The Fed Under Fire

This time for not raising rates.

We’re at “full employment” except the Wall Street Journal seems to disagree with that, citing an “army” of unemployed men, and this isn’t comforting either:

That was largely because the biggest jobs gains came in bars and restaurants, which added 34,000 positions. Social assistance grew by 22,000, professional and business services added 22,000 and Wall Street-related positions grew by 15,000. Health care also contributed 14,000.

Nor is thisNor this.  The American “economy” is increasingly the “service” and government sectors.  Bureaucrats and the waitresses that serve them lunch.  Ugh.

What does “economist” Ed Yardeni have to say about it all?

“Apparently, it hasn’t dawned on Fed officials that their ultra-easy monetary policies might have contributed greatly to the forces of global economic stagnation and deflation,” says Yardeni.

Yardeni is right, but probably not for the right reasons.  There’s a reason the Fed isn’t raising rates:  it will destroy the balance sheets of the world’s creditors.  The Fed is not particularly concerned about its nominal mission of full employment and low inflation; it is trapped into keeping rates low because the “assets” of lenders – that is, the market value of what they are “owed” by borrowers – declines when prevailing lending interest rates rise.  First and foremost, the Fed has to preserve the institution of lending.

We’ve been over this.  In 2013More than onceIn 2014And in 2015.  We’re not unsympathetic to the Fed’s plight, but we have no solution for them other than the one we have already offered.

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1 Comment

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One response to “The Fed Under Fire

  1. bob k. mando

    you need to understand a further complicating factor:
    Federal Reserve policy is to attempt to ‘smooth’ economic growth and maintain it at ~2% APR for the GDP, certainly no more than 3%.

    at the same time that Congress and the CBO baseline annual increases in .Gov expenditures at ~7%.

    can you see the problem?

    GDP is calculated thusly:
    GDP = C + I + G + (Ex – Im)

    where
    C = consumer spending
    I = business investment
    G = government spending
    Ex = Exports
    Im = Imports

    IF you hold GDP to 2% for an extended time
    BUT you demand that one of the subcomponents grows at 7%
    THEN ?

    Consumer spending and Business investment are being crushed by growth in the Federal budget.

    and this is DESIGNED.

    Like

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