Today I found a message floating
In the sea from you to me
You wrote that when you could see it
You cried with fear, the point was near
--Kansas
Can the Fed reverse monetary policy fast enough should signs of significant inflation appear? In a recent 60 Minutes interview, Fed chairman Ben Bernanke said that he was '100%' confident of the Fed's ability to withdraw stimulus.
But inflationary signals are already surfacing, and some commentators doubt the Fed's responsiveness based on historical track record.
One thing working against the Fed is the considerable time lag between policy changes and outcomes. In other words, once policymakers recognize the need to reverse course and take corrective action--it may be many months before that corrective action takes effect.
One thing working against the Fed is the lag between policy changes and outcomes. And given the size of the stimulus injected into the system, it seems unlikely that it can quickly be pulled out.
By the time the signals are evident, we may be past the point of no return...
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Consider a circus that comes to town for a few weeks. A restaurant owner may expand his seating capacity in the false expectation that the circus and the related demand for his food that it brings in its wake will last forever. But when the circus leaves town, he'll find he has "idle resources" on his hands. We should not want to put these idle resources to work. Doing so would only draw labor and other resources away from other sectors of the economy, where they are employed in the satisfaction of real consumer demand. The expansion of the restaurant should not have occurred in the first place. We should want this bubble
activity to shrink back down to size, in order that other,
non-bubble activities in the economy can be
correspondingly strengthened.
~Thomas Woods
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