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Is Einstein wrong..about the Fed?
Is Einstein Wrong?
Has Fed policy reached the point of complete marginal futility?
Is the Fed 2I2bI?
While the WSJ article on the Fed paints a picture of controversy enshrining the usual hawk Vs dove sort of frame work ( or is that Hatfields Vs McCoys? Montague Vs Capulet)… what strikes me is the sense of agreement I get in reading this thing. Everyone at the Fed is on the very same page.
John Hilsenrath is correct in concluding that there is a policy dilemma, but he does not connect the dots and say that it is a dilemma without much consequence. .Yet it is quite clear that even those who would like the Fed to do more, are very disappointed with the results from what they already have done. If you ordered dessert and it was bad would you order more? The Fed would.
Here we introduce the law of increasing marginal-futility.
Policymakers enact the policies they think will be most effective first. And the Fed has done this. Now as it has slashed rates to zero and done several rounds of “QE’ (quantitative excess) and some Twist, the question is if they should follow Chubby Checker and Twist again or try more QE of some sort.
But if did not work before why should it work now?
What is the Fed’s new angle?
Einstein described insanity as doing the same thing over and over and expecting to get a different result. Is the Fed, by that definition insane?
The policy is not insane it is just the policy. But the choice to employ it again would weigh heavily on the insanity scale. The Fed does have other things it can do that it thought they were more potent, it would already have done them. So as the Fed digs deeper into its bag of tricks, each new policy tilt is less effective than the previous one. Hence as the Fed keeps doing things it implements policies that are increasingly marginal its futility rises, hence increasing marginal futility.
I believe that the real debate at the Fed is between those who want to stop messing with markets and muddling their signals and making the undoing of QE an even bigger mess and those who simply think the Fed can’t afford to look impotent even if it is. The Fed is too important for that.
2I2BI: In some sense the Fed is too important to be impotent or (2I2BI). Some think that admission of impotency could make things even worse in markets, but I don’t expect that line of reasoning to appear in the redacted Fed ‘ minutes’ we get each month - ever.
I like Bullard’s quote from yesterday that QE won’t fix Europe. I think the Fed really has to look at what it can do and project what the results of it policy might be and ask if that would really be helpful. I’m dead serious. So what if QE or Twist could and DID lower rates a few basis points? SO WHAT!!! Would that be a victory for policy, or an admission of defeat and of impotency?
We hardly need lower rates. What we need is a stronger belief in a stronger tomorrow and that will pull credit demand forward. But, alas, we live in the age of pessimism and we go to the church of what’s never going to be happening now (credit to Flip Wilson, sort of)…
Even the Fed has been stumbling down that road urging on pessimistic thoughts. It has been issuing a set of forecasts that is so bleak how could it ever be helpful? Maybe I have been less affected by it because I have been a Detroit Lions football fan for so long. I am the eternal optimist that things can always get better. Heck the Lions finally have improved so why not the economy? Maybe the Fed needs to fire Matt Millen? It worked for the Lions…
But, seriously, some people are not wired to be optimists. When the Fed issues a forecast like that, they believe it – despite Fed’s marginal forecasting record. Heck, it did not see the recession coming why should it ‘see’ the recovery? Still, depressed by the Fed’s outlook, many start to roll up sidewalks in front of their shops and layoff non-essential workers. These are the same people who built fall-out shelters in the 1960s without even asking the question, “If I need one of these to survive do I want to?”
Maybe the Fed has been all too transparent. Maybe what we need is for the Fed to LIE TO ME… whisper sweet nothings in my ear about stronger growth. Maybe wishing makes it so. Maybe Bernanke should put on some ruby slippers and click his heels together saying, “there’s some place with growth”….
It is unavoidable to conclude that the Fed’s marginal futility should cause Bernanke to seek a meeting with Congress and the President instead of the other way around!
Imagine that! Imagine the Fed chief calling in the President and the Top Political Honchos to say, hey, we at the Fed are tapped out here. We’ve done all we can. Give me a single mandate or a dual mandate it does not matter. I can’t do anything now we are the point of entropy, of complete marginal futility where the slope goes to infinity. Hey guys/gals it’s now up to YOU! Imagine that!
