Thought you guys would have learned this by now. Oh well...
Let me ask you this. Would FED raise rates now? Ans. There's no way. In the late '70s they had to be dragged kicking and screaming to do it. It took several years of the process of their adding reserves to prevent ff rate from rising which would just whet the appetite for more speculation in inflating assets because FED was enabling them to borrow to buy. Volcker, yes, Volcker, resisted all attempts to get the FOMC to stop reserve addition. Instead, Volcker insisted that they keep on adding or else the economy would collapse into depression.
By the way, you doubters that doubt what i say is true, fail to explain what happened, but prefer the story provided by pseudo history. You know the one, where Volcker came in to raise rates to smash inflation. Didn't happen. FED, the FOMC, through the trading desk would come into the bond market and take all offers to prevent the demand for loanable funds from raising rates. That's what caused rates to ratchet over many months. Had FED stayed out rates would have been bid up until equilibrium was reached and that would take place intraday. INTRADAY. Demand for loanable would have been busted toot sweet and the rate structure would have gradually subsided. Instead, by FED's repeated interventionism in order to prevent their old excuse, avoid depression, they created such distrust that it took a decade for rates even to come down to 10%.
Has FED changed? Did they learn anything? NO. How about Berdoo? He knows NOTHING about what actually took place but believes the pseudo history. Therefore, given his determination to fight "depression", there's no way FED will raise rates. In fact, the FOMC is in a real quandary about how to gradually move out of their current illusory accommodation, much less devise a plan by which they will material raise them. The market, such as it is, will have to do it for them, with them resisting. Ah, shades of '79. |
