Wednesday, March 25, 2009
The head of the Fed bank in San Francisco, Janet Yellen, has more or less admitted that the Fed has no idea what it is doing, but that such ignorance only argues for taking more aggressively action:
Yellen said that the wisdom of the Fed's approach is now the subject of "considerable debate." ...
Yellen admitted that it was hard to prove that the new programs were working."We simply don't have the experience needed to pin down the magnitude of the impacts," Yellen said.But this was just another argument in favor of a broad, aggressive, approach, she said.
Mish called it a year ago (Yellen's statement more or less confirms Corollary Number Three):
Fed Uncertainty Principle:Arianna Huffington says that we should "take the steering wheel out of Geithner's hands". We should pry it out of the Fed's hands, as well, for they are collectively steering us off of a cliff.
The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed's actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.
Corollary Number One:
The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn't know (much more than it wants to admit), particularly in times of economic stress.
Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Corollary Number Three:
Don't expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four:
The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it's easier to get forgiveness than permission. And forgiveness is just another means to the desired power grab it is seeking.