The Wizard’s Of A Lost Federal Reserve & The Perils Of Macroeconomic Specialization

For Barney Kilgore & Robert Bartley!  Deeply missed and beloved.

The recent acclaim that the Federal Reserve is out of ammunition meets public sentiment of a failed Presidency to generate a milieu that is downright UNAMERICAN!  The clarion call to reclaim the ramparts of American exceptionalism was made on the opinion pages of the Wall St. Journal August 10, 2010.  Those used to reading sound financial, economic analysis will cheer in affirming what the editorial board disposed of this past Thursday in writing of the U.S. Federal Reserve; namely the false magic that holds, generates the authority of being a ‘Specialist’.

Specialists abhor a synoptic approach, for anyone who gains traction outside an imposed isolated imprimatur openly solicits fury.  Reading what the WSJ editorial board composed will forever threaten the likes of macroeconomic specialists.

The ‘economic redeemer’ that is the Federal Reserve has chosen to maintain its quantitative easing (just printing money) in the hopes of ‘preventing deflation, to re-ignite a defeated recovery, to revive a lost job market’,  in effect, to save America from the wiles of specialists that ensconce themselves as policy wonks in Treasury and Federal Reserve that pursued a failed Keynesian policy that has antecedents in Japan that still reverberates today.

“Its a tempting religion, this faith in the magical powers of Ben Bernake and the monetary power” that grounds Keynesian authority.  “But it is also dangerous.  It puts far to much hope in a single depository, it ignores significant risks intrinsic to easy money, and above all it lets the political class dodge responsibility for its fiscal and regulatory policies that have become the real barrier to robust economic growth.”

The clear and present danger of the U.S. identifying with the lost decade that is still Japan is worthy of rigorous study.  “Toyko careened into deflation even as it embarked on a two decade long Keynesian spending spree that sent its GDP ratio to 200%.  Unless the public has forgotten, both Timothy Geithner and Larry Summers urged Japan on such a path.

JUST WHAT IS THE CORRECT READING OF ANY U.S. – JAPAN ANALOGY?

“THE REAL ANALOGY TO THE CURRENT U.S. ECONOMY IS THE FAILURE OF SPENDING STIMULUS.”  PERIOD.

The last deflationary spiral in the U.S. was 2003, “TO FIGHT WHAT TURNED OUT TO BE AN ILLUSION, THE FEDERAL RESERVE MAINTAINED NEGATIVE REAL INTEREST RATES UNTIL 2005, CREATING A HUGE SUBSIDY FOR CREDIT AND THE START OF THE HOUSING MANIA!”

“As for the current moment, the Fed has maintained its zero interest rate policy for 20 months, while expanding the Fed balance sheet some $2 Trillion.  By any definition this is historically easy money, and it has its own costs.  This zero rate interest policy punishes saviors, IT CREATES MASSIVE INVESTMENT DISTORTIONS” simply because ‘to-big-to-fail’ financial firms can take advantage of such policy rates.  “Zero rates also favor governments borrowers who wish to finance excessively reckless social spending in Congress. ”

“ABOVE ALL, THE EASY MONEY SOLUTION MISDIAGNOSES THE REAL U.S. PROBLEM.”  THE TOTAL FAILURE OF THE CONTEMPORARY LIBERAL MODEL OF CONFISCATORY TAXATION TO FUEL SOCIAL SPENDING!  “The U.S. economy does not suffer from a shortage of money.  It suffers from a shortage of confidence.  (This has huge political consequences!)  “Banks have plenty of reserves and U.S. Corporations have $2 trillion in cash on hand.”  The problem is that American’s don’t trust its own government!  “Coupled with politically directed credit, subsidies that have distorted the energy, automobile and other markets, favoring some companies and business models over others; antitrust policies seeking to politicize the internet and telecommunications.

AMIST SUCH POLITICAL ASSAULT, IT IS A TRIBUTE TO AMERICAN BUSINESS THAT IT IS WILLING TO TAKE ANY RISKS AT ALL!”

Those with the fortitude to eviscerate the specialist macroeconomic wizards have their debt to the giants of Barney Kilgore and Robert L. Bartley.