Tuesday, December 1, 2015

Former Fed Member Says There Are Fools At The Fed .......AN ABSOLUTE MUST READ!

Former Fed Member Says There Are Fools At The Fed

Former Fed member and National Economic Council director Larry Lindsey unleashed a barrage of uncomfortable truthiness on no lessor Fed apologist than Steve Liesman (A fool that works for CNBS) this morning. In the brief span of 4 minutes, Lindsey demolished Fed policy, "The idea of letting an asset bubble run is literally one of the most foolish things a central bank can do... they always end badly;" crushed the status quo,"Everyone loves the upside but the clean-up is tough... everyone loves a party... but they always end badly with a hangover... at 4am no one thinks the party is going to end but eventually they will have to drive home," and removed hope, "The Fed is out of ammunition after using too much for too long."


The global economy remains a real mess, on the whole, so the Fed really will be going it alone as it prepares to raise rates in the next phase of it's so far, failed experiment.

In the history of tightening cycles we've never had a Fed so intent on hammering home the message that if anything goes wrong they will be quick to respond, backtrack and ensure financial stability, a term that has become a sorry euphemism for propping up stocks.

What is meant to soothe, should be having the opposite effect. In a "normal" world, a rate hike is meant to cool off the economy. In this case, it is equally motivated by the imperative to make monetary policy functional again. Does anyone seriously think they are worried about inflation getting out of control? Does anyone think they know what they are doing?

Of greater concern is that the focus on asset prices at the expense of the real economy, has desensitized markets from rationally (or even at all) responding to geopolitical events. When bad or dangerous events occur the weight of the consequences is borne solely by the non-financial community, taxpaters. 

All global events have been reduced to monetary policy events, i.e., buy the dip opportunities. France's CAC-40 sold off the two trading days before the recent horror. It was a solid buy the following Monday.

By always protecting risk-takers, the authorities are complicit in trivializing issues that need an all hands on-deck response. Bad news is good news has metastasized into an even baser and much more dangerous concept.

Raising rates will, hopefully, be a step in the right direction, but there is little that is normal yet and it will be a very long time, years, and a great deal of financial pain and economic turmoil until we approach anything that resembles normal again.

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