It's effect is at the margin, and can be quite profound in hyper-leveraged scenarios. I don't know if you have access to Lee Alder's Fed liquid assets chart,
wallstreetexaminer.com
but it makes the point. He show several liquidity channels, one sloped at 7.5% from 2002 to early 04. Then he shows this channel tipping up to a hyperinflationary 15% angle from about 3/04-12/04. This was the period where I was just livid, getting into debates with Mish, doing inflation du jours, etc. This irresponsibility completely let the whole multitude of various Bubbles, inflation (*), and USD weakness out of the bag.
That brings us to now, hitting the brakes. The liquidity channel since 12/04 is nearly flat, so it's almost as if the Wizards are blatantly (after being warned by FCBs vendor financiers about currency debasement?)trying to pull the spiggot back to some notion of "reasonable". Whether that's back to 7.5%, or 6% or 9% (all still very inflationary), remains to be seen, be it's already meaningful in terms of duration, tilt, and change at the margin (down from 15%). This essay at WSE then describes how marginal pricing transmits to the markets and economy:
wallstreetexaminer.com
(*)
Doug Noland this weekend on this, couldn't agree more,
"Only the uninformed or analytically stubborn fails to appreciate that we long ago exited the transitory disinflationary period." |
