions and perspectives only. Kindly retain perspective, scepticism and caveat emptor, as always.
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The world is not that simple.