Blog Credo

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

H.L. Mencken

Wednesday, March 8, 2017

Seems Like A Good Idea

Sebastian Mallaby (is that his real name?) suggests that the Federal Reserve should pour some icy cold water on the stock market.  His logic is that recent recessions have been caused by speculative bubbles (true) created by cheap money monetary policy (true).  The past arguments for raising rates was to head off inflation.  Inflation is kept low currently because globalism keeps both wages and prices low.  I would add cheap energy as a leading cause of low inflation, too.

Raising rates sharply to retard Wall Street from rampant borrowing would burst the bubble before it inflated large enough to give us another 2007.  That's the economics of it.

The politics of it is that Trump hates elites and they could trigger an attack on the Fed similar to his attacks on the Courts. Popping the bubble will entail things that could slow wages and lending for ordinary Americans.  Letting the bubble grow to 2007 sizes would create a political crisis that could lead to more Trump or a Sanders-type figure on the Left.  Basically, it courts instability in a system that is already unstable.

Or, more likely, the Fed raises rates by a full point, the market corrects and we go back to watching Trumpelthinskin's twitter feed for stock tips.

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