I haven’t written much lately about The Economy. And that is a failure to prioritize, as he is the second most important American in history. The Economy has (capriciously, one must concede) modified what this country produces and who draws assistance for not producing it. One feature that was previously of grave concern to The Economy was the government’s bond purchase program called Quantitative Easing. That’s always been a formidable sounding name. Evoking images of plucky 4SD prodigies poring over abstruse datasets. Tuning economic models to the exquisite precision of a Patek Philippe. Uncovering the encrypted key to turn the impenetrable lock. Allowing The Economy to slip its surly bonds and soar untrammeled into the starlit night.
Though a perhaps less inspirational scene is the more accurate.
The Economy sucks, so we’ll print an avalanche of money to paper it over.
How much do we print?
How the fuck should I know? Just do it. We’ll figure it out later.
Some four and a half trillion subsequent, QE got “tapered.” Kind of like America’s founding stock…tapered. Though before progressing on to the QE news that now has most of you quivering like a housecat, I wanted to point out a fact that the Federal Reserve will not: money printing is a tax. Inflation is a tax. The truth is the government could operate exclusively through QE financing and defenistrate the antiquated tax regime entirely. It’s always surprised me that Krugman hasn’t suggested exactly that. Though I’m sure even the more obtuse of the herd might start noticing the outline of an abattoir in that scenario. But it is technically feasible. And if it were, do you think you’re getting those ten naval carrier groups protecting our freedoms for free? Unfortunately no. You’re still out the tab; only the form of payment is altered.
And at least one Fed president says the public has a delinquent balance.
Reuters) – The Federal Reserve should consider restarting its controversial bond-buying stimulus if inflation does not start moving back to 2 percent once downward pressure from the recent drop in oil prices dissipates, a top Fed official said on Tuesday.
(Minneapolis Fed President Narayana) Kocherlakota’s view is likely in the minority at the Fed, which stopped its bond-buying program last October after the U.S. unemployment rate dropped faster than expected. Most Fed officials now believe it is only a matter of time before inflation, which is running well below the Fed’s target, will improve as well.
Kocherlakota said Tuesday that it is a mistake to assume that just because the real economy is healing, inflation will automatically return to healthy levels. [The Economy needs a healthy improving inflation. Don’t you?]
Bond-market investors, he said, are flagging their worries about simultaneous low growth and low inflation by driving yields down. The Fed needs to take action to turn those expectations around, he said, or risk losing its credibility
Yes, the Fed losing its credibility, that’s concerning. Certaintly a calamity most Americans would sacrifice to avoid. Though I almost have this flitting sense that it has already fled its confines. Below you’ll find a list of statements from past and present Fed chairmen. Like inflation, they seem to have targeted credibility at two percent. Of their achieving this, I am quite optimistic.
I made a mistake in presuming that the self-interest of organizations, specifically banks, is such that they were best capable of protecting shareholders and equity he land passed by Congress, not my own predilections.
–Alan Greenspan, October 2008
The bottom line for housing is that the concerns we used to hear about the possibility of a devastating collapse—one that might be big enough to cause a recession in the U.S. economy—while not fully allayed have diminished. Moreover, while the future for housing activity remains uncertain, I think there is a reasonable chance that housing is in the process of stabilizing, which would mean that it would put a considerably smaller drag on the economy going forward.
–Janet Yellen, February, 2007
To sum up the story on the outlook for real GDP growth, my own view is that, under appropriate monetary policy, the economy is still likely to achieve a relatively smooth adjustment path, with real GDP growth gradually returning to its roughly 2½ percent trend over the next year or so, and the unemployment rate rising only very gradually to just above its 4¾ percent sustainable level.
–Janet Yellen, December, 2007
For my own part, I did not see and did not appreciate what the risks were with securitization, the credit ratings agencies, the shadow banking system, the S.I.V.’s. I didn’t see any of that coming until it happened.
–Janet Yellen, 2010
House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.
–Ben Bernanke, October 2005
Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.
–Ben Bernanke, February 2006
The Federal Reserve is not currently forecasting a recession.
–Ben Bernanke, January 2008
At this juncture, however, the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained. In particular, mortgages to prime borrowers and fixed-rate mortgages to all classes of borrowers continue to perform well, with low rates of delinquency.
–Ben Bernanke, March 2007
It is not the responsibility of the Federal Reserve – nor would it be appropriate – to protect lenders and investors from the consequences of their financial decisions.
–Ben Bernanke, October 2007
With respect to their safety, derivatives, for the most part, are traded among very sophisticated financial institutions and individuals who have considerable incentive to understand them and to use them properly.
–Ben Bernanke, November 2005
The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.
–Ben Bernanke, June 2008