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IPFS News Link • Economy - International

The Biggest Myth In Monetary Policy Today

•, Joe Weisenthal
John Hussman repeated this myth in his weekly letter this last week:
Why does the Fed want this? Simple. Chairman Bernanke believes that by creating a bubble in speculative assets, people will "feel" wealthier and keep consuming - regardless of the fact that real incomes are stagnant and debt burdens are already intolerable, and despite the fact that there is extremely weak evidence for any such "wealth effect" in the historical record. Undoubtedly, it would be difficult for Bernanke to refrain from these reckless policies when everyone is crying "do something!" But the willingness to tolerate short-term criticism in the interest of long-term benefit is part of what separates leadership from cowardice.

We thought that Hussman's characterization was totally off. Most likely, Bernanke thinks deep down that he should be doing a lot more, but the "crying" he's hearing from the financial and political worlds is saying something like: "STOP PRINTING, OR YOU'LL TURN US INTO ZIMBABWE."

The thing is, we read a lot of commentary from financial professionals on both the buy side and the sell side. We also listen to pay a lot of attention to what bank CEOs are saying, and the fact of the matter is that we almost never hear calls for more easing or cheap rates. Think of how many times you've heard Bill Gross, or a Bill Gross wannabe talk about financial repression (play scary music).