You can just forget the noise from the New Keynesians and Market Monetarists. New Monetarism is the economic school that rules the Fed. And you should know more about how that works out. [There is a chart below that shows the big banks are lending like crazy while inflation is practically non existent. That makes no sense, but these are not normal times.]

New Monetarists are Austrians like Greenspan was an Austrian economist. Greenspan thought that the invisible hand of self interest and deregulation would not allow the housing bubble and crash of the last decade.

Of course if you believe like I do that the Fed mispriced risk and that the housing bubble was inevitable, you wonder if the New Monetarists will be any more honest than Greenspan wasn't.

After all, it was Greenspan who said in February, 2004, that you could get a "better deal" obtaining an adjustable mortgage.

Through Stephen Williamson's blog, we can catch a real glimpse of what the New Monetarists are about. Keep in mind that the blog is not an official statement of the Federal Reserve, but really, this is the Vice President of the St. Louis Fed speaking. So people should pay attention.

NK's  and MM's want a piece of Milton Friedman, but the Fed and the New Monetarists (NM's) think they know all about Friedman. You can study all that for yourselves. But the practical implications of NM thought is to do nothing, or very little, in the working out of monetary policy.

Stephen Williamson has said on more than one occasion on his blog that deflation is not such a bad deal. He said he went to Switzerland and deflation there was not very problematic at all. Of course, the Swiss give loans, make fine watches and snow, and probably could care less about the appreciation of their currency.

The Swedes do diddly squat in the real world, in the real manufacturing world. They are the worst example of problems or lack of problems with deflation.

Dr Williamson said here that the Fed controls inflation and deflation. I thought that was a significant statement. It is especially significant when one considers that the Fed is failing to push inflation to the 2 percent target! Has the Fed lost power or does it just not care because of globalization? Read on.

As I asked more questions in the comment section of this post, Dr Williamson gave me a link to the Fed policy. The goal is 2 percent inflation. But that seems more a ceiling lately than a floor. MMs have shown that the Phillips Curve is not valid in these times and that GDP could drop even while inflation continues at or near target. But even the MMs admit that the Fed has kept the NGDP up to snuff since 2009. That could change, as inflation is running about 1.31 percent as of 2/22/16, way below the 2 percent target.

Dr Williamson showed me a FRED chart which shows that banks are lending like there is no tomorrow. I do not understand why this chart shows what it shows if inflation is so weak: 

Of course, the only way this makes sense is if American banks are lending elsewhere, to Europe and China and oil. There is some evidence of that. China is trying hard not to devalue again, or those loans will be difficult to repay. That is what caused the massive shock at the first devaluation.

Likewise, in Europe, American lending is massive because the Euro banks are such a mess. But reciprocal lending back to US consumers from those areas is not happening. European banks are in really bad shape. They were in bad shape in the credit crisis era because they were far more leveraged than US banks. They are still in very weak condition.

It is a global world and it seems that  the Fed could care less, again, about the US citizen/consumer. It really is, as it always has been, about the banks. The Fed answers to the banks, and the decline of America continues while American banks have taken risks lending offshore to areas that may prove more risky than home.

Apparently the New Monetarism is just not that proactive (like Greenspan) and it fits the Fed recent behavior perfectly. Slow growth in the USA is simply not a big deal to the NM's if banks are lending with both guns blazing. Our government needs to corral the big banks for projects at home, technical ones, if the Fed remains this passive.