{"id":44536,"date":"2019-03-17T06:19:01","date_gmt":"2019-03-17T11:19:01","guid":{"rendered":"https:\/\/olduvai.ca\/?p=44536"},"modified":"2019-03-17T06:19:08","modified_gmt":"2019-03-17T11:19:08","slug":"weekly-commentary-no-one-knows-how-monetary-policy-works","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=44536","title":{"rendered":"Weekly Commentary: No One Knows How Monetary Policy Works"},"content":{"rendered":"\n<h3 class=\"wp-block-heading\"><a href=\"http:\/\/creditbubblebulletin.blogspot.com\/2019\/03\/weekly-commentary-no-one-knows-how.html\">Weekly Commentary: No One Knows How Monetary Policy Works<\/a><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">My interest was piqued by a Friday Bloomberg article (Ben Holland), \u201cThe Era of Cheap Money Shows No One Knows How Monetary Policy Works.\u201d \u201cMonetary policy is supposed to work like this: cut interest rates, and you\u2019ll encourage businesses and households to borrow, invest and spend. It\u2019s not really playing out that way. In the cheap-money era, now into its second decade in most of the developed world (and third in Japan), there\u2019s been plenty of borrowing. But it\u2019s been governments doing it.\u201d<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">I remember when the Fed didn\u2019t even announce changes in rate policy. Our central bank would adjust interest rates by measured bank reserve additions\/subtractions that would impact the interbank lending market. Seventies inflation forced Paul Volcker to push short-term interest-rates as high as 20% in early-1980 to squeeze inflation out of the system.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Federal Reserve policymaking changed profoundly under the authority of Alan Greenspan. Policy rates had already dropped down to 6.75% by the time Greenspan took charge in August 1987. Ending 1979 at 13.3%, y-o-y CPI inflation had dropped below 2% by the end of 1986. Treasury bond yields were as high as 13.8% in May 1984. But by August 1986 \u2013 yields were down to 6.9% &#8211; having dropped almost 700 bps in 27 months.&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Lower market yields and economic recovery were absolute boon for equities. The S&amp;P500 returned 22.6% in 1983, 5.2% in 1984, 31.5% in 1985, 22% in 1986 \u2013 and another 41.5% for 1987 through August 25th. Markets had evolved into a speculative bubble.&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">One could pinpointing the start of the great Credit Bubble back with the 70\u2019s inflation. For my purposes, I date its inception at the 1987 stock market crash. At the time, many were drawing parallels between the 1987 and 1929 market crashes \u2013 including dire warnings of deflation risk \u2013 warnings that have continued off and on for more than three decades.&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">&nbsp;\u2026click on the above link to read the rest of the article\u2026<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Weekly Commentary: No One Knows How Monetary Policy Works My interest was piqued by a Friday Bloomberg article (Ben Holland), \u201cThe Era of Cheap Money Shows No One Knows How Monetary Policy Works.\u201d \u201cMonetary policy is supposed to work like this: cut interest rates, and you\u2019ll encourage businesses and households to borrow, invest and spend. [&hellip;]<\/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":[952,24690,124,16387,7756,303,379,426,534],"class_list":["post-44536","post","type-post","status-publish","format-standard","hentry","category-economics","tag-alan-greenspan","tag-ben-holland","tag-central-banks","tag-chris-hamilton","tag-credit-bubble-bulletin","tag-fed","tag-government","tag-inflation","tag-monetary-policy"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/44536","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=44536"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/44536\/revisions"}],"predecessor-version":[{"id":44537,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/44536\/revisions\/44537"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=44536"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=44536"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=44536"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}