Is the Fed in Control? If So, Control of What?
http://globaleconomicanalysis.blogspot.com/2012/10/is-fed-in-control-if-so-control-of-what.html
Mish
Is the Fed in Control? If So, Control of What?
By Mish Follow Sun, 21 Oct 2012, 9:22pm 300 views 3 comments
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I don't understand two of the comments in the linked article:
"Arguably, credit has risen, but nearly all of the rise is student loans, making debt slaves out of kids in the process, something the Fed certainly does not want to accomplish."
The Fed is partly owned by member banks, which control 5/12 of the Fed votes directly, and the remainder indirectly through political influence. Some of these banks make $$$ off student loans, e.g. Citi. Why wouldn't they want more of that?
"Importantly, the enactment of QE3 is a tacit admission by the Fed that earlier efforts failed..."
And yet they continue, so clearly the policy is a success from the POV of those who decide to continue it. Let's see, who would support printing $500bn/yr and handing it to mortgage lenders, largely as a gift by paying above market rates for the loans? By a remarkable coincidence, the very same banks that control the Fed happen to be the recipients of this largesse. From their POV, it's a highly lucrative success.
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Hard to see how the stock market is pumped up when it is at the same level generally it was in 1999. Adjusting for inflation, that would make it about 40 percent lower. Just a lot of peaks and dips inbetween.
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Stocks were in a huge bubble in 1999, and they remain unusually high even now:
http://www.multpl.com/shiller-pe/
They returned to normal levels briefly in 2008-09, at which point the Fed responded to the "crisis" by reducing interest rates in order to reflate the bubble.