Fed Makes Us Twist

Posted: Sep 22, 2011 12:01 AM

They couldn’t leave well enough alone. There is a profound difference between men and women. When there is a problem, women want to talk about it. Men want to fix it. Some problems need simply be talked about, not fixed. That’s a core disagreement with a lot of relationships.

The Fed has been a consistent fixer. It has meddled too much and muddied up the marketplace. Something adverse happens, and everyone looks to the Fed to “do something, anything”. The Twist is the latest version of that. It didn’t work in 1960, and it’s not going to work today. In the early sixties, the Kennedy tax cut did work.

The Fed said it would launch a new $400 billion program that will tilt its $2.85 trillion balance sheet more heavily to longer-term securities by selling shorter-term notes and using those funds to purchase longer-dated Treasuries.

The question to ask is, “What the hell is this going to do?”. It’s more pushing on a string while our real problems fester. The Federal Reserve Bank of the United States of America is out of bullets. It can keep money cheap as long as its balance sheet holds up, but sooner or later all this stuff is going to blow up in the American taxpayer face. There is no free lunch.

In fairness to the Fed, they have been dealt a continuing set of bad hands in the financial card game. What are they supposed to do? Pursue tight money policy? Obviously that’s not the way to go. But, maybe what they should do instead of all this financial engineering is simply reassure markets that they will be there when they fall. Money will remain cheap, and the Fed is there to maintain steady currency value and create employment. A “not too hot and not too cold” approach.

The current strategy at the Federal Reserve is to push on a string. The only way out of this mess is correct fiscal policy, and we aren’t going to get that until at least January of 2013.

Even though gold ($GLD, $GC_F) is probably overdone, you feel like selling it with both hands yet?

John Ransom | Create Your Badge

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