Understanding Monetary Policy

Because economists as a rule believe in the imaginary incentive to serve, they work on the basis that Federal Reserve Open Market Committee members are selflessly doing all they can to do what is right for the economy.  Because the Federal Reserve is defined as being unbiased and independent, they act on the basis it is.

These notions are fantasy. Monetary policy always comes down to just a few incentives. The members cannot ignore the political agenda of the people who have appointed them. The political agenda always comes down to enhancing the economic lives of all who support and keep politicians in power. This accounts for their total devotion to elevating asset prices and forcing profit margin higher over the past several decades.

The most important factor though is how each individual member of the committee appears others who are observing them. Appearing to doing the right thing is of utmost importance. Saving face as a motivation is absolutely imperative. There is nothing the Federal Open Market Committee members will not do to escape blame.

There will be many statistics cited. Philosophies will be explained. Mountains of mush will be thrown out for everyone to read an listen to. None of that makes any difference. Nothing will matter other than what actions make them look the best.

They are working against the clock. Why do certain economic numbers look good? Because asset prices have been elevated and that translates into consumer demand at the highest income levels. The poor and middle class have been devastated financially during the long term asset enhancement initiative.  They have nothing to spend.

When the stock market finally crashes, the driving force behind the recovery will evaporate and work in reverse. Not only will wealth be destroyed in terms of assets. No other consumer demand will emerge fast enough to keep the bottom from falling out of the overall economy.

Every ounce of energy possessed by the combined staff of the Federal Reserve will be focused on finding a way to blame the coming economic disaster on something other than what they have been doing.

 

 

 

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About Fantasy Free Economics

James Quillian independent scholar,free market economist,and teacher of natural law. Who is James Quillian? Certainly I am nobody special, Just a tireless academic and deep thinker. Besides that, I have broken the code with respect to economics and political science. Credentials? Nothing you would be impressed with. I am not a household name. It is hard to become famous writing that virtually no one in the country is genuinely not in touch with reality. But, if I did not do that, there would be no point in my broking the broken the code. If you read the blog, it is easy to see that there are just a few charts, no math and no quantitative analysis. That is not by accident. Given what I know, those items are completely useless. I do turn out to be highly adept at applying natural law. Natural law has predominance over any principles the social science comes up. By virtue of understanding natural law, I can debunk, in just a few sentences , any theory that calls for intervention by a government. My taking the time to understand the ins and outs of Keynes General Theory is about like expecting a chemistry student to completely grasp all that the alchemists of the middle ages thought they understood in efforts to turn base metals into goal. Keynesian theory clearly calls for complete objectivity. Government can only make political decisions. Keynesian techniques call for economic decisions. So, why go any further with that? Fantasy Free Economics is in a sense a lot like technical analysis. Technical analysis began with the premise that it was impossible to gain enough information studying fundamentals to gain a trading advantage. Study the behavior of investors instead. Unlike technical analysis, I don't use technical charts. What I understand are the incentives of different people and entities active in the economics arena. For example, there is no such thing as an incentive to serve with life in the aggregate. In the aggregate, only self interest applies. It is routinely assumed otherwise. That is highly unappealing. But, I am sorry. That is the way it is. I can accept that because I am genuinely in touch with reality. Step one in using Fantasy Free Economics is for me to understand just how little I really know. A highly credentialed economist may know 100 times what I do based on the standard dogma. Compare the knowledge each of us has compared to all there is to know and we both look like we know nothing at all. There is always more than we don't know than what we do know. I am humble enough to present myself on that basis. Why? That is the way it is. I am not bad at math. I have taught math. What I understand is when to use it and when to rely on something else. Math is useless in natural law so I don't use it. While others look at numbers, I am busy understanding the forces in nature that makes their numbers what they are. That gives me a clear advantage.
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