Oct

2

The Fed gave a vigorous defense of their policies today. One wonders if there is anything that would ever convince them that their policies were and are wrong. For example, if the more they QE it, the worse the economy gets, and the more intractable the employment situation gets. There is something terribly wrong with certain banks laying off 30,000 operatives while at the same time receiving hundreds of billions of emollients in form of investment, loans, purchase of assets, flexionic information, favored deals, guarantees, bailouts, favored nation treatment in regulation and the Good One knows what else, and maintaining and building their 2,500 man trading rooms and CIO's. One mechanism that would cause all such transfers of resources to these favored flexionic institutions to create discommodiation in everyone else, would be the loss of incentives that creates in those not favored. But it goes much deeper than that.

Gary Rogan writes:

I call this "the Krugman Principle": when a government intervention fails it's always because it wasn't big enough, never because the idea was wrong.

To quote from a Credence Clearwater Revival song (although a little outside of its intended topic): "And when you ask them, "How much should we give?" Ooh, they only answer More! more! more!"

anonymous writes: 

When it comes to social "insurance" there is a point of diminishing returns. The argument for insurance goes, if you buy insurance, you will be able to take more risk elsewhere. And likewise with social insurance, if you don't have to worry about starving in your old age, you don't have to save as much, and can invest the savings in riskier endeavors such as starting a business and you can spend and consume more in your youth. However, if the benefits are too generous, threatening either collapse of the whole social insurance system or massive unknown changes, then the reverse is true.

Likewise the same is true for the government backstopping every corporation that is to big to fail.

It is my contention that the public has become aware that the current course is unsustainable both for the flexions and social security.

Hence the saving rate and lower consumption will continue (slower speed of money). But these are the very things that will enable the fed to say at least "we have done no harm" from a short sighted view.


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3 Comments so far

  1. JustPassingThrough on October 1, 2012 6:03 pm

    I believe that the Fed is a private institution. I also believe that its board is populated with the Grand Poohbahs of the TBTF cabal. If these assumptions are indeed fact, are we to wonder that the Fed’s actions tilt so waywardly towards the interests of certain bankers? Yeah, it’s our money (or the money of yet unborn progeny) that they’re betting the house on. And so what if they blow it all. They can always robo-foreclose on said house, take a write-off on ‘losses’, place the asset ‘off book’ in some Grand Cayman’ rehab institution where with a little nip here and tuck there it Frankenstiens into a brand new investment vehicle. All then to do is wait for the next Fed led credit bubble and Voila!, profit three times over. All else failing, Uncle Ben can move that decimal point one or two stops to the right and set in motion the digital printing press 24/7/365!

    Ah, to be one of the Greedy, the Oligarchic, the Plutocracy.

  2. Adam Sterling on October 2, 2012 7:01 am

    QE 3, 4, 5… and onward and upward to infinity. A leap-of-faith belief in mercantilism.

    Yes, indeed, the Krugman Principle, a fundamentally “soft money” mercantilist paradigm easily spotted by contrasting it to a “hard money” Classical paradigm.

    Hard money: Stable currency is the goal.
    Soft money: Full employment is the goal

    Hard Money: Avoid government manipulation.
    Soft Money: Constant government “management.”

    Hard money: Gold or other link enables stable currency.
    Soft money: Gold or other link impedes “management.”

    Hard money: Unstable money causes problems.
    Soft money: Money manipulation solves problems.

    Hard money: Leave credit up to the free market.
    Soft money: Manipulate credit for macro-effect.

    Hard money: Fixed exchange rates are good.
    Soft money: Floating currencies allow “adjustment.”

    Hard money: “You can’t devalue yourself to prosperity.”
    Soft money: “In the long run we’re all dead.”

    Hard money: Rule of law.
    Soft money: Rule of man.

    Mr Krugman and his like are always spouting what I’ve come to feel is “compassion-babble,” criticizing those who understand that stable money is the key to households being able to engage effectively in the economy.

    If you add up the realities, the measurable effects of this compassion babble and its associated policies seem to be the impoverishment of working class families.

    Krugman and his crowd love to wail that the income gap is widening and blame certain people for it, some by name. They do not seem to understand (or should I say, “believe”) that constant manipulation of currency, the instability of money, will always impact lower wage earners more acutely than higher wage earners on a marginal basis. It’s their policies causing harm.

    Which comes to why I call their supposed compassion “babble.” The policies they promote have, at the end of the day, no real connection to improving the life condition of anyone in the long term. Their slogans etc are merely the sugar coating on what seems to be a statist ideology.

    Politicians of all stripes, of all persuasions, are merchantilists at heart. The hardest thing for a politician to do (also is for most traders) is nothing.

  3. Trading Mom on October 13, 2012 5:37 pm

    QE1, QE2, QE3 - US is in an unlimited printing mode, thanks to FED Chairman Ben Bernanke. Similar to the Enron traders with their infamous “Burn, baby, burn”, Bernanke is enforcing “Print, baby, print”. It’s wrong from all the accounts, starting with a simple manipulation of the market contempt, to aggravated robbery of American middle-class, to assault on the future generations who might face the Weimar Republic of US.

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