Consumers, Too; (Un)Confident To Re-Engage

There is a lot of evidence that shows some basis for expectations-based monetary policy. Much of what becomes a recession or worse is due to the psychological impacts upon businesses (who invest and hire), as well as workers, being consumers (who earn and then spend). Once the snowball of macro contraction begins rolling downhill, rational prudence dictates some degree of caution on all parts (pro-cyclicality).

Bathed in the unearned glow of the Great “Moderation”, central banking’s greatest thinkers untroubled by no longer thinking about finance or money began to presume they had figured out a way to manipulate “confidence” to such a degree that it would allow them some substantial degree of control over the entire business cycle. Down as well as up.

Ben Bernanke, among others, swallowed this view hook, line, and sinker (along with the adoration and attention it necessarily brought them). After all, he said, look at the nineties and 2000s (before August 2007, obviously). With the tiny dot-com recession (why don’t stock crashes by themselves create depressions anymore?) the lone economic blemish in that 16-year span between 1991 and 2007, policymakers were riding high as to their emotional exploitation scheme.

August 2007, however, should have awoken deep skepticism; maybe it hadn’t been pop psychology that had produced the near-unbroken “moderation” of the long prior span. Perhaps Federal Reserve officials, in particular, should have paid much closer attention to not just what Salomon Brothers had been up to at the start of it, more importantly why these “brothers” were doing these things and the potentially grave implications of everyone else in the money dealer family doing much the same.

In other words, what if the monetary system had drastically changed (which Greenspan’s crew knew) and its unappreciated, decidedly immoderate ascent had been responsible for those particular 16 years? What good might monetary policy be with no money to offer attempting instead to manipulate happy thoughts throughout an economy recoiling in the wake of widespread, obvious (to any honest person operating outside the close central bank orbit) money shortages?

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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