The Aleph Blog » Blog Archive » Forest Fires and Central Banking

Forest Fires and Central Banking

We can create a force that eliminates forest fires, but there will be a cost.  A certain amount of forest fires are normal, and if we don’t have small forest fires, we will have big ones that happen infrequently, and cause a lot of damage.

Central banking is similar. Good central banking allows for the extinguishing of a lot of bad debts.  Bad debts should fail, and the Fed should not rescue them.  Better that the Fed should imitate William McChesney Martin, Jr., and allow recessions to do their good work, eliminating bad debts that would otherwise encumber the economy.

“I’m the fellow who takes away the punch bowl just when the party is getting good.” – Fed Chairman William McChesney Martin, Jr.  He was a great central banker, as was Volcker.  Both of them embraced pain.  Wimps, like Greenspan, Burns, and Bernanke, embraced no pain, and assumed that their lame efforts to support the economy would actually aid things.

The Fed should have a single mandate, but it is not the mandate commonly proposed.  The Fed should restrain the total growth of credit in the economy, and ignore inflation and unemployment.  Let the Fed defend us against depressions.  It can succeed at that.

As for inflation and unemployment, the Fed can state that they can’t do anything about unemployment, which is largely true.  Inflation — that they can do, if it is desired, but they will need to stop doing QE, and do unsterilized purchases of debt.

That’s all for now.  Just remember that the government has a hard time interfering in the economy.  It doesn’t work, but they try to make it look like it works.

Democrats, Republicans — just remember that they can’t deliver what they promise you.






bloggerbuzzdeliciousdiggfacebookgooglelinkedinmyspacenetvibesnewsvineredditslashdotstumbleupontechnoratitwitteryahoo
Fed Policy, public policy | RSS 2.0 |

4 Responses to Forest Fires and Central Banking

  1. [...] might be catastrophic. Stability breeds instability. (See e.g. Parameswaran here and here. Also, David Merkel.) We must deliberately set financial forest fires to prevent accumulations of leverage and [...]

  2. [...] would be catastrophic. Stability breeds instability. (See e.g. Parameswaran here and here. Also, David Merkel.) We contingency deliberately set financial timberland fires to forestall accumulations of [...]

  3. [...] be catastrophic. Stability breeds instability. (See e.g. Parameswaran here and here. Also, David Merkel.) We must deliberately set financial forest fires to prevent accumulations of leverage and [...]

  4. [...] would be catastrophic. Stability breeds instability. (See e.g. Parameswaran here and here. Also, David Merkel.) We contingency deliberately set financial timberland fires to forestall accumulations of [...]

Disclaimer


David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.


Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.


Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

 Subscribe in a reader

 Subscribe in a reader (comments)

Subscribe to RSS Feed

Enter your Email


Preview | Powered by FeedBlitz

Seeking Alpha Certified

Top markets blogs award

The Aleph Blog

Top markets blogs

InstantBull.com: Bull, Boards & Blogs

Blog Directory - Blogged

IStockAnalyst

Benzinga.com supporter

All Economists Contributor

Business Finance Blogs
OnToplist is optimized by SEO
Add blog to our blog directory.

Page optimized by WP Minify WordPress Plugin