Of course that will never happen. But it’s where we are nonetheless.
So what do you do when you get there, at the point of maximum futility? You do NOT - DO NOT - do something ‘marginal.’
So I’d say QE or Twist are about the worst things the Fed could do since they would only cement the view that nothing is going to change… unless you think Einstein is wrong.
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This is all about a lack of optimism? We've been down this Leo road before on ZH. We are not optimists, we are realists. There is a huge difference. One is a child, hoping everything works out the way they want it to, the other is an adult, willing to face cold hard facts and confront the truth. The notion that optimism will save us and the pessimists are holding us all back is pure nonsense. Period.
The markets are an f'n joke anymore, period. We are not investors, we are gamblers salivating over what parlor trick the bankrupt soverigns will come up with next. The fact that people continue to be encouraged to put their money in equities when the last 10 years are at a loss and the insane have taken over the asylum is laughable. Trust is long gone, and it ain't coming back anytime soon IMO. Bernanke seems to think that entrusting the ones that evaporated our collective wealth with whatever we might have left is a good idea. Nothing has changed, nothing. Trading, sure if it floats your boat. Investing? Gimme a break.
+1
To get ahead in 'investing' now, forget about fundamental or even technical analysis; study politics and history - that'll give you a better idea what our central-planning 'geniuses' will do next.
I don't care if people borrow themselves into oblivion. Have at it.
I just don't want to pay for it. That's for everyone. Gamblers will gamble.
The problem is that Fed actions have distorted the markets so severely that there is no place for investors who make capital available to sound businesses. That hurts everyone.
Really glad I don't live in a city because it's going to get very grim out there.
Robert Brusca = one more shit for brains moron that makes a mockery of ZH.
Buy a farm. And guns...lots of guns.
"I believe that the real debate at the Fed is between those who want to stop messing with markets and muddling their signals and making the undoing of QE an even bigger mess and those who simply think the Fed can’t afford to look impotent even if it is. The Fed is too important for that."
Too important for what? That is one odd paragraph. If nothing else you are entertaining.
Follow the money, and don't be an idiot.
We hardly need lower rates. What we need is a stronger belief in a stronger tomorrow and that will pull credit demand forward.
That is soooo wrong. What we need is for lenders to go bankrupt. We need that so lenders in the future will not lend money to losers so they can buy useless crap and inflate the prices of basic goods (like homes).
We need NO DEBT. We need people to STOP living beyond their means by accumulating more and more debt. We need people to START living below their means and putting the excess into savings.
Everything the predators-DBA-fed wants is counterproductive (the fed is of, by, for and owned-by banks). Everything the predators-DBA-government want is counterproductive. And sadly, most of what this author wants is counterproductive. What the world needs now is for every individual to sink or swim on their own merits, or lack thereof.
What the world needs to do, if humans want any kind of future at all, is to GET REAL.
There's a powerful argument in here somewhere about perceptions. TPTB have always had the paying field to themselves when creating the perceptions gestalt (look it up). They could cheerlead things in whatever way they wanted: America is #1, Socialists are bad, the Fed is all-powerful, gold is silly, people should ignore conspiracy theories, the government is here to help, the government CAN help, stocks are always a buy...the list is endless. Overall it gave people a warm feeling of confidence, that nice man on the TV says everything is going to be OK, I'll keep doing what I was doing.
With the rise of the blogosphere though there's a cold bucket of "reality water" that gets sloshed on people. The REAL employment picture is dire, the REAL inflation picture is dire, America doesn't always bomb the right guys, billionaires CAN buy themselves a president, your votes DON'T always get counted...this list is also endless.
I'm a lifelong Dem but I did see what Reagan did: he restored confidence. Like Thatcher did. Like Vaclav Havel did. People and businesses have lost faith in Obomba, IMO, and I don't see how his jive talk and smooth moves will ever change that.
