{"id":47456,"date":"2019-07-27T10:07:39","date_gmt":"2019-07-27T15:07:39","guid":{"rendered":"https:\/\/olduvai.ca\/?p=47456"},"modified":"2019-07-27T10:07:43","modified_gmt":"2019-07-27T15:07:43","slug":"the-feds-dangerous-game-a-fourth-round-of-stimulus-in-a-single-growth-cycle","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=47456","title":{"rendered":"The Fed&#8217;s Dangerous Game: A Fourth Round of Stimulus in a Single Growth Cycle"},"content":{"rendered":"\n<h3 class=\"wp-block-heading\"><a href=\"https:\/\/mises.org\/wire\/feds-dangerous-game-fourth-round-stimulus-single-growth-cycle\">The Fed&#8217;s Dangerous Game: A Fourth Round of Stimulus in a Single Growth Cycle<\/a><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\">The longer the signals in capital markets go haywire under the influence of \u201cmonetary stimulus,\u201d the bigger is the cumulative economic cost. That is one big reason why this fourth Fed stimulus \u2014 in the present already-longest (but lowest-growth) of super-long business cycles \u2014 is so dangerous.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">True, there is nothing new about the Fed imparting stimulus well into a business cycle expansion with the intention of combating a threat of recession. Think of 1927, 1962, 1967, 1985, 1988, 1995, and 1998.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">This time, though, we&#8217;ve seen it four times (2010\/11, 2012\/13, 2016\/17, 2019) in a single cycle. That is a record. Normally, a jump in recorded goods and services inflation, or concerns about rampant speculation, have trumped the inclination to stimulate after one \u2014 or at most two \u2014 episodes of stimulus.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Also we should recognize that the length of time during which capital-market signaling remains haywire, is only one of several variables determining the overall economic cost of monetary \u201cstimulus.\u201d But it is a very important one.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Haywire signaling is not just a matter of interest rates being artificially low. Alongside this there is extensive mis-pricing of risk capital. Some of this is related to the flourishing of speculative hypotheses freed from the normal constraints (operative under sound money) of rational cynicism. Enterprises at the center of such stories enjoy super-favorable conditions for raising capital.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">There are also the giant carry trades into high-yielding debt, long-maturity bonds, high-interest currencies, and illiquid assets, driven by some combination of hunger for yield and super-confidence in trend extrapolation. In consequence, premiums for credit risk, currency risk, illiquidity, and term risk, are artificially low. Meanwhile a boom in financial engineering \u2014 the camouflaging of leverage to produce high momentum gains \u2014 adds to the overall distortion of market signals.<\/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>The Fed&#8217;s Dangerous Game: A Fourth Round of Stimulus in a Single Growth Cycle The longer the signals in capital markets go haywire under the influence of \u201cmonetary stimulus,\u201d the bigger is the cumulative economic cost. That is one big reason why this fourth Fed stimulus \u2014 in the present already-longest (but lowest-growth) of super-long [&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":[14985,98,175,303,431,7617,534,535,536,661],"class_list":["post-47456","post","type-post","status-publish","format-standard","hentry","category-economics","tag-brendan-brown","tag-business-cycle","tag-credit","tag-fed","tag-interest-rates","tag-mises-institute","tag-monetary-policy","tag-monetary-stimulus","tag-money","tag-qe"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/47456","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=47456"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/47456\/revisions"}],"predecessor-version":[{"id":47457,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/47456\/revisions\/47457"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=47456"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=47456"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=47456"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}