Re: Pulling the Plug on the Fed
Someone known for the phrase said it again tonight. "The entire institution should be canned" is much more polite than how Skeptical CPA puts it. I think I'm somewhere in the middle of their argument but that's for another day.
Oh snap, Safe Haven is pissed:
Last week's buzz in Jackson Hole Wyoming and around Wall Street is whether or not Banana Ben Bernanke should be reappointed to the Fed Chair. CNBC also held a panel discussing this issue with Bob McTeer (former President of the Dallas Fed). The consensus was that it was ridiculous not to have Barack Obama indicate he would serve another term as soon as possible. The agreed upon reason being that no one could do a better job than he has done.
So please allow me to inject a little sanity into the discussion. While most people in our industry are quick to hoist Mr. Bernanke on a pedestal -- just as the former maestro Allan Greenspan was -- I think the entire institution should be canned.
First let me say that Gentle Ben, or any Fed Chairman for that matter, can only do a few things if his goal is to pull the economy out of a recession. He can print money, exchange Treasury holdings for a lesser quality asset, or lower bank reserve requirements. So, basically they can either dilute the value of our currency or decrease the quality of their asset holdings. That's it.
But who is to say what his goal is? Is there some Fed handbook that dictates the mantra or is this some secret class he taught at Princeton? Esoterica 201, Dr Bernanke. As if.
Deja vu anyone?
“Under Arthur Burns, who chaired the Fed from 1970 to 1978, and under G. William Miller, who was chairman from January 1978 to August 1979, the Fed provided the monetary fuel for an inflation that began as a flicker and grew into a fearsome blaze... If Nixon appointee Burns lit the fire, Miller poured gasoline on it during the administration of President Jimmy Carter. Without question the most partisan and least respected chairman in the Fed's history, this former Textron executive worked in tandem with fellow Carter appointee, Treasury Secretary W. Michael Blumenthal, in pursuit of monetary policies that were expansionist domestically and devaluationist internationally. The goals were to spur employment and exports, with little thought to the dollar's value. By early 1980, inflation was running at 14%.”
[homicidal maniac] Alan Greenspan (1987 – 2006)
Bob McTeer also seems convinced that duh, GDP will point the way. Is he referring to the real GDP or the number that they make up to tell us?
It's not money created that matters; it's money spent. Not money (M), but money times velocity (MV).
As confidence improves the velocity of money will presumably move back toward normal. It will not be difficult to see that and respond accordingly with slower money growth. Since gross domestic product equals money times velocity (GDP = MV) and since velocity equals GDP divided by money (V = GDP/M), a close eye on GDP growth is another way to see the need coming.
This is not rocket science.
Hahahahahaha ok, Bob.
Where is our compassionate release?!