Are you sure you are not a Keynesian?
Calling for maximum tightness when everyone is deleveraging already, isn't the way to do it. You want to advocate greater tightness for the sake of price stability, fine, I'll support such calls - during a boom. We aren't in one.
We are in the deleveraging part of the boom that started, more or less in 1913 and WWI, peaked in 1938, started up in earnest in the 70's, paused briefly under Volker and became insane under Greenspan. Your assertion in previous posts is partly true, the Fed chairmen, including Bernanke, not including the ignorant windbag Greenspan, are good men trying to do the best job they can with the tools and rules they are given. The problem is that their job is based on a contradiction of Mises correct theory that credit booms must end in recession or destruction of the currency, no exceptions.
There were wars and other events outside of their control, but they applied the same doomed policy response every time: credit expansion. The early peak was 1938 at 2.8X GDP. The cure for that credit bubble was 1939 depression, the extreme sacrifice of WWII, and the postwar boom. I strongly believe in economic growth to pay down debt and that some debt can result in sustainable economic growth. But that has clearly not been the case in the creation of 2 million houses that nobody lives in.
Greenspan's problem was he applied credit expansion in spades to every potential economic problem, the 1987 crash (granted he was new on the job then), the 1988-1990 regional housing meltdown and S&L crisis fallout, the Asian crisis, the LTCM crisis, the tech and networking bubble popping, y2k, 9/11, and the general slump in equities into 2002. Granted he did tighten in between some of those events, but for the most part he responded to the markets, not to the economic indicators that he claimed to respond to. Greenspan is the person most responsible for the current credit bubble: $47T against a GDP of $14T.
That ratio is staggering, it means that 15% of GDP goes to debt payments, it means that even strong growth in GDP for decades would not bring it to sustainable levels. The only rational choice is to allow debt to evaporate through defaults and let the losers take their lumps. But even a tiny defaulting of a trillion or so (I don't know the numbers, but the banks are writing down in the 100's of billions) has thrown the markets and Fed into a panic. That is a trivial portion of the 47T.
The next step for the Fed is to monetize the "collateral". They have accepted these junk securities for 28 days and will keep rolling and extending the credit. Eventually they will stop demanding repayment of the T-Bills. After that they will run out of T-Bills to give away and will give away FRNs instead. That is the inevitable result as Mises has stated. The only other choice is recession, a severe one in our case due to the magnitude of the problem. The policy being advocated by you and Toddster, growing the credit bubble, does not avoid that choice. It postpones the decision, but it makes the resulting depression worse. It also makes it more likely that the solution will be not be depression, but destruction of the currency.
In reality what will probably happen is the currency will be destroyed and replaced with a new one to great cheers by you and your colleagues.
Yes, certainly. If we have a recession the congress and president should take the occasion to cut tax rates - any supply sider going to disagree with that?
"We are in the deleveraging part of the boom that started, more or less in 1913 and WWI, peaked in 1938"
Oh, just horsefeathers. The money supply contracted 30% from 1929 to 1933, and a violent flurry of debt repudiation and default resulted.
"not including the ignorant windbag"
Abuse is not an argument, ad hominums are admissions of bankruptcy.
All booms end in busts, and Mises has nothing to do with that, nor is the obviousness of that point any support for any of his other arguments, nor are busts avoidable by outlawing booms, because booms aren't removable either.
Boom and bust cycles are simply as normal as the existence of weather, that is all. There is no contradiction in any of it, in the Fed's job or anything else. The existence of the trade cycle isn't an indictment of capitalism or banking of anything else, any more than the sun coming up in the morning is some refutation of morality. Does the sun come up in the morning? Why yes, it does. Does that have anything to do with the existence of morality? Why no, it doesn't, doesn't have anything to do with it, really. Do all booms end in busts? Why yes, they do. Does this mean central banking is absurd and a failure? Why not, it doesn't, doesn't have anything to do with it, really.
Credit expansion doesn't doom anything, any more than the existence of profits dooms anything. All busts are preceded by periods of higher corporate profits. So let's outlaw profit, with Marx! No wait, I detect a flaw.
"has clearly not been the case in the creation of 2 million houses that nobody lives in."
Sure, all real capital misallocations result in real losses of savings to the whole society. Regardless of how they are financed. There is no substitute for good financial management deploying capital sensibly. You can't force capital to be deployed sensibly by outlawing credit expansion. One, because you can't outlaw credit expansion. Two, because capital can be deployed senselessly without credit expansion. Men are falliable, they will err, sometimes in large amounts etc. The cycle, once again, is not removable. Pointing to it and saying "oooh look, a cycle, that's baaaaad", therefore isn't an argument for anything, I am afraid.
