"Central Banking Doctrine in Light of the Crisis"

Axel Leijonhufvud doesn't like strict inflation targeting:

Central banking doctrine in light of the crisis, by Axel Leijonhufvud, Vox EU: On April 8 of this year, Paul Volcker addressed the Economic Club of New York about the current crisis. The Federal Reserve, he noted, has gone to “the very edge” of its legal authority. “Out of necessity,” said Volcker, “sweeping powers have been exercised in a manner that is neither natural nor comfortable for a central bank”.[1] He was referring to the $29 billion guarantee of Bear Stearns assets that had been extended to JP Morgan and the subsequent offer to swap $100 billion of Treasuries for illiquid bank assets. The Bear Stearns “rescue” was aimed at averting a dangerous situation in the default risk derivative market, and the swap operation sought to restore some liquidity to “frozen” markets. These were indeed unconventional measures, but ones without which more conventional interest rate policy could not be expected to have much effect in the current situation.

It is probably fortunate that the Fed had at its helm the most distinguished student in his generation of the Great Depression and someone, therefore, able to perceive the “necessity” more or less correctly. As in the Japanese case, the lesson of the Depression is that a collapse of credit cannot be reversed and that the consequences linger for a very long time. It is also true, however, that until only a year or two ago Chairman Ben Bernanke was a consistent and outspoken advocate of a monetary policy of strict inflation targeting, which is to say, of a central banking doctrine that required an exclusive concentration on keeping consumer prices within a narrow range with no attention to asset prices, exchange rates, credit quality or (of course) unemployment.

Bear Stearns, Northern Rock, and Landesbank Sachsen are the best known institutional victims of the current crisis – so far. But the damage is of course far more extensive and a great many CEOs have had to go into ignominious retirement with only a few million[2] dollars as plaster on their wounded reputations. It is the rule of efficient capitalism that you must pay for your mistakes alas!

There are two aspects of the wreckage from the current crisis that have not attracted much attention so far. One is the wreck of what was until a year ago the widely accepted central banking doctrine. The other is the damage to the macroeconomic theory that underpinned that doctrine.[3] In this column, I discuss two central tenets of modern central banking doctrine – inflation targeting and central bank independence.

Inflation targeting Critical to the central banking doctrine was the proposition that monetary policy is fundamentally only about controlling the price level.[4] Using the bank’s power over nominal values to try to manipulate real variables such as output and employment would have only transitory and on balance undesirable effects. The goal of monetary policy, therefore, could only be to stabilise the price level (or its rate of change). This would be most efficaciously accomplished by inflation targeting, an adaptive strategy that requires the bank to respond to any deviation of the price level from target by moving the interest rate in the opposite direction.

This strategy failed in the United States. The Federal Reserve lowered the federal funds rate drastically in an effort to counter the effects of the dot.com crash. In this, the Fed was successful. But it then maintained the rate at an extremely low level because inflation, measured by various variants of the CPI, stayed low and constant. In an inflation targeting regime this is taken to be feedback confirming that the interest rate is “right”. In the present instance, however, US consumer goods prices were being stabilised by competition from imports and the exchange rate policies of the countries of origin of those imports. American monetary policy was far too easy and led to the build-up of a serious asset price bubble, mainly in real estate, and an associated general deterioration in the quality of credit. The problems we now face are in large part due to this policy failure.

Independence A second tenet of the doctrine was central bank independence. Since using the bank’s powers to effect temporary changes in real variables was deemed dysfunctional, the central bank needed to be insulated from political pressures. This tenet was predicated on the twin ideas that a policy of stabilising nominal values would be politically neutral and that this could be achieved by inflation targeting. Monetary policy would then be a purely technical matter and the technicians would best be able to perform their task free from the interference of politicians.

Transparency of central banking was a minor lemma of the doctrine. If monetary policy is a purely technical matter, it does not hurt to have the public listen in on what the technicians are talking about doing. On the contrary, it will be a benefit all around since it allows the private sector to form more accurate expectations and to plan ahead more efficiently. But if the decisions to be taken are inherently political in the sense of having inescapable redistributive consequences, having the public listen in on all deliberations may make it all but impossible to make decisions in a timely manner.

When monetary policy comes to involve choices of inflating or deflating, of favouring debtors or creditors, of selectively bailing out some and not others, of allowing or preventing banks to collude, no democratic country can leave these decisions to unelected technicians. The independence doctrine becomes impossible to uphold.

