“Ineffective & Reckless” Fed Is An “Engine of Disaster”

The beauty of truth, and the beast of dogma
Other ‘relationships’ that are used to justify activist monetary policy have similarly weak support when one actually takes the effort to examine the data. You’ll find a similar shotgun scatter of uncorrelated points if you plot unemployment versus general price inflation, for example. It’s unfortunate that the Federal Reserve is actually allowed and even encouraged to impose massive distortions on the U. S. economy based on relationships that are indistinguishable from someone sneezing on a sheet of graph paper.
We do know one thing very clearly, and we should have learned it during the housing bubble – suppressed interest rates encourage yield-seeking speculation, enable low-quality creditors access to the capital markets, direct scarce savings toward unproductive malinvestment, subsidize leveraged carry-trades, and unleash a whole host of ‘structured’ products ‘engineered’ by financial institutions to directly or indirectly piggyback on the good faith and credit of Uncle Sam.
When you examine historical data and estimate actual correlations and effect sizes, the dogmatic belief that the Fed can ‘fine tune’ anything in the economy is utter hogwash. At the same time, the demonstrated ability of the Fed to provoke yield-seeking speculation and malinvestment is as clear as day. An activist Federal Reserve is an engine of disaster and little more. Even with the best intentions, a dogmatic Fed, unrestrained by reasonable rules and constraints, is a reckless and deceptive beast, constantly offering to heal the nation with precisely the same actions that inflicted the wounds in the first place.

This post was published at Zero Hedge on 09/14/2015.