Former Fed Officials Mount Opposition Against Current Fed Policy

Washington's Blog has an awesome piece republished via Market Oracle today that sheds some light on the opposition brewing against the easy money whores.

Some highlights:

The former head of the Fed's Open Market Operations says the bailout might make things worse. Specifically, the former head of the Fed's open market operation - the key Fed agency which has been loaning hundreds of billions of dollars to Wall Street companies and banks - was quoted in Bloomberg as saying:

"Every time you tinker with this delicate system even small changes can create big ripples,'' said Dino Kos, former head of the New York Fed's open-market operations . . . "This is the impossible situation they are in. The risks are that the government's $700 billion purchase of assets disturbs markets even more.''

And William Poole, who recently left his post as president of the St. Louis Fed, is essentially calling Bernanke a communist:
Poole said he was very concerned that the Fed could simply lend money to anyone, without constraint.

In the Soviet Union and Eastern Europe during the Cold War era, economies were inefficient because they had a soft-budget constraint. If a firm got into trouble, the banking system would give them more money, Poole said.

The current situation at the Fed seems eerily similar, he said.

"What is discipline - where are the hard choices - when does Fed say our resources are exhausted?" Poole asked.

The sour taste isn't limited to former Fed officials railing on Bernanke's plans to save the economy at any cost, current Dirty Fed operatives are already fed up.

Said Dallas Fed President Richard Fisher earlier this month:

“I don’t think we’re going to go backwards,” Fisher said in an interview with CNBC today. “I think we’ve done enough,” Fisher said. “We ought to be very careful about not going too far. Interest rates are zero. It’s not the cost of money that’s the issue.”

Fisher said companies are holding back on investment because of uncertainty over government regulations in areas such as health care. He also said he expects the world’s largest economy to slow in the second half of the year as the contribution from business inventories wanes.

Companies are “hoarding cash, they’re holding back, they’re not hiring people, they’re not building plant and equipment at the pace we’d like to see,” Fisher said. “This has nothing to do with monetary policy. We have been as accommodative as possible.”

It never was a liquidity issue and it hasn't been a monetary policy issue. Free money obviously isn't fixing it but the Fed is committed to providing it anyway in the hopes that somehow it will suddenly work. What sort of asinine plan is this?

We know two things: the Fed has broken its covenant (or requirement, depending on how you want to phrase it) by failing to protect 25 million Americans from unemployment and cannot or will not force banks to lend simply because the risk is too great. Having violated the law by allowing unemployment to run out of control and with no relief in sight (I'm sorry but free handouts from the government do not count as unemployment solutions where I come from), that leaves them only one mandate to worry about: inflation. But if banks were to lend the huge piles of cash they're squatting on, what do you suppose happens to that mandate?

Remember last year when I said leave the Fed alone? This is exactly what I meant, this scenario, right here, where they are trapped with no chance of getting out without taking the whole kit and kaboodle down with them. Gee, good thing I haven't wasted any breath in the last year trying to take them down anyway.

Good luck with that, asshats, you know it's bad when even the Dirty Fed operatives are grabbing pitchforks and canning your moves.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Anonymous said...

"This is exactly what I meant, this scenario, right here, where they are trapped with no chance of getting out without taking the whole kit and kaboodle down with them"

Yup, you got that right, Pilgrim. Hold to maturity on all that crap they bought or sell at a loss. Tit, meet wringer. Wringer, this is tit.