Oct

2

The Fed gave a vigorous defense of their policies today. One wonders if there is anything that would ever convince them that their policies were and are wrong. For example, if the more they QE it, the worse the economy gets, and the more intractable the employment situation gets. There is something terribly wrong with certain banks laying off 30,000 operatives while at the same time receiving hundreds of billions of emollients in form of investment, loans, purchase of assets, flexionic information, favored deals, guarantees, bailouts, favored nation treatment in regulation and the Good One knows what else, and maintaining and building their 2,500 man trading rooms and CIO's. One mechanism that would cause all such transfers of resources to these favored flexionic institutions to create discommodiation in everyone else, would be the loss of incentives that creates in those not favored. But it goes much deeper than that.

Gary Rogan writes:

I call this "the Krugman Principle": when a government intervention fails it's always because it wasn't big enough, never because the idea was wrong.

To quote from a Credence Clearwater Revival song (although a little outside of its intended topic): "And when you ask them, "How much should we give?" Ooh, they only answer More! more! more!"

anonymous writes: 

When it comes to social "insurance" there is a point of diminishing returns. The argument for insurance goes, if you buy insurance, you will be able to take more risk elsewhere. And likewise with social insurance, if you don't have to worry about starving in your old age, you don't have to save as much, and can invest the savings in riskier endeavors such as starting a business and you can spend and consume more in your youth. However, if the benefits are too generous, threatening either collapse of the whole social insurance system or massive unknown changes, then the reverse is true.

Likewise the same is true for the government backstopping every corporation that is to big to fail.

It is my contention that the public has become aware that the current course is unsustainable both for the flexions and social security.

Hence the saving rate and lower consumption will continue (slower speed of money). But these are the very things that will enable the fed to say at least "we have done no harm" from a short sighted view.


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