Tuesday, August 6, 2013

The Fed Is More Than A Few "Tweaks" Away From Avoiding An Economic Bust

By, Chris Rossini

Government & Federal Reserve officials operate under the belief that they can just "tweak" reality to get the results that they want.

To use a very recent example, U.S. law states that the federal government cannot hand out our hard-earned money as "foreign aid" to a nation that has undergone a military coup. Well, a coup just took place in Egypt, which receives $1.5 billion of our money each year.

How does the U.S. government deal with this reality? With a "tweak" of course! They decide not to call it a "coup" and the money can continue to flow unfettered.

Easy as pie.

After all, it was one of their own man-made laws to begin with. Finding ways to circumvent those are standard operating procedure.

Unfortunately, it doesn't stop with the man-made laws. The mad scientists also believe they can "tweak" their way around economic laws as well.

Just about everyone who lives under the Sun (whether they like to admit it, or not) knows that the so-called "economic recovery" is nothing but a house of cards made of Ben Bernanke Bucks.

As soon as Bernanke starts pulling cards off the table, and officially announces that the Fed is "tapering," then the illusionary recovery is in big trouble. (Readers of The EPJ Daily Alert understand that the tapering has already begun, and that the probabilities of a bust occurring soon has risen sharply. To get a jump on the trend-following Keynesians, make sure to subscribe to the Alert here.)

Reality is zooming towards the economy like a heat seeking missile, but that's not a problem for the mad scientists. The chief economist for crony Goldman Sachs, Jan Hatzius, runs on the "tweak" mentality. He says (my emphasis):
We still expect Fed officials to taper QE at the September 17-18 FOMC meeting, but to offset the impact on financial conditions by reinforcing the forward guidance for the funds rate.
In other words, don't worry about the heat seeking missile, Bernanke will be able to shimmy everyone out of the way.

Bernanke will achieve this feat by "tweaking" the Fed's own arbitrary parameters on raising the Fed Funds Rate. You see, the Fed has said that before it would consider raising the rate, the unemployment rate would have to fall below 6.5% and inflation would have to rise to 2.5%.

Well, the chief economist of Goldman Sachs says that Bernanke can just "tweak" these arbitrary central planner parameters:
First, they could simply lower the 6.5% unemployment threshold. Second, they could make the unemployment threshold depend on inflation and/or labor force participation; thus, inflation below 2% or a further decline in participation would imply a threshold of less than 6.5%.
This fiddling with arbitrary parameters will supposedly offset the impact of the "tapering" and the heat seeking missile will miss its target and head off into outer space.

The bottom line?

If you don't understand the Austrian Business Cycle Theory, now is a very important time to learn it. If you're tired of following Goldman Sachs and the Keynesians, the EPJ Daily Alert is there to guide you.

The mad scientists think that a pinch of this, and a dash of that will make their central planning schemes work.

The Fed doesn't know what interest rates should be, any more than Stalin or Mao were able to know if there should've been 50,000 coal miners or 10,000 or even 10.

In the end, the market always prevails, but it's a bumpy road in the meantime. The big economic bumps are dead ahead.

Follow @ChrisRossini

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