This page has been archived and commenting is disabled.
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.
»
- advertisements -
LOL
Gotta love it when trolls collide with the true-blue clueless.
Poe's Law, FTMFW!
Another great and relevant Einstein quote is: "There is no greater power in the universe than compound interest!"
If Einstein has made that remark it's sad because it is uterrly wrong on a score of counts. Einstein didn't believe in quantum theory, the most successful model of physical behavior every created by man. Therein lies the error.
In our universe you cannot do the same thing over and over. Initial conditions change. Even if all initial and boundary conditions were to remain fixed there is the little phenomenon called "quantum tunneling." A particle in a box can strike the sides five times or a billion times and there is always a finite probability of escaping. Hence, radioactivity.
In the world of economics the Martingale Assertion certainly shows that you can do the same thing over and over and may eventually win. That must be Bernanke's Fed policy: do the same thing over and over but raise the stakes.
No, congratulations for joining Robert in the idiot camp. There is no proof Einstein ever uttered those words.
On Rats and Men: http://minds.wisconsin.edu/bitstream/handle/1793/4886/1315.pdf?sequence=...
Next case...
Oooh,
I'd love to see Bernanke froth at the mouth while shitting himself senseless in frustration.
Thanks WB7...That thought just made my day.
Why does ZH continue to run this idiot's posts?
Hey asswipe: he happens to be a favorite of Tyler's. Beside insulting people, what do you contribute?
Freedom of speech and avoiding bias...
Somebody has to fill the void, lest we run out of conventional wisdom. Then we'd really be screwed, huh?
Thank God almighty you are back Brusca! I've missed trashing your nonsense so very much.
What are you on about here? Monetary policy and its continuous failings? Attempting to give credence to economics by dropping Einstein as some kind of comparative association?
Each bout of Quantitative Easing is less effective than the previous bout, and interest rates are so low, so doing more QE doesn't make any sense.
On the other hand, the Federal Reserve cannot just throw it's hands in the air and say we're out of tools.
So, will they or won't they?
That's my summary of it, did I miss anything?
Just read it...if you can.
whoa, let met get a chair........
Yes, I do think Einstein is wrong. Insanity is doing the same thing over and over expecting the SAME result!
that explians why Wade keeps hooting when he is missing...
"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."
Let's see, Japan has "muddled through" for two decades....
And maybe the TPTB believe that nothing changing is the best they can and should do right now.
The dirty secret is the real game is between the US/Europe & China/Russia. If open your eyes and see the real game, players, stakes, & pieces, you might see how sometimes it's all about preserving the chips you have and let the other players at the table bet large and go down.
This game is far from over and ll the players have huge losses coming. It's about winning the relativity game, to use a phrase Mr E made famous...
The parallels with Japan are more like perpendiculars.
Japan IS the forerunner for today's situation; massive bailouts, low-to-zero growth, zombie banks, massive government debt. Only citizen held government bonds (95%+ of all government bonds are owned by Japanese citizens) and a strong manufacturing sector saved Japan's ass. America has NONE of those things, and only has myth and hype supporting it. America has only survived the downturn because of its massive bond market BUBBLE.
Having the Federal Reserve hold the bonds is like having the citizens holding the bonds, except 100% of the interest paid on bonds held by the Fed become revenue for the next year.
If Japan has been using Quantitative Easing for ~20 years, how is it possible that 95% of the bonds are held by private citizens and not the Bank of Japan?
The United States has second largest industrial output, double that of Japan:
http://en.wikipedia.org/wiki/Industry
So to say that America has none of the advantages Japan had is completely wrong, it has both of the advantages you listed.
"The policy is not insane it is just the policy. But the choice to employ it again would weigh heavily on the insanity scale. "
Now I'm not saying the policy or reapplication thereof would be right, but.
Your rationalization IS moronic. The phrase "straw that broke the camel's back" and hundreds of millions of human events have been decided by application of will that first failed.
So yes, the math says the Fed's re-application of prior action will fail. But your reasoning is that of an ignorant moron.
Seriously, that you still post here is amazing. And I love the fact ZH/Tyler continues to let you. It's all up side for ZH. They get a Dismal Scientist who supports their general perspective AND simultaneously proves their assertion that the Dismal Science is filled with Kool-Aid drinking morons.
just what makes that little old ant
think He'll move that rubber tree plant
eveyone knows ant can't
move a rubber tree plant
But he, like you, has high hopes.
I guess your thinking of creating the grand canyon with eons of water runoff and making great lakes with the slow grind of glaceirs. Glacial thinking- we already have that at the Fed. You get 15-yards for piling on.
Robert, thanks for again confirming the utter banality and ignorance of your thinking like an ... Ant.
You are proof of why the Fed & economics are so screwed up. There is ZERO proof Einstein ever uttered those words. But like a true lying, delusional, regurgitate the Kool-Aid drank, economist you assert the baseless as fact.
The 1st documented source of the phrase, a drug program: The quote "Insanity is repeating the same mistakes and expecting different results." is contained in the Basic Text of Narcotics Anonymous which was published in 1982. The review form of the book was distributed to members in 1981 and work on the book began in 1979.
Kind poetic huh. Everyone knows recovering drug addicts have much better eye for human nature than do practitioners of the Dismal Science.
I'll give you this Robert, your picture is truly something only one addicted to themselves would consider.... not insane.
Wow! I guess you told me.
Too bad I don't hold your opinion in even low regard. But thanks for wasting your time with such pointless comments. Isn't it time to go collect your next unemployment check?
Robert, it was not an opinion. It is a fact that you took, and routinely take, assertions of opinion, and folklore "facts" and assert them as truths.
That Robert is the behavior of one whi is either a moron or a liar. Pick the one that you feel better wearing. But it is a fact that those are your only two choices.
*Ahem* meeting ad hominem with ad hominem only proves you are no better.
However, it looks as if you are finally "getting religion" on the destructive actions of the Fed. Congrats.
Would prefer you did so more clearly and succinctly, but Rome didn't fall in a day, they say.
His religion appears to be Hopium labeled as good ole optimism.
Everyone knows that pessimists are a buzz killer.
Upon re-reading, I'm now not sure what his position is...
Wait... you read it... twice?
Sounds painful.
I took some Tylenol-3. It helped a bit.
The Fed was effective in delaying the reckoning. Of course, the consequence is the delayed reckoning will be worse.
Let's say, Fed intervention was good for Ray Bradbury (may he RIP) but bad for those who plan to be alive a few years from now.