Consider as examples two columns that have appeared in the Wall Street Journal in recent weeks. One, by John Makin (April 14), argued that leaving house prices to find their own level in the present situation would lead to a disastrous depression. Policy, therefore, should be to inflate so as to stabilise them somewhere near present levels. If the Fed were to succeed in this, it might not find it easy to regain control of the inflation once it had gotten underway, particularly since some of the support of the dollar by other countries would surely be withdrawn. But in any case, the distributive consequences of Makin’s proposal are obvious to all who (like myself) are on more or less fixed pensions. The other column, by Martin Feldstein (April 15), argues that the Fed had already gone too far in lowering interest rates and is courting inflation. He was in favour of the Fed’s attempts to unfreeze the blocked markets and restore liquidity by the unorthodox means that Volcker had mentioned.

The likely prospect for the United States in any case is a period of stagflation. The issue is going to be how much inflation and how much unemployment and stagnation are we going to have. To the extent that this can be determined or at least influenced by policy, the choices that will have to be made are obviously not of the sort to be left to unelected technicians.

Footnotes

1 Quoted as delivered orally www.youtube.com/watch?v═ticXF2h3ypc. New York Times, April 9, has slightly different wording.
2 In one case apparently not all that few (reportedly 190 million!).
3 For discussion of this damage, see CEPR Policy Insight 23.
4 This focus is one of the legacies of Monetarism. Historically, central banks developed in order to secure the stability of credit.

Bernanke is accused of being in favor of strict inflation targeting:

It is also true, however, that until only a year or two ago Chairman Ben Bernanke was a consistent and outspoken advocate of a monetary policy of strict inflation targeting, which is to say, of a central banking doctrine that required an exclusive concentration on keeping consumer prices within a narrow range with no attention to asset prices, exchange rates, credit quality or (of course) unemployment.

I think it's worthwhile to repeat Bernanke's misconceptions about inflation targeting from 2003 - that's certainly before "only a year or two ago." Federal Reserve Governor Mishkin holds similar views:

Misconception #1: Inflation targeting involves mechanical, rule-like policymaking. As Rick Mishkin and I emphasized in ...Bernanke and Mishkin, 1997..., inflation targeting is a policy framework, not a rule. ... Inflation targeting provides one particular coherent framework for thinking about monetary policy choices which, importantly, lets the public in on the conversation. ... monetary policy under inflation targeting requires as much insight and judgment as under any policy framework; indeed, inflation targeting can be particularly demanding in that it requires policymakers to give careful, fact-based, and analytical explanations of their actions to the public.

Misconception #2: Inflation targeting focuses exclusively on control of inflation and ignores output and employment objectives. Several authors have made the distinction between ... "strict" inflation targeting, in which the only objective of the central bank is price stability, and "flexible" inflation targeting, which allows attention to output and employment as well. ... For quite a few years now, however, strict inflation targeting has been without significant practical relevance. In particular, I am not aware of any real-world central bank (the language of its mandate notwithstanding) that does not treat the stabilization of employment and output as an important policy objective. To use the wonderful phrase coined by Mervyn King, the Governor-designate of the inflation-targeting Bank of England, there are no "inflation nutters" heading major central banks. Moreover, virtually all (I am tempted to say "all") recent research on inflation targeting takes for granted that stabilization of output and employment is an important policy objective of the central bank...

A second, more serious, issue is the relative weight, or ranking, of inflation and ... the output gap... among the central bank's objectives. ... As an extensive academic literature shows, ... the general approach of inflation targeting is fully consistent with any set of relative social weights on inflation and unemployment; the approach can be applied equally well by "inflation hawks," "growth hawks," and anyone in between. What I find particularly appealing..., which is the heart of the inflation-targeting approach, is the possibility of using it to get better results in terms of both inflation and employment. Personally, ... I would not be interested in the inflation-targeting approach if I didn't think it was the best available technology for achieving both sets of policy objectives.

Misconception #3: Inflation targeting is inconsistent with the central bank's obligation to maintain financial stability. ...The most important single reason for the founding of the Federal Reserve was the desire of the Congress to increase the stability of American financial markets, and the Fed continues to regard ensuring financial stability as a critical responsibility... I have always taken it to be a bedrock principle that when the stability or very functioning of financial markets is threatened, ... the Federal Reserve would take a leadership role in protecting the integrity of the system...