"he applied credit expansion in spades to every potential economic problem"
The 87 event was handled very well actually. The German central bank had rather more to do with it that typically understood, but the Fed handled it remarkably well. The early 90s they were too loose for too long, but the reason is obvious - they tracked lagging CPI instead of watching financial markets. The Asia crisis is when the trade deficit moved and they could have tightened then, it would have been a bit late but close enough. In the "oughts", they did tighten and did so pretty smartly actually. Arguably one year later than perfect, and too many gradualist quarter points instead of fewer half points, but that is the most one can allege.
"the current credit bubble: $47T against a GDP of $14T."
That ratio isn't staggering, in fact I see no problem with it. Financial net worth of US households is around $57 trillion. A bigger issue is the persistent undersavings of $700 billion or roughly 5% of GDP, and the accompanying capital importation. If US households increase their savings rate by a percent a year for a decade, we'd be fine. That is the sort of change actually needed, in scale and direction and critical variable.
"15% of GDP goes to debt payments"
Depends on the IR level, but whatever, not itself a big deal. The government recycles 25% of GDP federal level and 40% overall. Wall Street reallocates capital sums amounting to 25% of GDP every year. Trade is 25% of GDP. All comparable figures and all handled routinely. There simply isn't any prior requirement that production and consumption coincide in time or location or immediate benefiting party. Everyone has intertemporal budget constraints, not period by period ones.
"The only rational choice is to allow debt to evaporate through defaults"
Why? What's wrong with transfers from prior contracting parties to later ones being the same scale as trade or taxation or refinancing capital transactions? What do you consider unsound or unsustainable about it?
Lots of it could liquidate without any defaults anyway, since a lot of it is tiered intermediation, and there sizable blocks of collateral involved. The same dollar of collateral moving from end borrower up an intermediate chain can settle 3-5 dollars in debts, easy. The same is true of repayments - we've seen commercial paper run off at a trillion dollar annual rate without major events of default. A few minor ones, that is all.
"They have accepted these junk securities"
Sorry, just ignorant as a description of what is happening. Most of the securities being pledged at the auctions are agency mortgage backeds, top tier.
"Eventually they will stop demanding repayment of the T-Bills. After that they will run out of T-Bills to give away"
Again, ignorant as to what is actually happening. The normal way new money is added to the system is a coupon pass, in which the banking system lets the Fed hold the securities through one interest coupon, then takes them back, and the Fed issues new full powered dollars equal to the coupons. This can be done endlessly, nobody is going to run out of Fed owned treasury securities.
"will give away FRNs instead."
Um, neither the Fed nor the banks decide on the preference between FRNs and bank deposits, that is entirely up to bank depositers themselves. If they want to hold physical notes, and express the preference by visiting their ATM, then the Fed orders more FRNs printed. If they want deposits, then it retires some of the tattered ones regularly returned to it by the backs. FRNs vs deposits is not affected by open market ops in any way.
"the inevitable result as Mises has stated"
Um, he was talking about a gold fractional reserve system with actually convertible notes, we don't have one. The normal thing that happens is the value of the dollar falls on the exchanges and we have a recession, both, until prices adjust and capital is reallocated and real economic growth resumes. Once it does, it is easy for banks to grow their balance sheets again.
"only other choice is recession"
Nothing wrong with those either, entirely normal, etc. Really, you continue to pretend that the mere economic weather is some crisis of capitalism; only socialists believe there is anything fundamental unsound about any of it. There simply isn't. You can wait for the final crisis of capitalism to usher in the glorious revolution and you will be waiting longer than Marx. It isn't going to happen. The 30s were a specific set of avoidable and unforced monetary errors, compounded by gross international mismanagement and the collapse of world trade, and we aren't in the slightest danger of anything remotely like it.
"The policy being advocated by you and Toddster, growing the credit bubble, does not avoid that choice."
Nah, I just say finance the smash liberally, as always, and be a bit quicker on the draw to tighten again after coming out of the current recession. Simple, not earth shattering, nothing epic involved, all utterly routine.
"the currency will be destroyed and replaced with a new one"
Nah, not going to happen, not remotely. Will the exchange value of the dollar fall some? Sure. Perhaps the EU bank and the Fed and B o J collude at some point to halt it, plaza accords style, but I doubt it. Instead it meanders lower and then the recession ends and it comes back about half way vs. the other majors, never quite getting to its full previous value. Again, utterly normal.
I realize that economic doomsayers prefer dramatic ends to all of civilization, but really, they are men in washboards standing on street corners and utter loons. The rest of the real world will buy a few futures and put on a few hedges and try to time their go long bets, and eventually everyone fighting the Fed will rediscover the Wall Street adage.
The more interesting practical question is what course will long rates take through it all. If we get serious outright deflation through debt defaults, then for the treasuries they will go considerably lower than now, lagging inflation be darned. And present commodity prices will prove to be a bubble of their own. Or it could be a significantly more inflationary outcome, stretched over 3-5 years, with long rates ending higher than today. That I regard as the main open question in the matter.
Capitalism halting or the dollar going away, just not going to happen. To the tears and continued bear screeching of the doomster crowd.