The Art and Pseudoscience of Monetary Policy

Everyone’s got a plan for sale these days.  In fact, there are so many plans out there we cannot keep up with them all.  Eat celery sticks and lose weight.  Think and grow rich.  Stocks for the long run.  Naturally, plans like these run a dime a dozen.

Good plans, however, are scarcer than hen’s teeth.  You can’t possibly see them no matter how closely you look.  They simply don’t exist.

This was the case on Capitol Hill this week, where money and politics collided at the biannual monetary policy gala.  Despite all the hubbub, no good plans were offered.  What’s more, on first glance, no bad plans were offered too.

When Fed Chair Janet Yellen’s testimony was finally over, Congress knew less about the Fed’s plans than when it started.  For instance, when asked if the Federal Reserve would raise rates next month, Fed Chair Janet Yellen replied, “I can’t tell you exactly which meeting it would be.  I would say every meeting is live.”

What does this mean, really? Continue reading

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When Trumponomics Meets Abenomics

What will President Trump and Japanese Prime Minister Shinzo Abe talk about when they meet later today?  Will they gab about what fishing holes the big belly bass are biting at?  Will they share insider secrets on what watering holes are serving up the stiffest drinks?

Indeed, these topics are unlikely.  Rather, what they’ll be discussing is cooperative trade, growth, and employment policies between their respective national economies.  They’ll also talk about currency debasement opportunities.

Soon enough, perhaps by the time you read this, you’ll be able to peruse the headlines and garner soundbites of their discussions.  Maybe a new partnership will be announced.  Anything’s possible.

Regardless, what follows is a brief review – a thirty year retread – that’s intended to put the meeting within its proper context.  This is the backstory you won’t hear anywhere else…

To begin, it was precisely the wrong thing to do at precisely the wrong time. Continue reading

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Don’t Blame Trump When the World Ends

There was, indeed, a time when clear thinking and lucid communication via the written word were held in high regard.  As far as we can tell, this wonderful epoch concluded in 1936.  Everything since has been tortured with varying degrees of gobbledygook.

The fall from grace was triggered by the 1936 publication of John Maynard Keynes’ The General Theory of Employment, Interest and Money.  The book is rigorously indecipherable.  What’s more, it has the ill-effect of making those who read it dumber.

Nonetheless, politicians and establishment economists remain enamored with Keynes’ gibberish.  For it offers academic rationale for governments to do what they love to do most – borrow money and spend it on inane programs.  In particular, Keynes advocated filling bottles with money and burying them in coalmines for people to dig up as a way to end unemployment.  Somehow, this public works egg hunt would make everyone rich.

Over the years this reasoning has inspired countless government stunts to save the economy from itself. Continue reading

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Adventures in Currency Debasement

The U.S. dollar, as measured by the dollar index, has generally gone up since mid-2014.  The dollar index goes up when the U.S. dollar gains strength (value) against a basket of currencies, including the euro, yen, pound, and several others.  Conversely, the dollar index goes down when the U.S. dollar loses value.

Between July 30, 2014 and December 28, 2016, the dollar’s value, as measured by the dollar index, increased from 79.78 to 103.30 – or 29 percent.  Since then, the dollar index has dropped to about 100.  In addition, President Trump has said that the dollar is “too strong” and Treasury Secretary Steven Mnuchin has called the dollar “excessively strong.”

President Trump wants a weaker dollar to help with his program of bringing manufacturing jobs back to the U.S.  The rationale is simple enough.  A weaker dollar should make U.S. exports more attractive on international markets.  Similarly, a weaker dollar should make foreign imports more expensive for U.S. consumers so they’ll buy products Made in USA. Continue reading

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