Gorging on Jelly Donuts! (Metaphorically speaking.)

Regarding current Federal Reserve policy:

This concise little article points up some of the key concerns held by those of us who doubt the wisdom and efficacy of multiple iterations of QE, not to mention promises by the Fed to maintain virtually endless ZIRP:

http://www.huffingtonpost.com/david-...b_1472509.html

The author started a very successful fund when he was still in his 20s, and in my opinion shows a fine understanding of the potential adverse consequences of today's policy mix. He specifically mentions the tail risk associated with coupling reckless fiscal policy with unsustainable "jelly donut" monetary policy.

One thing he didn't mention is that we've been on a monetary "jelly donut" binge for over a decade now. Of course, aggressive Federal Reserve loosening started pumping up the housing bubble in the early '00s. With the exception of a brief period in 2006-2007, when the Fed intentionally inverted the yield curve (and suddenly decided that it had to reverse that course), monetary policy has been ultra-accommodative for a long time.

In other words, we've really been on a gargantuan "jelly donut" binge for a full decade. (Of course, if you look around, you'll notice that it seems like that's literally true.)

But metaphorically speaking, for how much longer are we likely to be able to get away with this "jelly donut" monetary binge without producing severe adverse consequences?

Until we all are on The Biggest Loser!

Until we all are on The Biggest Loser! Originally Posted by WTF

As a nation, it does indeed look like that's exactly where we're headed!

But I would like to see the nation do the metaphorical equivalent of seeking counsel from a dietician and a personal trainer, rather than just continue a course of "feel good" drugs and hope for the best.

Zero interest rate policy (ZIRP) is generally considered an emergency measure designed to get an economy through a crisis. Yet the Fed now promises to maintain that policy, began in December 2008, for an extended period of time. The biggest banks can now rest assured that they will be able to continue to play the carry trade with little risk. And since virtually nothing has been done about too-big-to-fail, they know that in a pinch they'll be backstopped by the Treasury and the Fed.

I addition to the most aggressive monetary policy in modern U.S. history, we also began pouring unprecedented amounts of pseudo-Keynesian fiscal stimulus into the economy in early 2009. Of course, the fact that such measures have never worked very well doesn't dissuade big-spending political hacks. It's so much fun to buy votes with other people's money!

We got another very poor jobs report this morning. It's been obvious for some time now that our economic policy prescriptions have not been working very well. We need fundamental tax reform, entitlement reform, budgeting reform, and financial system reform. Dodd-Frank was written with considerable (to say the least!) input from banking industry lobbyists, and does little to address the most critical problems.

Our economy suffers from severe structural problems, and they can't be solved by simply applying the usual monetary and fiscal stimulus prescriptions.

Excellent article Captain!!! Wish Bernanke would read it and act accordingly.