So I'm thinking the unthinkable: a vote for Romney. Yes I know he protested FOR the Vietnam War; I know he's utterly beholden to Wall St. But perhaps, just perhaps, he could snap this losing streak of confidence that is just so poisonous around the world right now.
We live in an age of political midgets. How I long for an Andrew Jackson...or a Teddy Roosevelt...a Churchill...an Eisenhower. I'm afraid the Basketballer-in-Chief must go....just go.
Sorry to tell you, but BO is going to toss JoeyB, pickup the H-Monster, and she is a monster, and BO is going to win off the 2nd great wave of Liberal/Progressive delusion - that women are better than men, more compassionate, better leaders, higher values, blah, blah, blah.
Obama's biggest mistake was to use all of his political capital to enact healthcare reform during a depression rather than use it (pc) to try to help. He decided his goal of health care reform was more important than jobs for the jobless. If businesses is hurting all over, and unemployment is high, adding to the cost of hiring workers is an absolute bonehead move, period. The history books will reflect this poor choice, and if the sleepy voters stop and think about this mis-step he will lose the election.
Having said that it is foolish to think that the Red team has found religion on fiscal matters. Dick "deficits don't matter' Cheney was the unwinding of that team. Their silent complicity is a reflection of their true character.
So....who's cronies do you want the taxpayer cash going to? At least their is a chance of lower taxes with the red team driving the bus into the ditch. Either team, the ditch is in our future IMO.
How exactly did the Obama Administration come up with ObamaCare anyways? I mean, these guys (The Democrats) were working on healthcare for how long? And that is the best they could come up with? I guess they went with the philosophy, since you cannot please everyone, try to come up with a solution that disappoints everyone equally.
A vote for Obama is a vote for evil.
A vote for Romney is a vote for evil.
Anyone who thinks a different predator-that-be will help, probably also thinks switching brands of cigarettes is a cure for his lung cancer, and switching brands of scotch is a cure for his alcoholism.
And end to predators-that-be and predator-class. That is the only solution. Period.
I'm a huge Ron Paul fan and activist and wrote him in at the primary. All I was addressing was the need for a change, ANY change. So if my choice is between an unspeakably corrupt guy who is killing confidence, and an unspeakably corrupt guy who has a 5% chance to restore some confidence, I know which I would pick.
For a start, your vote will make absolutely no difference to the electoral outcome. So why vote at all, if you're not even doing it to show support for someone you genuinely do admire?
Romney is another totally bought, warmongering asshole. There's a reason people are saying 'Obamney for Prez!'
Been disliking all of RobertBrusca's comments, like a good Zerohedger!
One reason why the Fed and Bernanke are not only insane but dangerous: QE2 caused massive food price spikes and inflation. Food price inflation was one of the catalysts for triggering the Arab Spring. Just think, without QE2 the Arab Spring may never have happened. That's just the start of Ben's evils...
QE, twisting and government bond purchases have to continue because the US bond market is a huge bubble. When prices start falling and yields start rising, that's it for US banks (and everyone else) stuffed to the gills with this worthless ponzi paper. Ben will assuredly print and do what he does best because without a yearly intervention the stock markets start collapsing.
Agree QE2 :: Arab Spring, however not on evil part. Uncle Ben did so only b/c he was trying to survive/keep his world alive. Would be different if he did so when survival was not in play. And I'm not even sure he believes it effects the 3rd world as much as many do.
The ONLY INSANITY is the american people allowing the Fed to even exist.
Now thats INSANITY...!!!
For the record, those who think Robert is a "nice guy". Just remember he is one of those who not only believes in all the things most ZH'rs detest, but he also has spent his career leading Sheeple to the cabal's door step.
But hey, if you want to buy into liking a guy who pulls false quotes from his @ss and stabs in the back the very cabal he used to support and paid him by now trying to discredit them with reasoning that would make a 5th grader proud....
U R a piece of work
Thank you. Seems there's hope for you yet. To get off the porch and into the house.
And...the insanity continues...and will continue...until reality intervenes.
