It’s been three weeks since my last post and it really doesn’t seem so long.
In the meantime, we’ve had one suspense-filled FOMC meeting… will they or won’t they actually do what they said they would do. Now, of course, we know the answer to that question. No, they’ve had second thoughts on
sheer stupidity everything they had thought would be true at this point in time.
While the FOMC’s second thoughts might be discouraging to some, I find it somewhat encouraging that some members are cognizant of reality, and the mindset that rates need to rise because the central bank said so hasn’t won the argument – yet.
Some other developments I thought were interesting had to do with the criticism lobbed at modelers by Paul Romer, and others, like George Selgin. I thought Paul Romer’s paper was a scathing indictment of what appears to be the mainstream the phenomena of fudging numbers to make the model fit. I have never thought much of Cochrane, thinking him guilty of skirting identification to come up with some bizarre conclusions in explaining the root cause of the financial crisis. But Romer pays him a significant amount of deference in this paper, enough that I will have to take another look at Cochrane’s work rather than writing him off as a bizarro in league with the righty-tighties, the kind of people who believe there is never any state of the universe where money could be too tight – because, after all, prices adjust.
I’ve wondered, sometimes out loud to astonishment of my colleagues, if there is any viable sort of compromise between that extreme view of monetary matters and some other view that says we need to maintain right size base to have nominal stability. Personally, I don’t care where they want to set short nominal rates as long as the demand for money will be met. What I see happening now, is really the wrong approach to nominal stability because extremists want to both lop the base and raise rates of all kinds, short nominal rates, IoER, and whatever other rates they think are “too low,” based on what judgement I have yet to figure out. But I would be happy to capitulate on higher rates as long as they are willing to print ‘em up as necessary, because I don’t agree that whatever the premise for raising rates warrants the hurt of not keeping up with demand. Many of us have had enough hurt and I don’t believe in imposing more without any clear and reasoned objective other than preventing inflation predicted by flawed forecasts. If there are any houses left that need cleaned up and indulgences that need to be curbed, the FOMC needs to start at home by questioning how their inflation forecasts could be so wrong without accountability. There can only be so many bygones left to pass before the whole show appears as entirely arbitrary – and that simply isn’t good.
One other development, perhaps not so interesting as it is laughable, ifs that Donald Trump took the tack of the “fake economy” on Fed money. Goods are produced, someone gets paid to produce what someone else wants to buy. And that is fake? If that is fake, I wonder just what real is, and what the alternative might be. Non-fake is perma-depression? Is that what Donald Trump would prefer? What a bone head.