{"id":19594,"date":"2016-04-06T12:46:55","date_gmt":"2016-04-06T17:46:55","guid":{"rendered":"http:\/\/olduvai.ca\/?p=19594"},"modified":"2016-04-06T12:48:59","modified_gmt":"2016-04-06T17:48:59","slug":"the-fed-cant-save-us","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=19594","title":{"rendered":"The Fed Can’t Save Us"},"content":{"rendered":"

The Fed Can’t Save Us<\/a><\/h3>\n

\"Janet<\/h2>\n
\n

In December, the Fed hiked its target for the federal funds rate, which is the interest rate banks charge each other for overnight loans of reserves. Since 2008 the Fed\u2019s target for the Fed Funds Rate had been a range of 0 percent \u2013 0.25 percent (or what is referred to as zero to 25 \u201cbasis points\u201d). But last month they moved that target range up to 0.25 \u2013 0.50 percent. Ending a seven-year period of effectively zero percent interest rates.<\/p>\n

From our vantage point, we already see carnage in the financial markets, with the worst opening week in US history. This of course lines up neatly with standard Austrian business cycle theory, which says that the central bank can give an appearance of prosperity for a while with cheap credit, but that this only sets the economy up for a crash once rates begin rising.<\/p>\n

However, there is something new in the present cycle. The Fed is trying to raise rates while simultaneously maintaining its bloated balance sheet. It is attempting to pull off a magic trick whereby it can keep all of the \u201cbenefits\u201d of its earlier rounds of monetary expansion (i.e., \u201cquantitative easing\u201d or \u201cQE\u201d) while removing the artificial stimulus of ultra-low interest rates. As we\u2019ll see, this attempt will not end well, for the Fed officials or for the rest of us. In the meantime, Ben Bernanke will look on with concern, writing the occasional blog post and perhaps giving a speech about poor Janet Yellen\u2019s tough predicament.<\/p>\n

Austrian Business Cycle Theory<\/h4>\n

One of the seminal contributions of Ludwig von Mises was what he called the circulation credit theory of the trade cycle. In our times, we simply call it Austrian business cycle theory, sometimes abbreviated as ABCT. The Misesian theory was subsequently elaborated by Friedrich Hayek, and it was partly for this work that Hayek won the Nobel Prize in 1974.<\/p>\n

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

The Fed Can’t Save Us In December, the Fed hiked its target for the federal funds rate, which is the interest rate banks charge each other for overnight loans of reserves. Since 2008 the Fed\u2019s target for the Fed Funds Rate had been a range of 0 percent \u2013 0.25 percent (or what is referred […]<\/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":[13318,49,303,4468,11147,431,451,6058,7617,534,661,662,13317,827,3650],"class_list":["post-19594","post","type-post","status-publish","format-standard","hentry","category-economics","tag-austrian-business-theory-cycle","tag-balance-sheet","tag-fed","tag-fed-funds-rate","tag-hayek","tag-interest-rates","tag-janet-yellen","tag-mises","tag-mises-institute","tag-monetary-policy","tag-qe","tag-quantitative-easing","tag-robert-p-murphy","tag-united-states","tag-us-federal-reserve"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19594","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=19594"}],"version-history":[{"count":2,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19594\/revisions"}],"predecessor-version":[{"id":19596,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/19594\/revisions\/19596"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19594"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19594"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19594"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}