QE 2 Isn't the Problem, It's the Critics That Are



Surely William Dudley knows how stupid saying this makes him sound or perhaps I am but a confused critic who missed the big announcement about a solid Fed exit strategy (still waiting), either way this is just dumb.

Bloomberg:

Federal Reserve Bank of New York President William Dudley said critics of the expansion of monetary stimulus are underestimating the central bank’s ability to raise interest rates when necessary.

“People do not understand clearly” that “we can have an enlarged balance sheet and not have a long-term inflation problem,” Dudley said in an interview with CNBC. “We are very confident of our ability to exit when the time comes.”

Oh I don't think understanding is the problem, you conniving little Dirty Fed asshat.

I can only speak for myself but not once have I actually claimed that the large Federal Reserve balance sheet is inflationary by itself and any informed person who knows what they are talking about knows as much. The "money" is not money at all and isn't a problem until it becomes "money" (when it hits the open air), which it likely won't any point soon. No one is arguing that. At least no one I know. The Fed can manufacture $15 bazillion in blips and it still will not be inflationary as long as it remains as blips, or electronic debits and credits from the Fed to the banks and back to the Fed again. QE 2, on its own, is not inflationary for the same reason and that's why the Fed announced they'd be buying Treasurys from the banks (who borrowed blips at $0 from the Fed to buy them in the first place), which is really more money laundering than an actual strategy but hey, who am I to criticize?

Dudley is missing the point and skirting the issue. We still have not seen an exit strategy and if they have one, now would be the time to start hinting strongly about the details.

They got nothin'. And everyone knows it.

So no, inflation isn't a problem. Yet.

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.

3 comments:

W.C. Varones said...

Good luck jacking interest rates to 20% like Volcker did.

How's the Treasury supposed to make its debt service payments in that case? That would blow up the federal government. Even modestly higher rates will be extremely challenging for Treasury.

You think Zimbabwe Ben will kill the government to save the dollar? I don't think so.

chairmanben said...

Financial Crisis 2.0 here we come.

The Fed like Lehman Brothers is miscalculating the risks. No stopping until the bond market revolts.

Graybeard said...

Back in June, Kartik Athreya of the Federal Reserve Bank of Richmond wrote an article entitled "Economics is Hard. Don’t Let Bloggers Tell You Otherwise " in which he criticized the unwashed for saying anything derogatory about our insect overlords at the Fed. He doesn't mean to sound mean-spirited, you know, he's just better than us. It's here on Scribd

The exact (priceless) quote is, "Writers who have not taken a year of PhD coursework in a decent economics department (and passed their PhD qualifying exams), cannot meaningfully advance the discussion on economic policy."

And people who argue by appeal to authority shouldn't be allowed in grad school, either.

Seriously, JDA, you know much more about this than I do. How do you keep those blips from becoming real money? Aren't you counting on the people who hold those blips not spending them? It's like having a printer that makes absolutely perfect counterfeit notes. As long as you pile up those perfect counterfeits in your room - no foul, no harm. But what about when you really want/need that ... whatever... and don't have enough dollars? Wouldn't it be really tempting to just use a little of that? Just a few of those blips? What's the worst that could happen?