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1/ As a matter of physical law, it has always been easier to destroy than to create. A newborn can be easily suffocated to death, whereas providing it with ever more oxygen isn't going to have the opposite effect. The creative process is complicated. Destruction is simple.
2/ Markets, on the other hand, try to ascertain value; they don't create it. The asymmetries reflect something else: our unease w/uncertainty. Outcomes are less predictable than we wish to accept. Downdrafts reveal the uncertainty, which generates panic in our primitive brains.
3/ The Fed cannot force businesses to borrow or coerce them into finding productive uses in which to deploy newly created money. I've never been a believer in interest rate targeting. It was never part of the Fed's original mandate, and when I've asked Fed officials to explain...
4/ ...the rationale behind it, I've never been given a satisfactory answer. I believe rate targeting is a result of mission creep. The desire to dampen interest rate volatility resulting from the seasonal variability in liquidity needs plaguing banks across the United States...
5/ ...during the 19th & early 20th centuries gave someone the bright idea to extend the practice year-round. Such habits by policymakers may have started as hubris, but I think that at this point, they are a career survival strategy. There is an argument to be made for a...
6/ ...lender of last resort and a provider of seasonal liquidity, but we don't need the Fed to set interest rates. Sucking volatility out of credit markets by targeting the interest rate is a surefire way to generate financial instability in the long-run. It creates complacency.
7/ Paul Volcker knew this, which is why he took the drastic step in the fall of 1979 to begin targeting the money supply directly, allowing interest rates to fluctuate: “By emphasizing the supply of reserves and constraining the growth of the money supply through the reserve...
8/ …mechanism we think we can get firmer control over the growth in money supply in a shorter period of time,” Volcker told the assembled reporters. “But the other side of the coin is in supplying the reserve in that manner, the daily rate in the market is apt to fluctuate."
9/ By conditioning markets to expect ever lower levels of volatility in the price of money, we have created the conditions for every larger and more destructive crises of the sort that demand ever greater amounts of Fed intervention. The Fed isn't in the business of helping...
10/ ...the economy to grow. The Fed's business is to keep it from collapsing. After decades of interventions that pushed the costs of malinvestment and financial malfeasance into the future, the question we are all asking ourselves today is, has that future finally arrived?
