{"id":17113,"date":"2016-01-29T21:34:07","date_gmt":"2016-01-30T02:34:07","guid":{"rendered":"http:\/\/olduvai.ca\/?p=17113"},"modified":"2016-01-29T21:34:23","modified_gmt":"2016-01-30T02:34:23","slug":"the-fomc-decision-the-boxed-in-fed","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=17113","title":{"rendered":"The FOMC Decision: The Boxed in Fed"},"content":{"rendered":"
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The FOMC Decision: The Boxed in Fed\u00a0<\/a><\/h3>\n<\/div>\n
An Imaginary Bogeyman<\/strong><\/div>\n
\n

What\u2019s a Keynesian monetary quack to do when the economy and markets fail to remain \u201con message\u201d within a few weeks of grandiose declarations that\u00a0this<\/em>\u00a0time, printing truckloads of money has somehow \u201cworked\u201d, in defiance of centuries of experience, and in blatant violation of sound theory?<\/p>\n

In the weeks since the largely meaningless December rate hike, numerous armchair central planners, many of whom seem to be pining for even more monetary insanity than the actual planners, have begun to berate the Fed for inadvertently summoning that great bugaboo of modern-day money cranks, the \u201cghost of 1937\u201d.<\/p>\n

\"Bugaboo
\nThe bugaboo of Keynesian money cranks \u2013 the ghost of 1937.<\/p>\n

As the story goes, the fact that the FDR administration\u2019s run-away deficit declined a bit, combined with a small hike in reserve requirements by the Fed \u201ccaused\u201d the \u201cdepression-within-the-depression\u201d of 1937-1938, which saw the stock market plunging by more than 50% and unemployment soaring back to levels close to the peaks seen in 1932-33.<\/p>\n

This is of course balderdash. If anything, it demonstrates that the data of economic history are by themselves useless in determining cause and effect in economics. It is fairly easy to find historical periods in which deficit spending declined a great deal more than in 1937 and a much tighter monetary policy was implemented, to no ill effect whatsoever. If one believes the widely accepted account of the reasons for the 1937 bust, how does one explain these seeming \u201caberrations\u201d?<\/p>\n

\"1-USDJIND1937cr\"<\/a>The DJIA in 1937 (eventually, an even lower low was made in 1938, see also next chart) \u2013 click to enlarge.<\/p>\n

As we often stress, economics is a social science and therefore simply does not work like physics or other natural sciences. Only economic theory can explain economic laws \u2013 while economic history can only be properly interpreted with the aid of sound theory.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The FOMC Decision: The Boxed in Fed\u00a0 An Imaginary Bogeyman What\u2019s a Keynesian monetary quack to do when the economy and markets fail to remain \u201con message\u201d within a few weeks of grandiose declarations that\u00a0this\u00a0time, printing truckloads of money has somehow \u201cworked\u201d, in defiance of centuries of experience, and in blatant violation of sound theory? […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[4637,5728,9257,216,8069,303,305,383,12069,6170],"class_list":["post-17113","post","type-post","status-publish","format-standard","hentry","category-economics","tag-4637","tag-acting-man","tag-djia","tag-dow","tag-fdr","tag-fed","tag-federal-reserve","tag-great-depression","tag-keynesian-monetary-theory","tag-pater-tenebrarum"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17113","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=17113"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17113\/revisions"}],"predecessor-version":[{"id":17115,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/17113\/revisions\/17115"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=17113"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=17113"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=17113"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}