Four Fed Questions

Doctor, my eyes
Tell me what is wrong
Was I unwise
To leave them open for so long?
--Jackson Browne

To reinforce points he has been making for months, John Hussman poses four questions to the FOMC:

1) Do you realize the extreme position you have put the US economy in? The imbalances now built into the system will cause tremendous upheaval when the current situation is reversed either thru policy change or thru sheer rebalancing effects of market forces.

2) Do you realize that equity bubbles can be blown by saving less and borrowing more, which effectively transfers economic resources from individuals to corporations? The strength of the relationship between saving less and corporate profits has been eye opening to me.

3) Are you aware that empirical evidence that generally supports a 'wealth effect' on GDP from increases in the SPX is basically nonexistent?

4) Are you aware that the seminal Phillips study focused on the relationship between unemployment and real wage inflation--not nominal inflation? The implication is that nothing except labor scarcity can increase the real price of labor. Money printing can jack nominal wages, but not real wages.

The Fed is wratcheting up an experiment that has no sound theoretical or empirical basis.

position in SPX