Who Needs Wall Street When You Can Have a Monetary Unicorn
The comments above & below is an edited and abridged synopsis of an article by David Stockman
San Francisco Fed chief John Williams may be named president of the New York Fed, which runs the casinos domiciled in the canyons of Wall Street.
Dr. Williams is a proponent of the ‘Neutral Rate of Interest.’ He wants to run the entire $19.7 trillion US economy on the basis of it. But the most important price in capitalism is the interest rate, and interest rates must be discovered by markets, not imposed by the state.
Williams wants to peg actual interest rates in the money market based on a theoretical rate that could be the equivalent of a Monetary Unicorn, because no one on the bond and bill trading desks of Wall Street has ever seen it, or ever will.
Not only that, but Williams says we need even more inflation than the 2% target to cure whatever ails the US economy, and that his Monetary Unicorn told him so.
He wants the Fed to manage the entire financial system by targeting the inflation index level, not just the annual rate of gain, and to do so based on an invisible price of money (the Neutral Rate of Interest) that no one on Wall Street has ever seen.
But if central banks are doing what they claim—steering the economy through non-market interest rates and asset prices—it comes down to a simple proposition: that central banks are in the business of materially falsifying market-based financial asset prices (debt is somebody’s asset), and that’s all to the good.
The Fed is in the business of falsifying interest rates and other financial asset prices. The problem is, it fuels financial bubbles and malinvestments, not capitalist prosperity.
That should be obvious, except to the likes of Dr. Williams, who would run the world based on financial fairy tales rather than allow free markets to do the honest work of price discovery.