Shrinking Fed chairmen signals a weaker and weaker Fed perhaps?

The New Keynesians want lower rates. The Market Monetarists want GDP targeting. The New Monetarists are more traditional, but do not fear a little deflation. Steven Williamson, St Louis Fed VP, is a New Monetarist. They are fairly hands off other than to keep the money supply up. So, perhaps, the New Monetarism is like the Old Monetarism. I wrote about him here, Moon: www.talkmarkets.com/.../forget-keynesianism-and-market-monetarism-new-monetarism-rules-the-federal-reserve I would like to see a little more stimulus for the people, but not more easy loans. Better pay would be a real stimulus. I don't like the idea of bond rates going negative, although negative IOR may be helpful, not sure though.

It would seem that Euro banks are timid and market share could be taken by US banks. It is almost as if they know that the Euro is a bad idea.

When you are talking about markets, of course the markets are not as free as they could be. They depend on the Fed for stimulus. My issue is that monetarism, either new monetarism or market monetarism, does not offer stimulus to main street. The real economy is not exactly booming.

World War 2 was a massive stimulus that brought the US out of depression. But when the stimulus ended we as a nation were in a stronger position. So Keynesian stimulus on that scale could cause a big hangover now. Still, I am for some fiscal stimulus.

New monetarism, which the Fed is embracing, is pretty much do nothing but give the illusion, as you say elsewhere, that they want to raise rates.

Author states: "Since QE is supposed to work by lowering interest rates hard against the zero lower bound, rational market agents would instead sell bonds expecting higher interest rates in the future where QE dominates."

I am not sure about this. I think massive demand for bonds, as collateral in derivatives markets, increases price and pushes down yields. The traders know this and would not sell.

Not sure that the oil companies think they can live without tax breaks.

So, because they cannot contain inflation through normal channels, they have to keep the economy slow growth.

The Fed cannot contain inflation since banks are betting on low interest rates. Of course, they don't even match their targets so we are caught between a rock and a hard place. We don't want inflation. We don't want negative interest rates, especially on bonds. We don't want a cashless society. We root for a rise in interest rates but that is hampered by bank bets too, and by long bond demand which is exploding!

Vinny, I wish you were my cousin. Great article!! Monetary policy can only do so much before it starts really hurting people. Then everyone can say they are conservative and block all fiscal stimulus and get reelected. I just don't think massive stimulus is the answer now since we are not as strong as we were after WW2. Some stimulus should be tried, however.

I totally agree, so much hoarding of money is taking place. But, that may not be the only reason. There still is a pretty weak economy.