The Federal Government Looks Frozen for 2010
Posted by Michael A. Kamperman on January 16, 2010
The Wall Street Journal is reporting the Federal Reserve plans to let most of their emergency measures expire as scheduled during the next two months. The Federal Reserve will remove guarantees for money market funds on February 1. They will also no longer make emergency loans to businesses that are having trouble accessing the commercial paper market. Most significantly, they will stop purchasing federal agency paper and mortgages at the end of March as scheduled. They will leave interest rates near zero until the economy demonstrates it has improved, and that the improvement is sustainable. Basically, the Fed plans to hide and watch for the remainder of 2010. Surprisingly, the Fed acknowledges that unemployment will probably remain stubbornly high for the foreseeable future. Yet there is a belief by the majority of Fed Governors that they have done enough and there is not much more they can do for the economy.Â
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Balderdash! The Federal Reserve is charged with both price stability and full employment. By tacitly acknowledging we have an employment problem, but not using more of the tools at their disposal, the Fed is throwing in the Keynesian towel and adopting the creative destruction concepts of the Austrian School of Economics. If Ben Bernanke cannot move the Federal Reserve Board to fulfill its mandate, then he should not be confirmed to a second term. In a war, if you’re not winning, you fire the generals and bring in leaders who are willing to be more aggressive. Just because the Fed has done more than they ever have before doesn’t mean they have done enough, nor all that they can. Haiti is an example of an overwhelming crisis that requires a much bigger effort than what has been put forward so far. It doesn’t matter that what we are sending is more than we have ever sent to an island nation. It only matters that we do the job required of us to save those people, especially since we have the resources to do it sitting on U.S. bases. Like Haiti, the scale of our economic collapse is beyond the experience and the ability of our current economic rescue team to handle.
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The Federal Reserve is now looking to the Whitehouse and the Congress to solve the economic Rubik’s Cube of finding a way out of the economic mess we find ourselves in. Unfortunately, massive quantitative easing is a big part of the way out and the Fed controls that. Doubly unfortunate is the fact that the Whitehouse and the Congress appear to be like deer in the economic headlights. Whatever came of the President’s job summit? Should Brown win in Massachusetts on Tuesday, then we could have gridlock right up until the mid-term elections in November. Even if the Democrat Coakley pulls it out, a near miss will call for recalibration. The situation in Haiti has clarified for me the problem with finding a solution. CNN reported that U.N. doctors left 25 patients in a field hospital unattended at night because of security fears. Yet CNN’s correspondent Dr. Sanjay Gupta, a hero, was able and willing to stay with the patients through the night to give them the best chance at survival. Because of his heroics all of the patients lived through the night. The command and control structure for the Haitian rescue mission is disjointed and broken. No one is really in charge and chaos reigns. The same problem has happened with the federal government’s response to the economic crisis. No one is in charge and no one is willing to be a hero. Everyone wants to stay with protocol and not stray to far from the orthodoxy. Therefore, they can always claim they did all they could and it wasn’t their fault. We need to throw caution to the wind and place a U.S. General in charge of the entire Haitian rescue operation, protocol be damned, and give that person full authority with unlimited resources to get the job done. Likewise, we need the President to use his existing authority to take ownership for providing a solution to the economic crisis. Instead, all we have now is bickering and debate and minimal efforts that are too meager to be effective.
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Randy Pena said,
Well said… Great information, keep up the great work!
Badtux said,
Well, yes, Abraham Lincoln fired General McClellan and put General Grant, a more aggressive general, in his place. What is generally not recognized is what actually won the American Civil War — when President Jefferson Davis fired general Joe Johnson, who very carefully hoarded the remaining manpower of the Army of the West while playing tiptoe-thru-the-tulips with General Sherman such that General Sherman couldn’t take off on a march through the sea without the risk of Johnson coming in on his flanks and rolling his army up,, and replaced him with General John Bell Hood, who was so aggressive that he took the Army of the West clean to Tennessee and destroyed it, freeing up Sherman to march to the sea virtually unopposed, which in turn destroyed the logistical base of the south, causing the majority of General Robert E. Lee’s starving army to desert and thereby leading to General Grant’s victory on the Eastern front.
In other words, switching generals doesn’t always get you a better general. Bernanke has political considerations to think about even though the Fed is supposed to be apolitical, and he is definitely more aggressive than General McClellan was, McClellan would have never exposed his flank by engaging in the purchases of commercial paper for example. The question is, would a more aggressive Fed leader be a U.S. Grant, or a John Bell Hood? And who would this more aggressive Fed leader be? Unless you’re volunteering for the job, I’m not sure we can come up with someone else who can both tiptoe through the political minefields and be more aggressive than Bernanke…
NorrieC said,
“the Fed is throwing in the Keynesian towel and adopting the creative destruction concepts of the Austrian School of Economics”
Compared to which particular strategy? In a debt-based, fiat, fractional reserve banking model the money requiring to be paid back ALWAYS increases at a faster rate than the rate at which the money is created. For short-term perpetuation the newly created money must be put to productive use thus increasing GDP and therefore printing more money with which to pay off the previous debt. But, only some of the money is used productively the rest being squandered on smarties (UK candy).
Therefore, the system can only exist for a finite period during which there must be growth. Growth by definition follows the compound interest rule and is therefore exponential. When the growth falters the money supply contracts and the bubble’s burst.
Please tell me, what part of this mathematically bankrupt model is going to be fixed by printing more fiat money? It is simply not mathematically possible to expand raw material consumption, population, debt, money, waste production and energy usage exponentially indefinitely. You can’t beat the maths, no matter how hard you try.