GDP Release: “The Ship is Slowly Sinking”

By staying pat on the FF rate, but constantly saying they “would like to begin to normalize policy” this year, Janet & Friends are in effect enlarging the hole that will eventually sink the ship!

Why have they been procrastinating for so long? As history attests (here, here see notes below)), the Fed is terribly afraid of being accused of having sunk the ship. They just don´t see that they are doing exactly that, so far in “slow motion”!

Boat Leaking



At the November 1937 FOMC meeting John Williams, a Harvard professor, member of the Fed board and its chief-economist said:

We all know how it developed. There was a feeling last spring that things were going pretty fast … we had about six months of incipient boom conditions with rapid rise of prices, price and wage spirals and forward buying and you will recall that last spring there were dangers of a run-away situation which would bring the recovery prematurely to a close. We all felt, as a result of that, that some recession was desirable … We have had continued ease of money all through the depression. We have never had a recovery like that. It follows from that that we can’t count upon a policy of monetary ease as a major corrective. … In response to an inquiry by Mr. Davis as to how the increase in reserve requirements has been in the picture, Mr. Williams stated that it was not the cause but rather the occasion for the change. … It is a coincidence in time. … If action is taken now it will be rationalized that, in the event of recovery, the action was what was needed and the System was the cause of the downturn. It makes a bad record and confused thinking. I am convinced that the thing is primarily non-monetary and I would like to see it through on that ground.


It seems “being afraid” is in their DNA. This is Tim Geithner in 2008:

The argument that makes me most uncomfortable here around the table today is the suggestion several of you have made—I’m not sure you meant it this way—which is that the actions by this Committee contributed to the erosion of confidence—a deeply unfair suggestion.

But please be very careful, certainly outside this room, about adding to the perception that the actions by this body were a substantial contributor to the erosion in confidence.

4 thoughts on “GDP Release: “The Ship is Slowly Sinking”

  1. It is eerily similar to just eight years ago. Headline unemployment was stable, headline inflation was very worrying, about to cause an inflationary expectations led wage explosion, and monetary policy was gradually tightened.

    Today headline inflation is irrelevant, but the headline unemployment rate is (apparently) worrying low, about to cause a labour market “tightness” led wage explosion, and monetary policy is being gradually tightened.

    Central bankers and the consensus macroeconomists seems to have learned nothing at all.

  2. This from one of the supposedly “adult table” candidates at last night’s 3rd Republican Party presidential primary debate, Ted Cruz:

    “Mr. Cruz also said the Fed has an inflation problem on its hands. “If you look at a single mom buying groceries, she sees hamburger prices have gone up nearly 40%. She sees her cost of electricity going up. She sees her health insurance going up. And loose money is one of the major problems,” he said.

    “I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold,” Mr. Cruz said”

    I understand that another “adult table” candidate (Rand Paul) shares this view. When these candidates speak of “auditing the Fed” I guess they mean browbeating the Fed to tighten the (obviously loose?) monetary policy? Lol

    Is it any surprise? Another thinks that “larch-tree bark and aloe vera extract” cures cancer… especially alarming in this case given his former profession.

    The word “delusional” comes to mind.

  3. 3rd q 2014 looked good, heading in the right direction, NGDP at 4.8%, and then it was downhill from there… and now the Fed still thinks December is in play, talk-tightening things more…. does this end well?

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