[tcostell]

OK, if you want to make the anti-fed argument, that’s fine with me... I don’t think it’s a point I misse but a point I’m ignoring. We both know that a change like that isn’t going to happen today if ever. And even if it were implemented tomorrow, it still won’t stop the boom bust cycle.

I strongly suspect that you’re trying to use this sword to slay the same dragon you always fight, but that strikes me as futile. you’re mistaking “identification of the problem” with trying to provide an ongoing solution.

My solution on the other hand will do a great deal to address the boom-bust cycle that comes from asset bubbles, and will do so with a policy change that is small and achievable.

[palmer]

I'm making an anti-creditbubble argument. If the Fed did its job we wouldn't have $47T in credit (on the books) for a $14T economy. We require $6 in credit for a $1 growth in GDP. The Fed has brought us well past the point of credit sustainability which leaves us no choice but to do the writeoffs and take the lumps. The Fed will have to do more of BSC type transactions: buying bad securities and sticking them in new LLCs that it creates so they can be sold later (or never). That is monetization and of course it is inflationary, but it is much better to get that over with than to try to expand the credit bubble even more.

What financial wizards don't realize is that boom/bust is easily fixed if it stays in the nonfinancial world. My friends can start new business that are not housing related provided there is no credit contraction. But we are doomed to a credit contraction because of the previous loose credit policies. All Bernanke is doing now by lowering rates now is creating the next credit contraction later (if he is successful now) or creating needless inflation now (if he is not).

Asset bubbles come from credit bubbles, until you understand that, you aren't going to solve anything.