Bernanke is “Unusually Uncertain” – Is that an Improvement?
by ilene - July 22nd, 2010 4:29 pm
Bernanke is "Unusually Uncertain" – Is that an Improvement?
Courtesy of Mish
In response to Bernanke Says Economic Outlook is "Unusually Uncertain", Fed Prepared for "Actions as Needed" I received this comment from "Economics Teacher".
ET Writes…
Ben is forecasting uncertainty and saying the Fed’s prepared for action as needed. Did Uncle Ben strain his cerebrum coming up with that one (forecasting uncertainty)?
I suppose there’s a difference between "unusually uncertain" and "typically uncertain." Either way it comes out this way – Ben doesn’t know squat!
Is "Uncertain" an Improvement?
Bernanke was pretty certain there would not be a recession, that housing was not in a bubble, that the unemployment rate would peak at 8.5%, that paying interest on reserves would enable the Fed to hold short-term rates above 2%.
Bernanke was wrong on every count. At least now he admits he is guessing.
Let’s recap the Fed Uncertainty Principle to see what it suggests may be certain or uncertain.
Fed Uncertainty Principle:
The fed, by its very existence, has completely distorted the market via self reinforcing observer/participant feedback loops. Thus, it is fatally flawed logic to suggest the Fed is simply following the market, therefore the market is to blame for the Fed’s actions. There would not be a Fed in a free market, and by implication there would not be observer/participant feedback loops either.Corollary Number One: The Fed has no idea where interest rates should be. Only a free market does. The Fed will be disingenuous about what it knows (nothing of use) and doesn’t know (much more than it wants to admit), particularly in times of economic stress.
Corollary Number Two: The government/quasi-government body most responsible for creating this mess (the Fed), will attempt a big power grab, purportedly to fix whatever problems it creates. The bigger the mess it creates, the more power it will attempt to grab. Over time this leads to dangerously concentrated power into the hands of those who have already proven they do not know what they are doing.
Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.
Corollary Number Four: The Fed simply does not care whether its actions are illegal or not. The Fed is operating under the principle that it’s easier
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.