I dont understand your criticism of Fed policy(specially if you did go to chicago uni), unless you think massive deflation when people has debt to their eyeballs is a good thing
Everywhere I read that if home prices go down, we double dip. So instead of flushing the system out, we have slow moving recessions. The FED obviously agrees, so I am saying that the FED is reactionary ultimately making things worse, and it has the wrong master imo. The FED imo finds itself confused by it's two mandates, price stability (lower home prices if it let IRs go naturally where the market would take them) and "full" employment. In this environment, I claim those two things are at odds with each other! I am not even sure the FED is protecting any of those things anymore, but may in fact be defending the interest of banks who would see defaults and repossessions triple if IRs were allowed to float naturally. "...Alas, the Fed and Treasuryâs current actions are not so clear. The Fed and Treasury are essentially running the worldâs largest hedge fund: short treasuries and long a lot of obscure6 credit risk, in Wall Street parlance...." http://faculty.chicagobooth.edu/john.cochrane/research/Papers/fiscal2.htm
I dont believe the two objectives are at odds with each other. Lets say the Fed does nothing, delevering continues and M2 starts to decline by 5% a year. At that point prices and employment would start to drop(ala 30's), in order to prevent that, the Fed will almost surely start Q2 I dont believe John Cochrane, if he was running the Fed, would ever allow the money supply to collapse. Its not even about IRs anymore, its all about not allowing private delevering from sending prices into tailspin. In theory they could do that with 1% or 2% fed funds(by using IOR while they do QE) but I can't see any real argument on why interest rates would have to go up if they are trying to fight deflation
Then maybe you believe another UoC professor Bernanke must end era of ultra-low rates By Raghuram Rajan Published: July 28 2010 23:34 | Last updated: July 28 2010 23:34 Before the Senate banking committee last week, Ben Bernanke, the Federal Reserve chairman, hinted that, with fiscal policy reaching its limits and âunusual uncertaintyâ in financial markets, interest rates will need to remain ultra-low for the foreseeable future to boost Americaâs flagging economy.... http://www.ft.com/cms/s/0/2a19a706-9a7a-11df-87fd-00144feab49a.html
I see no indication that he would favor allowing the money supply to decline. He wants a modest increase in rates to prevent some kind of bubble. He doesnt criticize QE or the size of the balance sheet
NFV 1086.55. SPX 1073.92. Nearing long edge. What is more, 1072 is strong (although not as strong as it was) support. So 1072 is a relatively safe entry.
NFV 1083.49. SPX 1066.34. Therefore long edge > 14. Next support is 1050 which is mostly psychological, and then 1042. So entering here is not as simple as it was yesterday at 1072.