Panic at the Fed

Here in our diary, we offer no predictions for the New Year. How the hell do we know what will happen?

Instead, we offer advice. And we rest secure in the knowledge that no one will take it. So it will never be put to the test.

And we’ll begin with some advice to central bankers, specifically Ben Bernanke, Janet Yellen & Co: stop worrying. Reuters:

Fed becoming worried about stimulus side effects

WASHINGTON: Federal Reserve officials are increasingly concerned about the potential risks of the US central bank’s asset purchases on financial markets, but look set to continue its open-ended stimulus program for now.

“Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet,” the minutes said.

Still, the Fed appeared likely to continue buying assets for the foreseeable future, having announced in December it was extending monthly purchases of $40 billion in mortgage securities and also buying $45 billion in Treasuries each month.

Officials say they will keep interest rates near zero until the unemployment rate falls to 6.5 percent for as long as estimates of medium-run inflation do not exceed 2.5 percent.

Hey, fellas… you can stop worrying. What will happen, will happen. Que sera, sera.

Don’t ya see? This is no time to get weak-kneed. The economy now depends on your zero interest rates and your EZ money. It’s hooked. Addicted. Dependent. Take it away and you’re going to see some sweatin’ and shakin’ – nobody wants to see that.

What people want to see is more spending by the government, higher stock prices and more jobs. And that’s why your efforts are so important. Without your $85bn a month and zero interest rate policy, the feds wouldn’t find it so easy to fund their deficits. And the zombies wouldn’t find it so easy to feed at the public trough.

Besides, what are you worried about? Are you worried about market disruptions or panics? Yes, they are a worry for a sensible person. A prudent person wouldn’t be able to sleep if he put the world’s financial system at risk the way you have. But you’ve already proven that you’re not very sensible or prudent. So stop your fretting.

In any case, there’s no reason for it. Just look at Japan. It’s got a mountain of debt. Still, no inflation. No panic. No disruptions. Japan would love to have some inflation. It’s got more than twice as much government debt as GDP.  

But you don’t see Japan’s honchos wringing their hands, do you? Instead, their top man – Shinzo Abe – is pushing the central bank to crank up the presses. He wants more money-printing, more EZ credit and more stimulus.

Yes, it’s delusional. Yes, it will be catastrophic. Yes, the man should be put into a prison or an insane asylum. But so should you all, frankly. You hand out pieces of paper and call it ‘money’. Shameful.

Or maybe you’re concerned that your money-printing will cause higher consumer price inflation? You should be so lucky! Imagine that you could get the price level to double. That would be great. It would cut the debt – in real terms – in half. Instead of owing $16trn in today’s money, the feds would owe $16trn in tomorrow’s money, which was only worth half as much. That would be a good thing, no?

Apartments in Manhattan would sell for over $100m. Gasoline would sell for $8 a gallon. Gold would go over $3,000 an ounce.

And you know what else would be good about that? Those damned, lazy good-for-nothing bond vigilantes would have to get back on the job. Doubling prices would mean cutting bond values in half – or more – too. As a practical matter, many bond investors would be wiped out.

And then, if you tried to print more money you’d have those vigilantes up in arms. Lenders would turn up their noses at your bond offers. And the foreigners – to say nothing of homegrown citizens – would rush to get rid of your currency.

Then, you’ll have a clear choice. Either keep printing until hyperinflation blows up the entire economy as happened in Zimbabwe and Argentina. Or stop the presses and try to re-establish the value of your money. You might also try to rehabilitate your reputations, but it will probably be too late for that. You are schmucks and by then the whole world will know it.

So don’t worry. Relax. The problem will take care of itself.

Best wishes for 2013!

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  • Noel Falconer MEcon

    Bill, you’re worrying about a kid with a hand grenade when there’s another, as close and as likely to trigger it, with a hydrogen bomb!

    Zimbabwe and Argentina were sideshows, you would have to hyperinflate that much AND THEN DO IT AGAIN to approach the tragedy of post-WW2 Hungary. The world is in most deadly peril. And even we few who are willing to admit this don’t know how to avert it, not this late.

  • Peter th Plumber ( retired )

    ‘ere William,what’s your game golf crazy? Chief zombie hunter,
    not the ” better dead than red ” I hope. Give the people the choice
    and history says they will fail. JE Hoover was no better than the
    Spanish Inquisition, he could burn witches but it did’nt change
    anything. Its not what

  • LERENARD

    No meed to panic …..! Doomsday came and went without a whimper. The world has faced many perils in the past but we are still here. Nothing that we can do will make any difference to what happens next. We have never been ‘in control’ and never will be. Basically, we have no power over anything of any cosmological significance. …..Beware of false prophets…and self proclaimed pundits….!

  • Dexter Wallfish

    It’s easy to be Keynesian with other people’s money. So read here the Austrian view of the mess we are in and why.

    http://www.mises.org/journals/qjae/pdf/qjae14_4_1.pdf

    How long before the Zombie fan dance takes us over the edge?

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