The Fed’s Wizard Behind the Curtain

[Our good  friend Doug Behnfield, easily the smartest financial advisor we know, thinks it’s possible the Fed will do nothing today even though the whole world is expecting QE3. America’s economic problems have grown considerably since Operation Twist was implemented, says Doug, and the Fed may be reluctant to risk revealing to the world that it has no more bullets. In the guest essay below, he explains why it may be better for the central bank to do little or nothing this time, especially with the stock market so strong, than to be perceived as powerless when the economy fails to respond to yet another dose of monetary voodoo. RA ]

Much has been written about The Wonderful Wizard of Oz by L. Frank Baum as an allegory for monetary policy.  At the time it was written in the late 1890s, the country had been ravaged by deflation and William Jennings Bryan was running for President on a platform that, among other things, advocated “free silver” or bimetallism as a method of stimulating economic growth. Back then there was no Federal Reserve and we were on the gold standard. The Treasury could increase the amount of official silver coinage as a powerful and unconventional way to juice the money supply. How quaint.  According to the scholarly literary criticism, Dorothy represents the “America-honest everyman” , the Kingdom of Oz is Washington D.C. and the Wizard is the President. Dorothy must travel the Yellow Brick Road, signifying gold and have an audience with the Wiz who supposedly has the power to get her back to Kansas.(…)
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© Rick Ackerman and www.rickackerman.com, 2012. |
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