Do you have any thoughts on the “reasons” they are doing this? Is it political or just the usual bad Fed policy? Is it a conspiracy to ruin the economy or do they really think their plan is working? And doesn’t history show that this plan is too risky ? And considering the shaky state of geopolitics, it’s even more risky? Or are we just being worry warts ?
There is no way to disprove a conspiracy. At the moment, I am unpersuaded that the evidence supports the assertion of an organized conspiracy, but absence of proof is never proof of absence.
While I usually reference the perversion of science with ideology in the context of the COVID "pandemic", the principle applies equally to economics.
For the last 40+ years, it has been the accepted wisdom that the proper response to inflation is to raise interest rates. Ever since the Volcker shock therapy of the early 80s, this is the orthodox view, and any dispute this doctrine is simply disregarded.
Thus when Canada tried it without success, when Japan tried it and catalyzed their serial lost decades of deflation, these failures were not enough to challenge the orthodoxy. Even the Central Bank of Russia raised interest rates right after Putin's invasion of Ukraine, just to keep a lid on inflation.
When Ben Bernanke continued Greenspan's rate hikes in 2006, thereby catalyzing the subprime mortgage crisis which metastasized into the Great Financial Crisis, they ultimately gave him the Nobel Prize!
Powell is following the orthodox view of how to resolve inflation, and interpreting every data point from within the context that interest rate hikes will always bring down inflation. Consequently, if he believes prices are "too high" (Bernanke's operative logic in 2006), he will push for more rate hikes.
To look at the data honestly with an open mind, you have to consider the possibility that rate hikes don't necessarily work. Powell has shown no evidence of that level of awareness.
Interesting. So they are simply following an established doctrine whether it’s based upon reality or not . Seems to be happening a lot in our world lately.
First let's be clear on what "correction" entails. Markets are complex systems, and, left to themselves, will naturally seek out the equilibrium state.
Because markets are also dynamic systems, what they can never achieve is the status quo antenna. Each policy implemented changes the system, so that even if the policy is reversed things can never go back to exactly the way they were.
The problem with arbitrary policy is that they invariably push the system towards disequilibrium. Thus the Fed acts, then the market reacts.
Consequently, the market will always reach equilibrium fastest if left alone. Unfortunately, that means accepting the aftereffects of all the destabilizing policies that have already been implemented.
If the Fed had done nothing, inflation would have risen until people were holding the desired amount of money overall. However, with the M1 money supply having expanded by several orders of magnitude, left to its own to reach equilibrium would involve moving through a similarly extreme level of inflation, after which prices would stabilize and inflation would resolve itself. Politically, that's a nonstarter, for obvious reasons, especially since the Fed grew the money supply in the first place.
If the Fed had truly been striving to proactively promote a stable market, they should have been working to shrink the money supply beginning in late 2020 (ideally, they never would have exploded the money supply in the first place). However, they didn't, and so here we are.
In the current situation, the best thing for the Fed to do now is nothing. Let the market proceed towards equilibrium from where we are. If they don't, they are likely to create more problems by introducing new disequilibria into the market.
I understand. On a related topic, if a UBI policy is implemented, which seems to be the only plan “they” have to support those pushed out by the climate agenda, won’t that influx of money cause more inflation? How can they give ubi without causing inflation that’s just like the Covid relief inflation?
Maybe the feds are skeptical of their inflation reports like the rest of us?
If they were they would also have to be skeptical about the rate hike strategy itself. I don't see where is any reflection on that.
Do you have any thoughts on the “reasons” they are doing this? Is it political or just the usual bad Fed policy? Is it a conspiracy to ruin the economy or do they really think their plan is working? And doesn’t history show that this plan is too risky ? And considering the shaky state of geopolitics, it’s even more risky? Or are we just being worry warts ?
There is no way to disprove a conspiracy. At the moment, I am unpersuaded that the evidence supports the assertion of an organized conspiracy, but absence of proof is never proof of absence.
While I usually reference the perversion of science with ideology in the context of the COVID "pandemic", the principle applies equally to economics.
https://newsletter.allfactsmatter.us/p/before-faucism-science-endured-lysenkoism
For the last 40+ years, it has been the accepted wisdom that the proper response to inflation is to raise interest rates. Ever since the Volcker shock therapy of the early 80s, this is the orthodox view, and any dispute this doctrine is simply disregarded.
Thus when Canada tried it without success, when Japan tried it and catalyzed their serial lost decades of deflation, these failures were not enough to challenge the orthodoxy. Even the Central Bank of Russia raised interest rates right after Putin's invasion of Ukraine, just to keep a lid on inflation.
When Ben Bernanke continued Greenspan's rate hikes in 2006, thereby catalyzing the subprime mortgage crisis which metastasized into the Great Financial Crisis, they ultimately gave him the Nobel Prize!
Powell is following the orthodox view of how to resolve inflation, and interpreting every data point from within the context that interest rate hikes will always bring down inflation. Consequently, if he believes prices are "too high" (Bernanke's operative logic in 2006), he will push for more rate hikes.
To look at the data honestly with an open mind, you have to consider the possibility that rate hikes don't necessarily work. Powell has shown no evidence of that level of awareness.
Interesting. So they are simply following an established doctrine whether it’s based upon reality or not . Seems to be happening a lot in our world lately.
This is why I am always harping on the data and the facts. Because this entire mythology of "expertise" has caused authority to replace logic.
There is no way that can end well.
What do you think would happen if they did not intervene? Would the market correct itself faster or slower ?
First let's be clear on what "correction" entails. Markets are complex systems, and, left to themselves, will naturally seek out the equilibrium state.
Because markets are also dynamic systems, what they can never achieve is the status quo antenna. Each policy implemented changes the system, so that even if the policy is reversed things can never go back to exactly the way they were.
The problem with arbitrary policy is that they invariably push the system towards disequilibrium. Thus the Fed acts, then the market reacts.
Consequently, the market will always reach equilibrium fastest if left alone. Unfortunately, that means accepting the aftereffects of all the destabilizing policies that have already been implemented.
If the Fed had done nothing, inflation would have risen until people were holding the desired amount of money overall. However, with the M1 money supply having expanded by several orders of magnitude, left to its own to reach equilibrium would involve moving through a similarly extreme level of inflation, after which prices would stabilize and inflation would resolve itself. Politically, that's a nonstarter, for obvious reasons, especially since the Fed grew the money supply in the first place.
If the Fed had truly been striving to proactively promote a stable market, they should have been working to shrink the money supply beginning in late 2020 (ideally, they never would have exploded the money supply in the first place). However, they didn't, and so here we are.
In the current situation, the best thing for the Fed to do now is nothing. Let the market proceed towards equilibrium from where we are. If they don't, they are likely to create more problems by introducing new disequilibria into the market.
I understand. On a related topic, if a UBI policy is implemented, which seems to be the only plan “they” have to support those pushed out by the climate agenda, won’t that influx of money cause more inflation? How can they give ubi without causing inflation that’s just like the Covid relief inflation?