 |
I came across this blog, saying financial conditions in the U.S. are as good today as they were before the Great Recession in 2007.
By financial conditions, the author means the strength of the money markets, bond markets and equity markets.
But this is the only real “success” that can be attributed to the Fed’s extraordinary monetary policy. Because policy makers …
HAVE NOT generated meaningful economic growth
HAVE NOT helped to improve the labor market
HAVE allowed bloated public debt to become even larger
HAVE encouraged politicians to perpetuate the status quo in Washington
HAVE enabled global imbalances to persist
Honestly, though, what they have achieved in shoring up the financial system is not really a success.
Since the credit crunch rocked the global financial system, Chairman Ben Bernanke & Co.’s goal was to create order in financial markets. Did policy makers admit it? In the early going, and on occasion, yes. But as their extraordinary policies linger on years after the crisis, they claim they’re in it for the sake of the economy.
Wrong. Before the financial meltdown, policymakers in the U.S. and around the global had helped to create a highly ordered financial system. And the nature of that system was its (and the market’s) undoing.
Well, it’s like déjà vu all over again. The financial system is being managed and guided and molded with makeshift policy. “Forward guidance” is the new policy du jour, for example. I would bet my life there are ulterior motives in play too — that is, the highly ordered financial system benefits the elite and those with capital at the expense of those without. But that’s irrelevant unless the general populace wakes up to that reality.
What’s most important to understand is that a highly ordered system is a fragile system. And, unfortunately, should it shatter, it’s not just going to affect those it has helped.
I think what we’re going to see, whether it’s this year or sometime next year, is a real resistance to Fed policy when more market players and average Joes begin to realize that the Federal Reserve (and other major central banks, for that matter) are stuck providing accommodation in order to maintain a semblance of global financial system stability, but still aren’t able to meaningfully improve the economy with said accommodation.
Janet Yellen is expected to take over the reins at the Fed next year. I imagine the powers that be will try to make it as much of a non-event as they can. Because any new attention has the potential to shine a spotlight all over the most important facet of the U.S. financial and economic systems — the Fed’s decisions really are beginning to baffle a growing swath of onlookers.
Consider yourself warned.
Best,
JR
