What Passes for Monetary Policy
I have talked about the "recency effect" and how recent memories of experiences can color how one sees current and future events. We all do it, it's human nature. The ability for the FED to bail out markets since the fall of Long Term Capital Management (1998) makes the idea that they cannot work magic impossible to consider.
There is a school of thought out there that believes that to have a real recovery, monetary pressure should be pointed towards higher inflation targeting and/or targeting a specific GDP reading. Through devaluation by printing, money will lose value thus forcing people to buy stuff like crazy to use the money before it gets worse. I know, it's a dangerous game.
I think there are big issues with this. Up front the level of inflation that would grab normal people's attention is not 3% or 5% but higher. Say maybe 10%. How hard would a pump have to run to get there? Then it will just be withdrawn? Ok. Another issue is that most middle class and lower people just do not have much disposable income in the first place. Homes, health care, schools for kids, food, gas there is not much left. If money is losing value they are very unlikely to be buying second homes or stocking up on plasma TVs. I just do not see how this will result in anything sustainable.
The last concern may be the most important. You are only credible until you are not. It's hard to know where that line it, but when it's crossed it's crossed. No going back. Heavy thinkers of monetary policy always say the FED should get a little reckless with policy to pump inflation, but would they know when to stop? Could they? Today FED member Charles Evans had the following snippets that preface what I am talking about (Hat tip Trader Mark):
-"I’m advocating a more aggressive stance of monetary policy," he told CNBC. "I think we should be more aggressive and that frankly makes a lot of people nervous."After years of FED tweaking of the economy we are in our current state. Maybe they should just stop and not get anymore "creative". One can dream.
-"I just think that this is the time to stretch the boundaries a little bit more and take a few chances," he said.
Blind Trust Pledge
On Sunday news show "60 Minutes" ran a story about insider trading laws and the US Congress. Short version, there are none. None. US Congress members by law can use whatever information they may see and trade on it without recourse. It is the law, nothing shady, all legal.
To be fair, I knew that. I think I read that years ago but never really believed it and did not spend much time thinking about it. I figured it made sense, they would do something like this. So why am I even bothering ow?
Perception and public mood. Sometimes forces align were attention will be channeled to the right thing and change can happen. This could be that time, the 60 Minutes show got a lot of mileage in the financial press, blogs, and social media. At a time when people are unemployed, have seen their portfolios all over the place, and have had enough with how the banking system conducts business in this country the environment is right to bring pressure to bear on Congress insider trading.
Clearly this needs to be resolved. It is beyond belief that Congress, who see all kinds of important information, can act on it. I don't really care that examples have been slow in coming in, it's happening. There should be no free pass for them. Simple as that. So what can be done?
I am actually having a tough time thinking of something. I was thinking of starting another site that will just bring up articles or suggestions to bring more attention to this matter. Maybe I will. For now I am leaning towards a two part pledge.
The first part will be to get a Blind Trust Pledge put in front of every candidate that runs for office. A blind trust (thanks Reformed Broker)is most often used by politicians to avoid this very conflict of interest. Their money is handled by another party and no direction is given for the asset placement. Imagine two candidates are running against each other and one has signed on to the Blind Trust Pledge and the other has not? How is that going to go over? It will be an instant attack angle.
Second part is for you to take the pledge that you will not vote for any candidate that has not taken the Blind Trust Pledge. And you have to stick to it. No donations until they accept it.
This is pretty simple. Politicians love stuff like this. They can put a little badge on their websites saying "Proud of My Blind Trust Pledge". The pressure could be enormous if this becomes a campaign issue, you will not want to run without taking the pledge if your opponent has done so.
All it takes is the word to spread and maybe one or two Congress members with integrity to start talking about this. It could happen and I hope it does.
Have a good night.