Power of the Press

In a classic episode of great minds think alike, the Wall Street Journal's editorial pages contained several op/ed pieces (including one form the Journal itself) warning of the dangers which could arise from overly accommodative Fed policy and the potential for the creation of a moral hazard.

Sadly, other than the Journal, this space and an excellent blog published by Bondguy1824, few pundits have expressed concern abount the Fed's 75 basis point ease and its apparent commitent to keep cutting rates.

Here are some facts of life biys and girls. Everything in life entails some degree of risk. Buy a stock or a bond, you take on risk. Lend money, you take on risk. Drive a car, you take on risk.

Though one cannot eliminate risk, one can take steps to manage and minimize it. However, if the Fed, the government or your Aunt Tilly bails you out every time you make poor decisions, what is your incentive to behave in a more prudent fashion?

While the Fed is bailing out foolish or irresponsible investors and banks, it risks of further depressing the U.S. dollar and causing increased inflation pressures. I for one have been spoiled by Paul Volcker and Alan Greenspan. Their monetary policies have, for the most part, been so successful, I never thought we would see a return to the thrilling days of yesteryear.


Your assignment is to read up on the economy of the 1970s and how the Fed and the government responded to higher energy prices and episodes of slower growth. Then, think carefully the next time you want a Fed or government bailout.