I think it's a stretch to blame Taylor rule style inflation targeting used by monetary authorities in the US - which incorporates both inflation and output in the policy rule - for the problems we are having with our financial markets. And since we haven't adopted it as a policy, it's even more of a stretch to place the blame on strict inflation targeting.

Comments

[a]

"This strategy failed in the United States." Well only if you suppose that the CPI correlates well with real inflation. If you include asset prices in the calcuation of inflation, for instance, the strategy of "inflation targeting" didn't fail; it was just never tried.

[bakho]

Stagflation was associated with the oil price hikes and rise of OPEC in the 1970s. Stagflation ended when the US had a coherent energy policy and reduced oil consumption by 20% between 1978 and 1983. US oil consumption only returned to 1978 levels in 2000 which is when we start to see major rise in oil prices.

The higher price of oil, which is an input to all food and fiber in the US and a component of all transportation requires that we use it more efficiently in order to counter oil based inflation. The Fed could stop the inflation by causing a serious recession that would drop oil consumption. Or we could undertake a concerted effort to increase oil efficiency.

Where should the leadership for oil efficiency come from? It has to be at the Federal government level because that is the only entity that is large enough to encompass all the economic interests of the US. The lack of a coherent energy policy and a bias of our current administration toward excess oil profits represents 8 years of lost opportunity.

[bakho]

The Fed is not the only way to attack inflation. Another way to attack inflation is to increase government revenue. This was the case in 2000 as record revenue was collected.

Did the Fed adequately consider the effect of revenue collection on the economy when they raised interest rates?

What role did the worries of the Fed chairman (AG) that increased revenue collection would lead to more government social spending play in the Fed decision to increase interest rates as we were heading into the 2001 recession?

How insulated from politics is the Fed? Do the political views and philosophies of the Fed members affect their decisions?

[hari]

I suspect Fed under BB is in the process of aligning itself not only with ECB/BoE/etc on inflation targeting - reigning in some of the egregious options under AG - but also taking into account rate of dollar reserves accumulated in Asia and Gulf States recently with a view to getting a better grip on global monetary alignments. Can currency manipulation be geo-politically misused?

In terms of global political economy, I suspect globalization has now forced the hands of OECD monetary authorities to find cooperative (G-7) ways and means of avoiding future financial shocks - since dollar depreciation cannot be avoided if country X or Y switches currency hoards....one way or another.

[paine]

recognizing this is mark's metier
i proceed with all do humility

and yet
i still find this chat "unconvincing "

to talk about A rule
like the taylor rule
as if its more then a one dimensional proxy
from the full array of fed policies
responsibilities etc
de jure and de facto
by activity or passivity....

in the present case
price level trend stability
becomes
very much a side line
when and if the credit system itself
is threatening to slip into crisis mode
and from there into a protracted period
of crippled dynamics
if not total brakedown

by staying in the taylor clouds
one obviously can avoid
discussion of the inevitable de facto
rationing of specific credit sectors
thru the impact or non impact
of reservation policy
and other regulating criteria

prime fad and fancy example of the moment :
future house lot bubble prevention

obviously any asset market bubble watch
by fed agents
even one that leads to an aggressive pre emptive clamp down
thru reg tightening
to avoid the formation of a price bubble
is not inconsistent with any
taylorized
product market rule
that weighs price level against output level rule

in as much as
the price dynamics
of any particular
asset market standing alone by itself
seem to have
no direct and signifigant
causal feed thru
to general product market prices

[paine]

bakkho
you need to calc the general inflation impact
of the four fold increases in crude prices

i suspect you'll find
the total impact won't drive a stagflation
very far
all by itself

but it makes a perfect judas goat

[Bruce Wilder]

Axel: "American monetary policy was far too easy and led to the build-up of a serious asset price bubble, mainly in real estate, and an associated general deterioration in the quality of credit."

Would it be rude to call this interpretation a vicious lie?

It is so easy for these jerks to slip into their alternative reality, where the corruption and general dysfunction of the mortgage market had nothing to do with it, it was all low interest rates.

[Assorted]

"US consumer goods prices were being stabilized by competition from imports and the exchange rate policies of the countries of origin of those imports. American monetary policy was far too easy and led to the build-up of a serious asset price bubble..."

Yes. Its not necessary to de facto inflate domestically produced items at 10% to counter import prices going down by 8%. Trade efficiency does not signify a lack of demand, that the economy is spiraling into a depression, or that borrowers will be unable to pay back their loans if the price of shirts from China are lower than the former supplier's price.

