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Senior Advisor

A theory

I've heard a doctor say that narcotic drugs will not addict you if you have a valid need for pain relief. When you continue long after you need the pain relief is when the drug take a hold on you.

 

In comparison, I would suggest that the fed flooding the money supply is also theraputic as long as our economy is in the doldrums. Once the economy show significant signs of healing then the cash infusion should stop.

 

These things are only addictive when we choose them just for the fun of it.

 

I think Ben Bernake deserves the freedom medal. You can disagree!

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Advisor

Re: A theory

I agree although I think I'll put a hold on the medal for the same reason- moral hazard- that you invoke.

 

When he first hinted at tapering and the markets threw a fit he should have stood his ground rather than kicking the problem on to his successor.

 

I also think it is still open to future events to find if his academic career's work spent on study of the Fed's errors in the great depression has been proven.

 

Possibuly markets will throw a few fits and tantrums about any hints of tightening and then get on with it. Or maybe we'll find that 0 really means 0 and 30 years of raising asset prices through lower interest rates has simply run its course.

 

Which isn't all his fault, by any means. But like I said I think I'd put a hold on the medal.

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Senior Advisor

Re: A theory

I would make two points in regards to current policiy and markets and stimulus.

 

First, as near as I can tell the QE by the Fed is both not nearly enough in such a large economy and is aimed at the wrong target - the financial sector. In fairness, that's all the Fed can do and the real heavy lifting needs to be done by Congress - which they are deliberately NOT doing. Meanwhile the financial institutions are largely sequestering the cash they get from the Fed for riskier assets they want to unload. That cash is NOT flooding the economy because it has no way to enter the rest of the market. A consyuymer based economic system where the consumers are tapped out and struggling to find jobs and raises does not reward investment in producing consumer oriented products. Therefore the speed of circulation is poor, leaving the economy in the doldrums.

 

Second, until there is a restructinging of tax policy and loopholes the middle class will continue to shrink and the consumer economy will remain weak. The middle class can't compete by sending revenue offshore to avoid taxation (assuming they had enough disopsable income to do so). The marginal tax rate (actual taxation as a percentage of income rather than the tax bracket loopholes subvert) is unfair to the middle class.

 

As farmers we have many subsidies and loopholes and other policy programs that reward our sector. We are a favored group that benefits - and yet many of us claim these same practices are unhealthy used in other economic sectors in trouble. Many of us think it's in our interest to have it both ways. But there is no argument the effect on markets has been dramatic within our industry.

 

I think it's a mistake not to restructure tax policies for the public good. What's good for the goose is good for the gander.

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Re: A theory

Although many argued that even QE targeting bank balance sheets was beyond the Fed's mandate so I think the likelhood of anything of greater scope was nil.

 

Likewise, while I'm certainly not arguing on the benign intentions of those who crafted the rescue from the cash- the semi-extralegal things they did were probably the least illegal options.

 

We really don't have the policy options within settled law to do a lot of things. Which I don't think is necessarily a bad thing- there need to be limits and some respect for settled law- it is just a reminder that we remain in a very tenuous position with few levers left to pull.

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Senior Advisor

Re: A theory


@kraft-t wrote:

I've heard a doctor say that narcotic drugs will not addict you if you have a valid need for pain relief. When you continue long after you need the pain relief is when the drug take a hold on you.

 

In comparison, I would suggest that the fed flooding the money supply is also theraputic as long as our economy is in the doldrums. Once the economy show significant signs of healing then the cash infusion should stop.

 

These things are only addictive when we choose them just for the fun of it.

 

I think Ben Bernake deserves the freedom medal. You can disagree!


False premise. An economy does not have the same DNA as a human being. Comparison is meaningless.

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Advisor

Re: A theory

A couple of good articles on The Market Ticker karl Denniger. Says it better than I could .

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