Wednesday, February 10, 2010


Fed's Interventions as Well-Planned as Iraq Invasion

I realize CNBC articles are just about useless in terms of understanding the Fed's actual actions, but nonetheless why wouldn't a statement like this concern regular Joes?
The Federal Reserve could begin pulling back its unprecedented stimulus for the U.S. economy by first removing some cash from the financial system and then raising interest rates, Fed Chairman Ben Bernanke said Wednesday.

The U.S. central bank has pumped more than $1 trillion into the economy after it slashed benchmark rates to near zero to combat the worst financial crisis since the Great Depression.

While the economy has grown for the past two quarters, unemployment is at a lofty 9.7 percent. Bernanke made clear the time for tightening monetary policy was still some ways away, even though the Fed's thinking on its exit strategy had advanced.

"Although at present the U.S. economy continues to require the support of highly accommodative monetary policies, at some point the Federal Reserve will need to tighten financial conditions," Bernanke said in remarks prepared for a hearing of the House Financial Services Committee.
You get the sense that now the Fed is starting to think about how it will unwind the $1 trillion+ in its interventions. But shouldn't the Fed already know how it will get out--indeed, shouldn't the exit strategy (and its ramifications) have been a big consideration before going in?


I made this exact argument a couple of months ago at the Freeman Online:
Hey, I think Bernanke saw the Hayek/Keynes rap video. He probably laughed it off publicly, but quietly, in his mind, thought: "Uh, oh... this Hayek guy made sense"

The Fed "pulling cash" is a real stretch of what Bernanke said.

He's got over $1 trillion in excess reserves to worry about before he comes close to draining even a dollar.
Hey Steve, don't you think it's time you learned a thing or two about Keynesianism, since you comment on it so much?
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