A new metaphor for The Fed
Whether it’s in your Macro 101 class, or from your retired-monkey-father, what’s the first metaphor budding young monkeys are told to understand the fed? The cook metaphor. When the economy’s overheating the fed turns down the heat by raising rates, and when the economy’s underperforming the fed turns up the heat by lowering interest rates.
But under current debt conditions, the traditional metaphor hasn’t held up. After recognizing the need to a debt de-tox, the private sector seems to be fully engaged in balance sheet repair through de-leveraging. Traditionally, the fed would try to push interest rates against the zero lower bound in order to stimulate credit demand and activity, but to no avail. Demand for credit has become more inelastic, meaning firms are less reactive to price changes.
So how can we get the point across to the next line of soon-to-be-monkeys who are probably more focused on the coed down in front than the lecture?
The Fed has become the bartender at an AA meeting – he can lower the price, but nobody seems to be buying
What do you think monkeys? Can you find a better one?
Good post.
Sounds like these soon-to-be-monkeys have the right focus as is... Don't mess with it.As to the alleged lack of credit demand, Isn't the government demanding enough of it? (serious question even though you haven't provided evidence for your premise for lack of private sector credit demand...)
Metaphors are only useful to the extent that you want to make an abstract idea more tangible or if you want to frame the issue in a certain way. Not sure what you're aiming for.
I would say Bernanke is playing 'just the tip' with the money supply (only hyperinflationary QE can't be fixed with a trip to planned parenthood)
The Fed has always been the bartender. Only thing Bush ever said that was true was that Wall Street got drunk, and they got drunk off the Fed's cheap credit. Now everyone has become an alcoholic and is dependent on Bernanke to keep the liquor flowing. Surely this won't end badly.
Some brief points about the FED.
1) We learn in school that the price system is the most efficient system in that, it gives the right signal about the abundance or scarcity of a product.
2) FED defines inflation as rising prices and try to cap it between 1% and 3%.
Why is the FED trying to fight the market forces? Is it against efficiency? Why is it trying to mask the market signals?
This shows how of a joke this institution is. It is as if I ran a tobacco factory and my connect in governement puts me in charge of the lung cancer research department.
Obviously, I won't tell people that lung cancer is caused by tobacco. I'll say that it is some cell disfunction and I'll try to cap that disfunction between 1% and 3% a year.
The real definition of inflation is the expansion of the money supply (look up old dictionaries). If we go by this (real) definition, the FED is an inflation factory.
The Fed is simply a private banking cartel that exists to support its owners, international investment banks.
Don't need metaphors, bro. Learned it straight.
The metaphor is just a tool used to add in a little humor to an overall discussion on the role of the fed under current economic conditions.
With that in mind, would you care to elaborate on what you learned?
Fed = Germany of US fiscal policy
They keep their shit in line and everyone else can't self regulate. Gov't spending = Greece ... You do the math
You do realize that the only reason the government spends so much is because the Fed facilitates it by monetizing the debt right? The fed is literally at the root of our problems.
So because the Fed facilitates deficits, it therefore is the only reason government runs deficits. Hmm.
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