Thoughts on Fed’s Exit Strategy: Stephen Roach vs. Mish
by ilene - December 14th, 2009 3:06 pm
Thoughts on Fed’s Exit Strategy: Stephen Roach vs. Mish
Courtesy of Mish
Former Fed economist and current Morgan Stanley Asia Chairman Stephen Roach Sees ‘Great Risk’ in Fed Exit Strategy.
The Federal Reserve may cause another crisis by botching the withdrawal of liquidity from the U.S. economy, Morgan Stanley Asia Chairman Stephen Roach said.
The Fed is the “weak link” among central banks and may fail to tighten monetary policy in time to stop asset bubbles from forming, Roach said at a conference in Berlin today. The Fed helped trigger the boom and then bust of the subprime mortgage market by being “quick to slash, slow to normalize” interest rates, he said.
“There is a great risk in the coming exit strategy,” said Roach, a former Fed economist. “They are lacking primarily a political will to execute the exit in a timely and expeditious fashion that will avoid the mistakes of the last crisis.” The traditional view of central bankers that asset bubbles are hard to spot and deflate with rates is “ludicrous,” he said.
“This is a failed flaw in the intellectual construction of modern central banking that must be addressed,” said Roach. “If we don’t fix this problem we’re doomed to repeat the failed asymmetric policies of the past and set ourselves up” for another crisis.
Roach recommended the Fed be required to “hardwire” the goal of preserving financial stability into its mandate, alongside the pursuit of full employment and low inflation. Central banks should not be “allowed to outsource their responsibilities” to regulatory bodies, he said.
Fed Is Fatally Flawed
The Fed is fatally flawed in many ways. Stephen Roach (who I happen to like) misses a lot of them. For starters the only source of inflation is the Fed and fractional reserve lending.
The best policy would be to get rid of the Fed and fractional reserve lending entirely in favor of a stable money supply. That would fix the problem of inflation once and for all.
The Case Against the Fed and Fractional Reserve Lending is easily made. Please read Fractional Reserve Lending Constitutes Fraud for a brief overview.
More importantly please see
- Fractional Reserve Banking by Murray Rothbard.
- Case Against The Fed by Murray Rothbard
Please click on the second link above and read it. It is 162 pages long…
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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. She manages the site