Category Archives: Fed Policy

The Butterfly Machine

There’s a phenomenon called the Butterfly Effect.  One common quotation is “It has been said that something as small as the flutter of a butterfly’s wing can ultimately cause a typhoon halfway around the world.” Today I am here to tell you that for that to be true, the entire world would have to be […]

Mantra: Interest Rates Have to Rise, Interest Rates Have to…

I thought of structuring this post like a fictional story, but I couldn’t figure out how to make it good enough for publication.  Well, truth is often stranger than fiction, so have a look at this Bloomberg article pointing at a 37% loss in the ProShares UltraShort 20+ Year Treasury (TBT). A few points to start […]

Numerator vs Denominator

Every now and then, a piece of good news gets announced, and then something puzzling happens.  Example: the GDP report comes out stronger than expected, and the stock market falls.  People scratch their heads and say, “Huh?” A friend of mine who I haven’t heard from in a while, Howard Simons, astutely would comment something […]

Inevitable Ineffective Banking Regulation

I am mystified at why people might be outraged or surprised that the Federal Reserve does a poor job of overseeing banks.  The Fed is an overstaffed bureaucracy.  Overstaffed bureaucracies always tend toward consensus and non-confrontation. I know this from my days of working as an actuary inside an overstaffed life insurance company, and applying […]

AIG Was Broke

There’s a significant problem when you are a supremely big and connected financial institution: your failure will have an impact on the financial system as a whole.  Further, there is no one big enough to rescue you unless we drag out the public credit via the US Treasury, or its dedicated commercial paper financing facility, the […]

Redacted Version of the September 2014 FOMC Statement

July 2014 September 2014 Comments Information received since the Federal Open Market Committee met in June indicates that growth in economic activity rebounded in the second quarter. Information received since the Federal Open Market Committee met in July suggests that economic activity is expanding at a moderate pace. This is another overestimate by the FOMC. […]

The Shadows of the Bond Market’s Past, Part II

This is the continuation of The Shadows of the Bond Market’s Past, Part I.  If you haven’t read part I, you will need to read it.  Before I start, there is one more thing I want to add regarding 1994-5: the FOMC used signals from the bond markets to give themselves estimates of expected inflation.  Because of […]