"...if the decisions to be taken are inherently political in the sense of having inescapable redistributive consequences..."

Inequitable redistribution is rarely addressed adequately. Newly created money should be distributed more equitably to avoid needless pain to vulnerable members of society, which generates political resistance to policy.

[Jas Jain]

--
Both Greenspan and Bernanke are proven Cooks, or more accurately, agents OF the biggest Crooks in the world – Bankrupters and Fraudsters of New York City (BFNYC). Both of them say one thing and do something else. All thru his tenure Greenspan was championing ”Price Stability.” When pressed, he admitted that price stability means 0% inflation rate “if measured accurately.” The CPI was revised and let us assume that it was still overstating inflation by 0.5-1%. But, Greenspan never allowed the CPI rate to fall to 0.5%. He cried deflation and was supported by Bernanke in fighting deflation that created the mortgage lending fiasco. Bernanke never allowed the core inflation rate to go below 1% while he has allowed it to remain above his target of 1-2%. Bernanke believed that price stability creates optimum conditions for growth and employment. For the past 20 years Greenspan-Bernanke have followed a policy of “Controlled Inflation” centered on 3%. No?

I doubt that there is a single economist in America that knows who benefit the most by this policy of Controlled Inflation centered on 3%. Most importantly, Under Greenspan-Bernanke BFNYC, as a group, have faired better than all other Americans and in many cases by an order of magnitude. Coincidence or an outcome of policies Fed geared to serve BFNYC at cost to the rest?

Only born-and-bred dopes can fail to see the crooked nature of the Federal Reserve and BFNYC. THE PROOF IS IN THE PUDDING.

Jas

[ampersand]

Your compatriot J.D Hamilton - give him credit for waking up
http://www.econbrowser.com/archives/2008/05/credit_crunch_h.html

Bernanke: However, holding liquid assets that are only a fraction of short-term liabilities presents an obvious risk. If most or all creditors, for lack of confidence or some other reason, demand cash at the same time, a borrower that finances longer-term assets with liquid liabilities will not be able to meet the demand. It would be forced either to defer or suspend payments or to sell some of its less-liquid assets (presumably at steep discounts) to make the payments. Either option may lead to the failure of the borrower, so that the loss of confidence, even if not originally justified by fundamentals, will tend to be self-confirming. If the loss of confidence becomes more general, a broader crisis may ensue.

Bernanke concludes that it's the responsibility of the central bank to stop such self-fulfilling instability. But he neglects to discuss the key feature of a healthy financial system that is supposed to prevent such a problem from ever arising. Specifically, any institution that is in this position of borrowing short and lending long needs to ensure that a certain fraction of the funds it is lending came not from borrowers but instead from the owners of the institution itself, in the form of net equity. The goal is for the size of this net equity to be larger than the losses the institution would incur from selling its less-liquid assets at steep discounts. As long as it is, no creditors ever have reason to demand cash, and there would be no need for the central bank to step in to prevent a self-fulfilling breakdown.

And the core reason we are in the mess we are today is that these equity stakes were nowhere near sufficient for this purpose. Instead, financial institutions were allowed to take highly leveraged positions whose details are largely opaque to readers of publicly available financial statements. Exhibit A here might be Bear Stearns, whose 2007 10-K reported that Bear had outstanding derivative contracts whose notional value was $13.4 trillion. Much of these were credit-default swaps, in which the seller receives a fee in exchange for promising to pay any losses incurred by the buyer on some specified asset and time interval. If every such asset lost 100% of its value over the period, then maybe Bear is supposed to pay or receive $13.4 trillion. In practice, the actual price moves and net sum owed would be a small fraction of that notional total.

Now, there is nothing inherently wrong in making financial investments in the form of derivative contracts rather than outright loans. You're doing something similar whenever you buy or sell an option rather than the stock itself. But, if you were to sell an option through an organized exchange, the exchange would require you to satisfy a margin requirement, delivering for safekeeping good funds such that if the price of the underlying asset against which the derivative is written moves against you, you are able to make good on your commitment.

If anything like a reasonable margin requirement had been in effect, Bear Stearns could not possibly have gotten into contracts totaling $13.4 trillion notional. But these weren't traded on a regular exchange, so there was no margin requirement, and apparently no real limit on the size of the exposures that Bear Stearns could take on, or the size of what they could bring down with them if they fell.