No doubt if I could Ctrl-P money into my bank account I could go on Vegas benders almost indefinitely...at least until the Casino itself was bankrupt or overrun by rioting hordes of homeless hungry masses.
The best part of a Brusca post is the comments section!
Why? Because it's the only place you can ever get published?
Because it takes guts facing the bearpit and responding to all those people unhappy with your articles.
Rubber ballz!
The Fed NEEDS to continue money creation and ZIRP. Without it you have collapse. Increased interest rates and "doing nothing" will still cause the debt to explode but combined with a 30's style economic depression. The demographic of the country is not what it was in the 30s and a depression of that magnitude would mean civil unrest. Civil unrest combined with an exploding sovereign debt crisis would probably mean the end of this government as you know it, and the collapse of a very old power structure. They will not let that happen, no matter what the cost. To think anything different is pretty silly. The Fed has no other choice. The money printing will continue until ...
Saw your picture on Jon Stewart a few nights ago.
I missed it.
Probably for the better. But then being lampooned by the MAN is a distinct honor. What next? Colbert?
Takes a licking but keeps on ticking...
Ok - read your post. I was wondering if you had stop posting on ZH after I saw your picture. I got my answer today.
Lot's of red meat today for the average ZHer.
Sounds to me you just built a good case to End the Fed and let the free market set interest rates before the dollar collapses. A lot of people are going through Cognitive Dissonance right now.
Just for S&Gs, or thought exercise, what would the world look like without the Fed?
just send every US citizen a check for $5000 and see the results.....much better than the Fed printing money and giving it as credit to the banks....
bobby, you're killing me over here.
I realize you were a littel tongue in check by suggesting it would be better for the Fed to lie to us, but this is still a very dangerous statement. A lie would only further serve to distort the true market signals. Basically a lie on the foundation of lies?
But I have a bigger concern with this. I expect the Fed to try and sway the economy with statements and the surgical application of words, but not only is the Fed too involved in the economy (meaning their balance sheet), but so too is the governement. The pages of your favorite financial newspapers used to be filled with news and anlysis of actual companies and market data, but now it is all analyzing the statements of governement officials the world over. There is no regulation as to what they can say, they are purposely manipulating the market through lies. The ends don't justify the means. But more importantly, with such a complex global economy, no one person, government or think tank can truly understand exactly what is going on enough to be trusted and allowed to purposely lie to attain a specific outcome (which is an outcome those specific people beleive in, not the market as a whole...dictatorship)
Public companies are regulated by the SEC and 27 other government entities, and it is illegal for a company to lie to investors and for good reason. and yes, it is also illegal for public companies to use the same accounting methods as the government, but at least smart investors can get behind the relative simplistic accounting math to find the right answer...But we have a trend of government, at the very least, spinning data and news. They are on the slippery slope, and unforunately, the end result will most likely be full scale distortion of the truth...they will defend themselves as utilizing the "kitchen sink" and it was all for a good cause. But some of us will realize they just made the problem bigger.
The Fed has trapped itself. It adopted this 'transparency gig and now it has this our view of the outlook that is helping to kill the economy.
While the Fed wants you to see the glass is half full (we will keep rates at zero forever!) people can't help but wonder how bad growth will be to allow the Fed to do that.
So now that the Fed has presented this dour baseline- what can it do?
No lying is not an option. But it was a way to explore the thought process of what the Fed's forecast is doing to the economy. In the Fed Beige Book today a number of Fed districts carried statements about having local firms that are concerned over various shocks. Some firms have automatic job cut programs lined up to trigger if something happens.
To me it means that any little bump in the road could turn us into a full recession.
This kind of pessimism is a bad thing and no lying about it will not make it better.
The Fed has painted itself into a corner and the paint will never dry.
Is pessimism a bad thing when it's grounded in fact and reality? Do you see bumps in the road ahead? Do you believe that we're not in a poorly-papered-over recession (or worse) now?
Brusca, you are a nice guy but you are also one of those who are wilfully ignorant about the conspiracy. The conspiracy to destroy the USA, to suck all its productive capacity out of the hands of the producers and turn it over to the banksters.
