12 December 2012

Federal Reserve Adjusted Monetary Base Watch - What The Financial System Needs Is More Power

Let's see what the new QE does to the Fed's Balance Sheet growth over time.

Although the 'spike' in the post financial collapse recession skews the percentage scale, the growth in the monetary base was fairly strong during the housing bubble expansion post-911.

That third chart might be labeled 'a Decade of Policy Errors.'

There are some who will observe that the third chart shows that Modern Monetary Theory would be a wonderful idea because it takes the monetary policy levers away from the evil Federal Reserve Bank (and the often dodgy sovereign debt markets).

Let us consider what a blessing it would be to put that much discretionary, and apparently almost unrestrained, power to create money, manipulate market prices, and transfer wealth in the hands of those wise and selfless paragons of civic virtue, the professional politicians in the Congress, the Treasury, and the Administration, so they can exploit the monetary power until exhaustion or collapse.

This is not to say that the Fed will not also achieve that end. It does seem to be the historical trend for fiat money. But it very probably is a matter of degree and duration.

The financial system is not broken, distorted, and corrupt. It just needs more power. So let's rewire it...