Descritionary Monetary Policy Won’t Cut ItPosted: September 19, 2013
Ben Bernanke surprised everyone by not surprising anyone. At a press conference a few days a go the bald wonder decided that according to recent data the economy still needs monetary stimulus. This statement is surprising because he had promised to taper quantitative easing but didn’t. To me this is far more striking than deciding on continuing asset purchases. You have to understand that just because he is going to continue is not necessarily good news. A Fed chairman must be consistent. His statements as long as the Fed centrally plans economies are influential on business practices.
The Fed should be pursing a rule based target. I personally prefer NGDP as a target but if they are going to target employment or interest rates they should have a long term plan instead of declaring that they changed their mind every now and then. Even Lars Christensen agrees that having no rule is no good over all. Yes some will say “but in the end the contraction is off set and the market really needs to push aggregate demand out.” To this I would say first you have to understand good monetary policy vs bad ones. Compared to most federal agencies the Fed has the worst track record, most of this can be attributed to no rule based targeting. This form of management can hardly remove fluctuations and in fact the fluctuations are created by this lack of rules in policy.
I would love to wake up one day, smell the roses and live in a world of free banking. Sadly we are a long way from there and as well we shouldn’t go back to a gold standard thus we are stuck between a rock and hard place. Nominal GDP targeting can be a pillow lining along the rock and hard place that will help the economy avoid expansions and contractions in the money supply. While that means that there should of been QE in 2008 it also means that the QE would of ended when planned or once NGDP got back on track. I find it hard to see where the economy in the US goes from here. So far the inflation the Rothbardians warned of never happened, if anything there is a higher chance of deflation now (maybe not now but there was between 2008 & 2011). Also unlike the Rothbardians and generally bearish investors I don’t see a bubble happening in any market. This is mostly because one can’t see or predict bubbles properly especially while an economy is still in the red. I used to find the possibility of bubbles forming because of QE but one must understand that every investor knows that the injections have an end date, unlike housing or Dot Com there is an expiry date on asset purchases, at least there should be some sort of rule on end date. This goes back to need for rule based policy.
If you want my opinion I am neither happy or frustrated. I don’t think tapering would of been bad but this comes from a free banking supporter. I also don’t think QE is going to do any damage, its just going to make gold go up for few days if not hours and it may help U.S avoid deflation. If you want a real solution for everything money just go to freebanking.org but if you think thats a long ways out check out the Market Monetarist or Scott Sumner’s blog. I am only a college student. I have a limited perspective, don’t expect ground breaking insight on monetary policy from me. I am mostly a Friedman (pseudo) intellectual doppelgänger.