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May 25, 2009
Interesting fact of the day
I have long wondered why are there so many regional Federal Reserve branches (12 plus the board). Here is one reason:
"The reason why the banks were put in the mix by [President Woodrow] Wilson in 1913, the reason it was structured the way it was structured, was so that you could offset the political power of Washington and the money center in New York with the regional banks. They represented Main Street..
Don't Monetize the Debt
If we really are in a liquidity trap, then I'm with Hamilton, monetizing the debt would be a fabulous way to IMPROVE our balance sheet in anticipation of our impending entitlements costs. However, I don't strongly believe that, and the alternative seems a risk of significant decline in the value of the dollar (WRT other currencies) and domestic inflation. The markets are saying future interest rates will be low, and we should try to use that in our inferences about future inflation. We need to learn from those market lessons but also be sure we learn the right lesson. Mark Twain once said, "We should learn from an experience all that is in it and no more! We should not be like the cat that sat on a hot stove lid. It will never again sit on a hot stove lid, and that is well, but it will never sit on a cold one either." Does that mean that the dollar will be strong and inflation low, allowing us to partially monetize the debt safely? Or is it instead a comment that markets believe that monetization will stop, the Fed will reassert their independence, and deficit spending will decline? I don't know, maybe it is indicating that both are possible.
Posted by OneEyedMan at May 25, 2009 8:38 AM
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