Fed Hysteria

Check out this quote from Daniel Henninger in today's  WSJ:

"Not least, the future of the slow-growth, anxiety-producing American economy is in the hands of one nice lady named Janet Yellen, who presides over what is literally a central-bank black box. Crazy."


People this is indeed crazy. Also ridiculous, untrue, ignorant, etc. 

 Repeat after me, the FED does NOT control the real growth rate of economy!

(In fact it barely influences it).

Then as a corollary try this, The FED chair is NOT the dictator of the FED and the FED is NOT independent of politics.

There is a boatload of academic research supporting all three of these points.

But America is gripped by this weird cult of personality view of economic events. The Volcker recession, Alan Greenspan; The Maestro, the Greenspan (and Bernanke) put. 

The FED chair is NOT steering the American Economy.

Quantitative Easing

The nice thing is that this raises questions about what "pretend money" would be.




All money is pretend money.

But P-Kroog thinks we need more.  A lot more.

The NCAA and Fed: Two Organizations People Love to Hate

John C. makes some comparisons I had not thought of.  Interesting.

Both the NCAA and the Fed have a problem of commitment.  And they use threats to try to get what they want.

Magic Fed dust

"There is still a sufficiently low real interest rate that would produce recovery, but it’s a rate that’s hard to achieve."

--Paul Krugman

The accuracy of this quote depends on the definition of the word "hard" (sorry to go all Bill Clinton on you people).

Despite all the recent talk of unconventional monetary policy, the Fed really only has one bullet, manipulating bank reserves. They can shoot that bullet at the nominal interest rate, or at the inflation rate, but not at both.

Suppose the real interest rate required to "produce recovery" was -10%. There is no way the Fed can both hold the nominal rate near zero and create 10% inflation. They might be able to hit -10% fleetingly at a positive and rising nominal rate with a rapidly accelerating inflation rate, but we have seen in the 1970s that such conditions are not conducive to growth.

The Fed simply can't produce stable negative rates on financial instruments relevant for investment or financing consumer durables.

So if "hard" means "impossible to pull off in any sort of constructive way", then I agree with the quote.