And that raises the question, Why were counterparties willing to accept these trades with no margin to guarantee payment? To this I'm afraid the answer is, they figured Bear was too big for the Fed to allow it to fail. And on this, I'm afraid they proved to be exactly correct.

I would feel better if Bernanke were less focused on how to "provide liquidity" and more focused on how to get the system deleveraged and more transparent.

Now that inflation targeting has allowed the bankers to con the public into buying into assets at inflated prices, the same banking pigs want inflation targets to be abandoned, so that they can be bailed out.

The gains from the bubble lopsidedly goes to the pigmen, the pain from inflation is spread wide across the public.The pigmen gain billions, and inflation eats away half of that. You, Joe-6-pack, might, if you have any assets,gain a few hundred thousand, and will see inflation eat away all of it.

For the pigs - Nice racket.

For sycophant economist - cushy life as courtiers to pigs.

For Joe6pack - toil , so that the pigs feed.

Our own host here has stated his policy - save the system, and regulate after.

A deluded stance. When things are good, there is no need to take action, and when things are bad, its more important to fix things than regulate. That is apparent to anyone, and sticking to that in spite of history and human nature, has to be delusion itself [or plain corruption] http://www.nakedcapitalism.com/2008/05/how-to-leash-and-collar-financiers.html

The sightings today confirm the difficult of leashing and collaring a complex, sprawling, fast-moving industry. The Financial Times has a comment by Charles Dallara, the head of the Institute of International Finance, an international organization of financial institutions that verges on the sanctimonious.[http://www.ft.com/cms/s/0/2790929e-203b-11dd-80b4-000077b07658.html] It confidently recites a list of four areas for action and asserts:

Thus, the debate is not about “self-regulation” versus “more regulation”. Instead, there is an emerging consensus on the benefits of reinforcing market-based corrections with improved regulatory incentives and structures.

A consensus among those who'd rather not be regulated, for sure.

Economists are the poster-boys for the corrupt elite today. Apologists for pigs, all of them.

[kthomas]

ampersand, great post.

[paine]

joe stigasaurus weighs in

http://www.project-syndicate.org/commentary/stiglitz99

[Mark Thoma]

On Stiglitz:

http://economistsview.typepad.com/economistsview/2008/05/the-urgent-need.html"

[paine]

bw
u plunge at the poor scandoids juggular
for this cw banality

"American monetary policy was far too easy..."

monetary policy
includes reg setting and enforcement
not just rates setting ...no ??

easy may mean reg relaxing
and blind eyeing
as well as setting low real rates of interest
no ???

hey this ice bound clown
sends shivers up my timbers
but ....

[paine]

mark
you are a panther

god bless you

i obviously need to read your blog even more closely
then i do

[paine]

file under
painted with an exceedingly broad brush :
"Economists are the poster-boys for the corrupt elite today. Apologists for pigs, all of them"

[Winslow R.]

mark wrote "I think it's a stretch to blame Taylor rule style inflation targeting used by monetary authorities in the US - which incorporates both inflation and output in the policy rule - for the problems we are having with our financial markets. And since we haven't adopted it as a policy, it's even more of a stretch to place the blame on strict inflation targeting."

Perhaps is true. But remember this post?

"Taylor: Well, yes, certainly I had the idea they would be prescriptive or normative, and a guide to policy—very much so. That was the whole reason I proposed the policy rule I did back 1992. In the 14 years since then, it has turned out to be descriptive of what's actually happened, both at the Fed and at other central banks."

http://economistsview.typepad.com/economistsview/2006/06/minneapolis_fed.html

My issue has been with the proposal of a rule for distributing monetary policy, such as Taylor's, using a broken monetary control system.

[paine]

amp
you got it backwards maybe...

"You, Joe-6-pack, might,
if you have any assets,
gain a few hundred thousand,
and will see inflation eat away all of it
.....For Joe6pack - toil , so that the pigs feed ".

a few hundred k ???
wow
your composite Joe-6-pack here
owns what assets
a house lot ??
and or a pension portfolio ??

isn't "Joe-6-pack" if he's still "toiling"
in the job kennel these days
likely to lose more
if the fed plays target politics
and tightens the screws ????

[Spectator]

Beautifully put, ampersand. QED. Anybody paying attention can see the sham for what it is. That leaves those not paying attention, and those whose paycheck depends on not seeing it.

And this indictment does not even need to include the obviously disastrous practice of blowing asset bubbles in the name of stabilizing the economy.

