Is the Fed doing more than U.S. commentators are suggesting?

by on September 22, 2010 at 8:52 pm in Economics | Permalink

The FT consistently paints the recent Fed as being somewhat dovish.  Here is one example:

The Federal Reserve broke a taboo yesterday when it said quite baldly that inflation in the US is now below the level “consistent with its mandate”. In other words, it is too low. This is a very big statement for any central banker to make, since the greatest feather in their collective cap is that they successfully combated inflation after the 1970s debacle…Since that period, most central bankers have been careful to avoid any language which even hints that a rise in inflation is acceptable to them. I can certainly find no previous record of the FOMC saying that inflation is too low, so it was a jolt to see this stated so starkly in the Fed statement yesterday.

…Bernanke Fed may be even more dovish than the Alan Greenspan Fed of 2003, and that is saying quite a lot. However sympathetic you are to the need for further monetary easing (and actually I am towards the sympathetic end of the spectrum), it is not difficult to see why the dollar has been falling, and gold rising, in the markets today.

1 matt wilbert September 22, 2010 at 9:14 pm

Let’s hope they are. I do think the comment about inflation being less than they would like is significant.

2 Bill September 22, 2010 at 10:19 pm

Is the threat of quantative easing being used to put pressure on the Chinese to revalue their currency? If they don’t revalue their currency, perhaps QE will be used to revalue the dollar instead, or make it more costly to hold or acquire US bonds. Or, is it this threat will cause the Chinese to blink and revalue their currency instead.

In other words, QE can serve a domestic purpose, or an international trade purpose. Is Bernanke playing geopolitical politics with the threat of QE and his statement about inflation?

3 Kelp September 23, 2010 at 3:37 am

” However sympathetic you are to the need for further monetary easing (and actually I am towards the sympathetic end of the spectrum), it is not difficult to see why the dollar has been falling, and gold rising, in the markets today.”

Do you mean that rational agents don’t just sit down and wait to hear and trust the governement voice ?

I’m flabbegashed…. why should anyone doubt and inform herself ?

4 Shalom Patrick Hamou September 23, 2010 at 1:34 pm

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Our economy is slowly dying, it is kept alive artificially. No one is proposing a solution because no one has the slightest idea of why it is happening and many have vested interest in the present system. However an objective observation of the phenomenon can help us understand it and provide us with an innovative solution. Of course we can’t solve the problem with the tools that brought us there in the first place and we need a new ideology.

_______________________________

– Do you feel that your ideology pushed you to make decisions that you wish you had not made?

– Well, remember that what an ideology is, is a conceptual framework with the way people deal with reality. Everyone has one. You have to — to exist, you need an ideology. The question is whether it is accurate or not. And what I’m saying to you is, yes, I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact.

– You found a flaw in the reality…(!!!???)

– Flaw in the model that I perceived is the critical functioning structure that defines how the world works, so to speak.

– In other words, you found that your view of the world, your ideology, was not right, it was not working?

– That is — precisely. No, that’s precisely the reason I was shocked, because I had been going for 40 years or more with very considerable evidence that it was working exceptionally well.

_______________________________

In order to alleviate those economic woes wee need to create, as fast as possible, a new credit free currency that will solve the credit crunch and bring incremental jobs, consumption and investments to the present system.

An Innovative Credit Free, Free Market, Post Crash Economy

A Tract on Monetary Reform

It is urgent if we want to limit social, political and military chaos.

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Is the fulfilment of these ideas a visionary hope? Have they insufficient roots in the motives which govern the evolution of political society? Are the interests which they will thwart stronger and more obvious than those which they will serve?

I do not attempt an answer in this place. It would need a volume of a different character from this one to indicate even in outline the practical measures in which they might be gradually clothed. But if the ideas are correct — an hypothesis on which the author himself must necessarily base what he writes — it would be a mistake, I predict, to dispute their potency over a period of time. At the present moment people are unusually expectant of a more fundamental diagnosis; more particularly ready to receive it; eager to try it out, if it should be even plausible.

But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.

Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.

Not, indeed, immediately, but after a certain interval; for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest. But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil.

_______________________________

An Innovative Credit Free, Free Market, Post Crash Economy

A Tract on Monetary Reform

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