Beating up on the Fed used to make you an oddball. Does it still? That is the question Slate asks in Fed-Bashing Three Ways.

According to a pre-election Bloomberg poll, 60 percent of likely voters who self-identified as Tea Party members said they want to see the Federal Reserve either reined in or abolished. Rand Paul, the Republican senator-elect from Kentucky, campaigned in part on an anti-Fed platform. Fed-bashing is often shrugged off as something that oddballs do whenever the country hits hard economic times. But if that’s the case, then why is Jeremy Grantham railing against the Fed too?

Grantham, the chief investment officer of the big Boston money management firm GMO, is nobody’s idea of an oddball; he is a well-respected longtime professional. Yet he just wrote a report titled “Night of the Living Fed.” The cover page resembles a poster for a horror flick, complete with a subhead—”Something Unbelievably Terrifying!”—and scary captions: “Homes Destroyed! Runaway Commodities! Currency Wars!”

The thought process behind the anger at the Fed isn’t uniform. If Dante had nine circles of hell, then the Fed has three circles of doubters. The first circle is critical of the Fed’s current policies. The second circle thinks that the Fed has been a menace for a long time. The third circle wants to seriously curtail or even get rid of the Fed.

Grantham occupies the second circle. He sees the repeat of a familiar pattern in which the Fed’s low-interest-rate policies create bubbles. In the 1990s, the bubble was in tech stocks. In the aughts, the bubble was in housing. Now the bubble might be in junk bonds and commodities. What typically happens, Grantham argues, is that the Fed disavows any responsibility for spotting or stopping the bubbles before they wreak havoc. (Remember both Greenspan’s and Bernanke’s insistence that there was no nationwide housing bubble? Greenspan called it “froth.”) The madness in housing, Grantham writes, “was a direct outcome of a policy that is clearly still in place.” The Fed’s “complete refusal to learn from experience” makes it harder to create “a healthy, stable economy with strong [i.e., low] unemployment,” Grantham concludes.

Night of the Living Fed (A 2008 Claim)

I have been talking about these ideas for years, also in length. Indeed, I can even stake claim to the exact title Night of the Living Fed as of Tuesday, March 11, 2008.

What I said then, still holds true today. Please check it out.

Moreover, Grantham’s statement regarding the Fed’s “complete refusal to learn from experience“, is rather generic but that just happens to be Fed Uncertainty Principle (April 3, 2008), Corollary Number Three.

Uncertainty Principle Corollary Number Three: Don’t expect the Fed to learn from past mistakes. Instead, expect the Fed to repeat them with bigger and bigger doses of exactly what created the initial problem.

That aside, I certainly do not mind the company of Grantham at all. In fact I am quite pleased we are on the same page.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Treasury Secretary Tim Geithner along with Wayne Swan the treasurer of Australia, and Tharman Shanmugaratnam, the finance minister of Singapore have put together a “plan” for the G-20 in an op-ed piece in the Wall Street Journal.

Please consider A Four-Point Plan for the G-20

The deep economic challenges left by the crisis in the established economies and the prospect of rapid expansion in emerging economies necessitate a new agenda for international economic cooperation. We are past the point where public policy around the world was directed exclusively to averting an economic depression. We now face diverse transitions to a sustainable path of growth led by the private sector.

This two-track recovery will dominate the global economy for a long time to come. And it brings more varied risks and challenges than those of the past two years of managing crisis.

Four objectives define this new agenda for global cooperation.

First, we must work together to strengthen global economic growth.

The main risk for the world is not inflation in the advanced economies, where inflation expectations are stable at relatively low levels, but that the advanced economies underachieve on growth. Those economies must look for ways to strengthen underlying foundations of long-term growth, including fostering innovation and developing higher skills in the labor force, removing impediments to market entry, and providing stronger incentives for labor force participation.

Second, because of this risk, we need to strike a balance on the pattern of growth across countries. Balance matters not for its own sake, but because it is critical to strong and sustained growth globally and to future financial stability. Ultimately we are trying to lift global growth, not just shift it—so as to deliver strong, sustainable and balanced growth.

Third, to help smooth these transitions, we need a new framework for cooperation to allow exchange rates to reflect economic fundamentals and support needed structural reforms.

And finally, we need to continue to keep our markets open and work to expand trade and maintain a level playing field across countries.

Was that a Plan or a Wish-List?

A statement praising motherhood and apple pies is not the same as a plan to bake pies.

In my admittedly old-fashioned way of thinking, a plan involves putting together details on how to get from point A to point B. Pray tell what is the plan here?

Geithner, Swan, and Shanmugaratnam did not put together a “plan”. They put together a no-details “wish-list” that relies on miracles from an “Economic Fairy Godmother”.

I hate to break this stunning news but there is no “plan”, and there is no “Economic Fairy Godmother” that will grant Geithner his wishes.

The G-20 would have been far more successful had it blown sky high in a series of disputes than to put out garbage like this and call it a plan.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List

Mike “Mish” Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.