[paine]

mark i notice
in your compaction of stig back when
the line that caught my eye is excised

thus we have in your cut down

apropos
"inflation targeting"
) ".. crude recipe
.. based on
little economic theory
or empirical evidence..."

which you gainsay in your commentary

but this is cut

"..there is no reason to expect
that regardless of the source of inflation
the best response is to increase interest rates .."

now i think core vs headline targeting
may attack this problem somewhat
and targeting core
which is de rigour
seems to me able to duck
most of tail gunner joe's specific fire here since its about imported inflation thru trade

but still and all ....
his point is about
"best response "
which might imply nothing more
then a taylor dual target inclusion
of expected output gap effects ...

and yet something makes me think joe is really
gesturing toward more then he's saying

my fog horn sounded:

single policy rate moves
are but an ambiguous signal
of no causal impact stand alone
ambiguous because since the conundrum
that was really a con job
just raising or lowering the rate
no longer implies
"stand by for some real rationing measures "
that is if our rate signal
don't trigger the proper reduction in market generated
net credit expansion errrr... "spontaneously"
------
of course my other one note chant

who's jreally targeting the movement
in the product price level anyway
its the guestimated effect
of and on
present wage increases that matter
wage trends vs productivity trends
or even nothing price like at all
but merely
changes in the net job formation rate
leaving the rest ie actual inflation of all sorts
to the various iron laws of job security causation

[Jas Jain]

http://www.cnbc.com/id/24609126

The Federal Reserve may start using regulation or even interest rates to fight asset-price bubbles, instead of trying to limit the damage once they burst, as it has done until now, the Financial Times reported on its Web site.

Top officials are considering the shift in strategy, but they have not reached any conclusions and could end up reaffirming their hands-off approach, the paper said without citing sources.

One option is for the Fed to set interest rates higher than they would otherwise be when asset prices appear to be rising beyond levels justified by economic fundamentals, the paper said.

Fed Chairman Ben Bernanke, who rejected this approach in 2002 after the dot-com bubble burst and endorsed Alan Greenspan's view that the Fed should not "lean against the wind," is now willing to reevaluate it in the light of the housing and credit crises.

Using regulatory policies is regarded with more interest inside the Fed than using interest rates, as rates affect the economy and asset markets as a whole instead of acting directly on the specific bubble, the report said.

Instead, it said, officials are "intrigued by the extra possibilities" offered by a Treasury plan for regulatory reform which recommends giving the Fed wide authority to ask financial institutions to change behavior that poses a threat to financial stability.
-x-x-x-x-x-x-x-x-x-x-x-x-x-x-x-

One sign of crooks in power is that they keep changing the rules, or views and justifications regarding the rules, as they go along. It leads to unfair practices. Fairly stable laws and rules are necessary for a fair and just society. Frequently changing laws and rules is a clear sign of an oppressive government. Americans don’t understand the inherent ills of frequently changing rules and constant interventions by the govt in the economy.

If you keep changing policies you never know what works and what doesn’t because of various inherent lags! American People get constantly screwed by the Fed and the USG. They must be really sore!!

Jas

[paine]

"using a broken monetary control system "

ecce ...the alan greenspan legacy ...

where the fed acts against
its own stated intentions
and
often as not
by failing to act at all ...
as it didn't act
while mortgage rates and policy rates diverged
during bubble time in house lot city

[paine]

jas

this passage

"Using regulatory policies is regarded with more interest inside the Fed than using interest rates, as rates affect the economy and asset markets as a whole instead of acting directly on the specific bubble
Treasury plan for regulatory reform which recommends giving the Fed wide authority to ask financial institutions to change behavior that poses a threat to financial stability."

makes perfect good sense

you mis direct your scrutiny
changing or adding rules and powers
not lowering the rate boom
is precisely whats need doing come
any asset market's ur-bubble time

real problem
this is all pro forma chatter

actions will matter when taken if taken

[athreya]

Paine, you hit it on the head with
"changing or adding rules and powers
not lowering the rate boom
is precisely whats need doing come
any asset market's ur-bubble time

real problem
this is all pro forma chatter

actions will matter when taken if taken"

But consider - interest rates may be a blunt tool and it affects the economy and markets as a whole but for the same reason Fed may be free of pulls and pressures when it moves rates. When it comes to regulatory oversight and actions affecting a particular industry/group, don't the words 'vested interests' ring a bell?