I think I have finally contrived, like a Grand Unified Theory in physics, a definition for human organizations, whatever their type, that definitively explains why so many of them make so little sense. Human organizations are just assemblages of people who have agreed among themselves to believe the same set of lies. How else to explain that such a large cohort in the United States, contrary to all the available evidence, believes that the Federal Reserve has the magical power to affect real economic outcomes by dint of tinkering with the currency through which economic transactions occur?
The New York Times, apparently one of the voices for this peculiar cult, issued its view that the Fed wasn’t doing enough; from Half-Measures From the Fed, an opinion of the newspaper’s editorial board, commenting on what it saw as the weak pledge by the temple priests to limit sacrifices to the God of Economic Growth to mostly only those already planned:
It is particularly disturbing that three members of the Fed’s policy committee view inflation as a bigger threat than a weakening economy and opposed Tuesday’s decision to keep rates low into 2013. Judging from earlier statements, they stand prepared to oppose further measures to boost the faltering economy.
That could make it less likely that the Fed will use other effective tools at its disposal to spur demand and hiring. The committee said it was prepared to do more “as appropriate.” The danger is that as long as the stock market stays relatively stable, further loosening of monetary policy will never be deemed appropriate. Ben Bernanke, the Fed chairman, said at the Fed meeting in June that despite high unemployment, only a heightened risk of deflation would cause further easing by the Fed.
The Fed perpetuates the myth that it has the power to affect economic outcomes, even while admitting behind everyone’s back that it does not (actually, the admission is in plain view on its website). But what more could the Fed possibly do? The Times, undoubtedly believing itself a wise and capable representative of the cult of believer, has some ideas:
For starters, the Fed could take modest steps, like shifting its portfolio toward bonds with longer maturities, which would help to keep long-term rates low and nudge investors into riskier investments. It could reduce the interest it pays on the banks’ huge reserves or even tax the reserves to try to encourage more lending. It could also resume buying Treasuries or other securities to provide additional monetary stimulus. A more aggressive strategy would be letting inflation rise above the Fed’s comfort level of 2 percent or so to, say, 4 percent. That could help the economy by easing the repayment of debt.
In the absence of stimulative fiscal policy, even assertive moves by the Fed are unlikely to turn the ailing economy around. But they could help, if only the Fed would deploy them.
Get that? Intentionally impairing the value of contractual obligations would help the economy. It must be supposed that the people to whom these obligations are owed might not agree, perhaps because they don’t comprise a part of the economy. Otherwise, the Fed should keep doing what its been doing, which hasn’t really helped at all, but only because not enough of it was done. It takes an immense reservoir of credulity to swallow the canard that the only reason nothing done so far has worked is because not enough of it has been done. Three trillion dollars on the Fed balance sheet, i.e., about 20% of annual GDP, isn’t a large enough experiment?
I have a message for all the Federal Reserve cultists out there: The Fed can’t do anything to affect real economic outcomes in any sustainable way. All they can accomplish, and that only through subterfuge, or smoke and mirrors, or simply magic, is to create monetary illusions that make things seem better, but only for a short time. The half-life of their last illusion appears to have been about eighteen months. But now, the smoke has cleared and the mirrors are shattered. They have no magic tricks left up their sleeve. Their capacity to create a monetary illusion without actually damaging economic performance (due to uncertainty in transactions) is virtually nil. The assemblage of people who have agreed among themselves to believe the lie that the Fed can affect real economic outcomes through its tinkerings should disband. The lie you have agreed to believe has been so critically discredited that even were there a zillion people believing it, it still would not be true. Find another lie to believe in; perhaps that government initiatives can create a net increase in jobs. That one isn’t true either, but it has less chance of being acted upon, since government initiatives in a republic like the US are becoming nearly impossible to accomplish.