The Fed is no superhero

All the hype and hope surrounding Bennie and the Fed's comments at Jackson Hole Friday, underline how much mainstream commentators and stock bulls want to paint the Federal Reserve as a super-hero who can magically solve the economy. Far from it, in my view. The past decade the Fed has been more an antagonist than saviour. They have increasingly lost legitimate purpose in favour of helping us to propagate economic demise.
This new article from Christopher Whalen of Institutional Risk Analytics explores these issues: I am Superman: The Federal Reserve Board and the Neverending Crisis.
This article asserts that, in dealing with the 2007-2009 financial crises, the Federal Reserve Bank (Fed) has placed its role as monetary agency and de facto steward of the market for U.S. Treasury debt ahead of its statutory responsibility for ensuring the soundness of the private banks. This is not to say that the Fed supplies whatever credit the government wants — at least not yet — but in terms of both the provision of credit to the private financial system and the price of this credit, the growing fiscal imbalances of the U.S. government seem to be playing an increasing role in Fed policy decisions.

“Far from being an objective and fair prudential regulator, over the past several decades the Fed has shown a willingness to bend the rules or even launch into new, speculative areas of public policy, all in the name of appeasing the short-term political agenda of the Congress and the largest U.S. financial institutions. Maintaining access to cheap credit for the private sector as well as the stability of the largest banks, which include several of the most significant underwriters and dealers in government securities, may be seen as a means to larger ends, namely: (1) maintaining the appearance of positive levels of economic output and (2) preserving the ability of the Treasury to refinance existing debt and also issue debt.'

Worthwhile reading. Hat tip: Barry Ritholtz
And this follow up from Chris as well: Bernanke Fed Drives Deflation with zero-rate policy

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One Response to The Fed is no superhero

  1. Anonymous says:

    Here's one terrific example. John Swinton, the former Chief of Staff for the New York Times, was one of New York's best loved newspapermen. Called by his peers “The Dean of his Profession”, John was asked in 1953 to give a toast before the New York Press Club, and in so doing, made a monumentally important and revealing statement. He is quoted as follows:
    “There is no such thing, at this date of the world's history, in America, as an independent press. You know it and I know it. There is not one of you who dares to write your honest opinions, and if you did, you know beforehand that it would never appear in print. I am paid weekly for keeping my honest opinion out of the paper I am connected with. Others of you are paid similar weekly salaries for similar things, and any of you who would be so foolish as to write honest opinions would be out on the streets looking for another job. If I allowed my honest opinions to appear in one issue of my paper, before twenty-four hours my occupation would be gone. The business of the journalists is to destroy the truth; to lie outright; to pervert; to vilify; to fawn at the feet of mammon, and to sell his country and his race for his daily bread. You know it and I know it, and what folly is this toasting an independent press? We are the tools and vassals of rich men behind the scenes. We are the jumping jacks, they pull the strings and we dance. Our talents, our possibilities, and our lives are all the property of other men. We are intellectual prostitutes.”
    1953, 2010. SSDD (same shit, different decade)

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