You are also clueless on the bureaucratic, "environmental", and taxation reasons why the US will never have a real economy again until our giant, cancerous government is slashed to the bone. This psychological stuff is pure BS.
"You can fleece a sheep many times, but you can only skin it once"
If the parasite kills its host, the game is over.
This is why I do not think the bankers actually want to destroy anything; because mass poverty means less for them as well. While comparatively, some would be very rich, the actual amount of "rich-ness" would be much less than now.
It's like comparing a Norman King, who would be very wealthy for his time, but is comparatively poor when living standards are compared with the modern middleclass.
Surely, if there is a cabal of moneymasters plotting global domination, they wouldn't want to kill the system that feeds them so much wealth.
Thing is, it keeps his bills paid, so it isn't like he's in a hurry to experience an epiphany. Not to mention that ALL of taunting that goes on here does nothing but to strengthen his resolve.
What I have a hard time with though, is his TOTAL disregard for the future, choosing instead to insist the Emperor wears the finest threads, rather than stating the obvious, as seen from the cheap seats.
So, like the rest, I'll sit back and watch this ongoing train-wreck in the hope that it too, might someday come to an end.
This is a garbled up mess of Fed sychophancy. I can't tell what Brusca wants. He says this:
What would that do for us? Does Brusca think things happen because we want them to happen? Because we click our red (or silver) heels together? Unfortunately, this is everything wrong with the world today. There are lots of children and no adults. So, in the end, Brusca wants the Fed to do nothing? Well, at least we agree on that. But be careful what you wish for, Mr. Brusca. The Fed doing nothing is not going to pull credit demand forward.
Fine, no more Hopium for you then, Mr. Pessimist.
Brusca is the latest ZH pinata
He's really taking a beating on this thread
It's OK they are using nerf bats.
I can't figure out what they don't like. I just wnat everyoen to see that QE or Twist make no differnece . The Fed's impact is down to zilch. It's up to fiscal policy.
Krugman thinks (the real one, I mean) we should spend more. Cutting the outyear deficits seems like a better plan to me.
I have no idea what these naysayers think or want.
They seem to hate the Fed but now hate me for being critical. Odd ducks.
"I have no idea what these naysayers think or want. "
Well from what I can tell:
1. There are some that want hyperinflation and a collapse of the USD so they can live the whole "Last Man On Earth" dream with a pile of gold in a fortified doomstead, shooting trespassers and hoping to one day create a libertarian utopia
2. There are those that want actual government stimulus, like the Interstate Highway System or some other useful infrastructure (I would suggest a national smart grid might be a candidate)
3. There are those who want austerity and deflation, and a purging of debt from the system whether by jubilee or default.
4. There are those that expect that Peak Oil will result in a complete collapse of everything and the death of billions of people, and a reversion to an anarcho-primitivist state.
If I missed any factions, I apologize.
So are we convinced that the fed has completely and permanently sworn off further "easing"? I'm not.
Brusca's final point is valid: the Fed took their best three shots ( and missed), and now it's up to the US Gov to take at least one good shot, any shot. The Fed, for all of its mistakes, did not put the U.S. into the deficit hole that it is in; that has been the work of a generation of Congress critters and Administrations. The Fed was not as responsible as the gov for the policies, regulations, and culture that hollowed out the U.S. industrial base. So now the Fed takes the fall for a lousy economy, rather than the reckless Congress and Administrations.
The point is moot. They are the same gang of thieves. Besides, there's no such thing as a true political solution (otherwise they'd eventually put themselves out of business).
To blame criminals for their failure to be servants is to live in a fantasy world. Of course, so is the belief that there's any value to be had in critiquing Hilsenrath within the framework of said fantasy. It's nothing but more noise to distort the signal.
Bravo! I wrote the same last night! Tyler, if you would like, you can publish my missives I write on here, since others may write the ssame thing that I wrote just a day before.
Here is what I wrote last night -
http://www.zerohedge.com/news/cbo-will-need-bigger-chart-forecast-exponentially-rising-us-debt#comment-2497757