The Fed is the Black Hole of our Democracy

08-25-2009 • BlueLoriBlogSpot

Market Watch... Guess what? The Federal Reserve has not only stopped depositing copious amounts of liquidity into the economy -- it now appears to be in the process of making a sizable withdrawal. A close look at quantitative measures of monetary policy reveals a sudden change in trend. After growing at unprecedented rates for well over a year, these aggregates stopped rising several months ago and have since declined, according to data provided by the Federal Reserve Bank of St. Louis. What could this mean for YOU? Get Ready for Interest Rate Shocks One of the important messages coming out of the central banker’s annual retreat in Jackson Hole, Wyoming is that once the crisis is over the Federal Reserve’s (Fed) tightening of monetary policy may be abrupt. If so, increases in short term interest rates will not be gradual but jarring. The reasoning behind this approach, as I understand it, is that (1) since there could be political pressures to monetize the government d