After 8 Years Of Radical Moves, The Fed’s Still In A Box

Investors Business Daily ^ | 5/20/2016 | TERRY JONES

[expat_panama]

When the economy stumbles, can the Fed still catch its fall?

A growing number of economists, market analysts and investors worry that the answer is no. The Federal Reserve’s radical approach to monetary policy since the financial crisis, they believe, has confounded its ability to do anything about a potential downturn — or an unexpected shock to the economy.

Worse, others argue that by staying with a zero interest rate for so long, the Fed has put itself into a box...

...the dilemma.

The post-financial crisis economic recovery still looks shaky. The Atlanta Fed’s widely followed GDPNow number, a timely estimate of the current economy, anticipates 2.5% growth in the second quarter, down from a 2.8% estimate a week ago. That follows the first quarter’s tepid 0.5%...

...Taylor’s rule seeks to optimize policy by stipulating how much the Fed should raise or lower its benchmark interest rate in response to changes in output, inflation and other economic variables.

Until the early 2000s, many of the world’s central banks used a Taylor Rule...

...we need a rule — a target — for monetary policy. Historically, a clear target has led to a sounder economy, says Allan Meltzer, a professor at Carnegie Mellon University and Hoover fellow who advised both President Reagan and Margaret Thatcher on economic policy.

Meltzer argues that there have been two “golden ages” for Fed policy: 1923 to 1928, when the Fed was on a gold standard, and 1986 to 2002, when Greeenspan in effect followed a Taylor Rule approach. We need to return to a system based on rules, says Meltzer.

“The current Fed responds to noisy current data,” Meltzer asserts. “A rule would give markets and the public better information about future policy actions. The current procedure increases uncertainty.”

[Georgia Girl 2]

“The post-financial crisis economic recovery still looks shaky. The Atlanta Fed’s widely followed GDPNow number, a timely estimate of the current economy, anticipates 2.5% growth in the second quarter, down from a 2.8% estimate a week ago.”

Raise your hand if you even remotely buy into 2.5% 2nd qrt growth.

[expat_panama]

Great foto! What a lot of folks don’t know is that back when Ben mentioned helicopter money he’d been quoting Milton Friedman, —everyone’s econ patron saint— but somehow the idea got stuck to Ben and not Milt!

[expat_panama]

...open to having foreigners move there, as long as they’re willing to work.

Only if they fill out miles of paper work and pay tens of thousands in lawyers fees.  Retirees who promise not to work or investors who agree to have everything done by locals can get in a lot easier.  The way they make it stick is they constantly check papers (usually by stopping traffic on the highways) and demand papers.   Not to worry about deportation though, anyone without all necessary docs just gets arrested and imprisoned 'til the fines are paid.

imho this isn't out of line at all, in fact it's how it is in most countries w/ a rule of law. 

[Sequoyah101]

I remember when we thought we had done well to get a 7% loan and the times when the economy did just fine with 10% loans.

The FURD can’t raise interest rates because the debt would explode in weeks instead of months or years as it is now. The whole of the tax base could not pay the interest if rates are allowed to increase. The ponzi scheme is falling apart just as we have said for so long.