Wednesday, September 23, 2015

Who's Really In Charge Of Interest Rates? A Graphic Novel

The Fed just can't decide to keep rates down forever. This is why.  -RW

(ht Rick Fitz via ZeroHedge)


  1. "The Fed just can't decide to keep rates down forever."

    Yes, they can. Would like to see you write an article making your case. This cartoon is quaint, but doesn't offer an argument.

    The Fed could verily keep interest rates down until such time as the dollar collapses to worthlessness. It just needs to print ever-increasing amounts of money and relentlessly buying bonds. It is already riding up this curve now. So the question is simply when will the Fed voluntarily _choose_ to get off the accelerating toboggan to collapse. I.e., what are the Fed governors’ personal tolerance levels for price inflation and dollar devaluation resulting from money supply expansion.

    When will the Fed bureaucrats effectively admit they were wrong and reverse course? Given the personalities involved in the decision-making, and the degree of dependence their entire careers and livelihoods have on their unwavering faith in Keynesian economics, I’m guessing it could be a good bit longer yet. Things will have to start to get pretty bad. And in a worst case, if they are totally unwilling to admit failure, then never!

    Yes, the Fed does have to live with the market consequences of its actions. Which can be awful. But the Fed has shown it has great comfort with really awful consequences. Heck, it _targets_ 2% inflation. Which has really awful consequences. And the Fed doesn’t blink an eye.

    The question of Fed governor psychology is the one to discuss. Not when the Fed will be "forced" to raise rates. The Fed does not get forced by the market. It applies force to the market. The Fed is unlimited in its power to print however much money it takes to keep rates at 0% as long as it chooses to. Just as long as the dollar is still in use by anyone as a viable currency.

    1. This application of force to the "markets" becomes particularly possible in the current mixed economy that is tending towards greater and greater fascistic control by the government. "Markets" and outcomes become malleable and "official" statistics become meaningless. These exact things happened in fascist Italy and Germany in the 1930s.

    2. I'll add that high inflation is what the government wants, nay needs, to deal with its debt problem. Politicians painted themselves into a corner with the size of the debt and need an out. The Fed has every imaginable political and practical incentive to keep printing.

  2. I maintain that the Fed has not raised interest rates because they have not yet been able to figure out how they would stick the taxpayers with their own inevitable losses and the losses of their cronies, like they did in 2008. The easily plundered wealth is simply not there like it was in 2008. That's why there's all this talk of ditching cash. The Fed and their cronies need another easily accessible source of wealth to plunder before they can raise interest rates significantly.