James 'The Mouth' Padinha:
in light of the fact that money is
now growing at rates not seen since August 1999, it is imperative that the
Fed proceed with easing as prudently as possible. Policymakers have
already pushed through one hundred and fitty basis points of easing in just
eleven weeks -- not once during the last decade have we seen so much easing
in so short a time -- and (as of this writing) they are sure to hand out
more. And again, although easing now is certainly the right thing to do --
easing carries the small yet positive probability that we can avoid
recession, whereas failing to guarantees one -- the Fed nonetheless very
much owes it to us to keep in mind that the magnitude of its cuts will come
back to haunt us later.
To climb aboard this thinking is to believe that, because we will have
gotten so much easing in so short a time, the price measures will not have
much of a chance to show the lagged impact of the sharp (and relatively
quick) deceleration in growth we've seen. In other words, this is NOT
1994: Where things had time to play out then, they're more concentrated and
squished now.
As evidence on this front we'll cite the February consumer price numbers,
which were released this morning. The year-on-year (or yoy) increase in
the core (excluding food and energy) index ticked up to two-point-seven
percent -- that goes down as its biggest such gain in almost four years.
Meantime the all items less energy index is increasing at a two-point-eight
percent yoy rate (something not seen in more than four years), the medical
care index is increasing at a four-point-six percent yoy rate (something
not seen in almost five years), and the housing index has increased at
four-plus percent yoy rates for five straight months (something not seen
since 1991). Forget decelerating or leveling out -- these measures are
still accelerating (as are plain old house prices, which show yoy growth
between five-point-eight and seven-point-three percent). And so, given all
the pumping the central bank's done lately (and will do in future), we're
wondering whether they'll have a chance to take a meaningful breather at
all.
And for what it's worth, your narrator reckons that the Fed's already on
board here -- and that that's why we got just fitty yesterday, not
seventy-five.
...
Over a years-long period of time during which business investment
accelerated by more than eight full percentage points (to rates we hadn't
seen since the 1980s); during which productivity accelerated by more than
three full percentage points (to rates we hadn't seen (consistently) in
more than thirty years); and during which our growth rate accelerated by
three full percentage points (to rates we hadn't seen in ten years), the
Feds chose to keep real rates low. Instead of choosing to nudge the funds
rate higher sooner, and on a relatively infrequent basis, they sat back and
waited -- and, in 1998, even threw in at least two unnecessary easings for
good measure.
And the result of their lack of sac is that they ended up pumping far too
much artificially cheap capital for far too long.
We are now as familiar with the silliness such excess delivered -- an
online travel agency valued at more than the three biggest airlines put
together; idiot dotcom analysts genuinely shocked to see folks again prefer
companies with earnings to superfast-growing ones with huge losses -- as we
are with its attendant pain. And for all of it you can thank your
unelected Feds, the folks who do not have to answer to the likes of you.
Aside Two: Who's to blame for a drug problem? The pusher...or the user?
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