New York Fed’s Williams on dealing with inflation…
New York Fed’s Williams: Fed has tools to deal with high inflation
Mr. Williams informs us that the Fed has tools to deal with high inflation but the article does not supply the details of what those tools are. That must be because Toto has not yet pulled the curtain aside.
The article talks about the risks of new virus variants that still menace the economy and is in line with the tone of a Federal Reserve intent on continuing the inflation just to make sure the already brisk economic snap back stays in motion. And should the inflation itself become more virulent they’ll simply use one (or more) of their macro manipulative tools understood so well by these economic eggheads but not so much by we the ignorant public.
Don’t worry about inflation; the Fed has tools!
Like yield curve control for example. Amid scathing political criticism at the time Ben ‘Big Brain’ Bernanke found a way to bring the cheese while “sanitizing” inflation. *
“A reporter asked Perry what he would do about the Federal Reserve.
Standing next to a “Perry President” sign, the governor replied, “If this guy prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we would treat him pretty ugly down in Texas.”
“I mean, printing more money to play politics at this particular time in American history, is almost treacherous, or treasonous, in my opinion,” he added.
A Federal Reserve spokesman said the central bank had no comment.”
Of course the central bank had no comment. The central bank operates in the opaque world of upper echelon egghead economics. Another article from back then digs in deeper.
Bernanke’s Last Resort: Start Dancing? (you know, do the Twist? Gawd I hated music like that)
“How could a new Operation Twist (perhaps renamed Operation Dougie to bring it into the 21st century) work? The Fed could specifically target the 30-year Treasury. The 30-year currently yields about 3.4%.
While that’s down from about 4.3% when this recent bout of market volatility began in late July, the spread (or difference) between it and the 10-year Treasury yield is still fairly wide. The 10-year yield is about 2.1% now (having briefly dipped below 2% Thursday). The 10-year was at 3% a few weeks ago.
And some bond experts argue that the spread between the 30-year and the shortest of short-term bonds, the 3-month bill, is most problematic. Typically, if the difference between the 30-year and 3-month is above 3%, that’s a bad sign for the economy. Right now, the 3-month bill yields practically nothing. It’s just 0.01%.
So a new Operation Twist could help bring short-term rates up and the 30-year down.
And an advantage to another Operation Twist — as opposed to a QE3 — would be that the central bank could technically buy bonds without having to increase its balance sheet. It could just sell a certain amount of short-term debt and buy the equivalent amount of long-term debt.“
This stuff scared me back then and the prospect of it or something similar scares me now. That is because it just cannot be as easy as buying/selling Treasury debt of different maturities in order to rig inflation signals while still pumping the inflation. You see? That’s one of those Wonderland-like paradoxes that prompted the name Notes From the Rabbit Hole.
“There is nothing wrong with your
television set [rational mind]. Do not attempt to adjust the picture [your point of view]. We are controlling transmission [the financial markets]. If we wish to make it louder [more expensive], we will bring up the [funny munny] volume. If we wish to make it softer [cheaper], we will t une it to a whisper [pretend to be hawkish]. We will control the horizontal [rates of interest]. We will control the vertical [price signals]. We can roll the image [roil the markets], make it flutter [you shudder]. We can change the focus to a soft blur [away from that man behind the curtain], or sharpen it to crystal clarity [command your rapt attention to our manipulative goals]. For the next hour [undetermined time period until the macro souffle wheezes, drops and flattens], sit quietly and we will control all that you see and hear. We repeat: There is nothing wrong with your television set [rational mind]. You are about to participate [have been participating] in a great adventure. You are about to experience [have been experiencing for nearly 2 decades now] the awe and mystery which reaches from the inner mind [dark corners of a long-since failed experiment that does not yet know it has failed] to… The Outer Limits.”
Actually, I am greatly enjoying participating in this great adventure. But that is despite (or maybe even because of) my understanding of what it is. In other words, I think it is dangerous and a complete fabrication, but in taking the red pill I also feel I have the consciousness to remain aware of and exploitative of this great adventure, to the degree needed to function rationally, play the house’s game and manage risk accordingly.
* It bears repeating that the (in my opinion scary) word “sanitize” was used by the Fed itself, not critical onlookers like yours truly.
For “best of breed” top down analysis of all major markets, subscribe to NFTRH Premium, which includes an in-depth weekly market report, detailed interim market updates and NFTRH+ dynamic updates and chart/trade setup ideas. You can also keep up to date with actionable public content at NFTRH.com by using the email form on the right sidebar. Follow via Twitter @NFTRHgt.