What the Fed Did and Did Not Know in 2004

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Monday, May 03, 2010 at 5:03 pm

The release of the Fed’s 2004 transcripts and my initial post have ginned up a number of posts and stories — including ones by Ryan Grim, Yves Smith, Matt Yglesias, Paul Krugman and Ryan Avent. In his story, Grim pulls out what sounds like a howler from then-Fed Chairman Alan Greenspan, from the March meeting transcript.

We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand.

Grim also notes that Greenspan wanted to keep the possible risks of a housing bubble “secret,” and that the Fed keeps its transcripts “secret” for six years. I say this from the viewpoint that Greenspan’s loose monetary policy wreaked unbelievable damage on the U.S. economy. But I agree mostly with Ryan Avent’s take on that particular quote. Here is a fuller version of what Greenspan said:

Let me first follow up on your transparency assessment. I think Cathy Minehan has raised an interesting point. I would say this: We run the risk, by laying out the pros and cons of a particular argument, of inducing people to join in on the debate, and in this regard it is possible to lose control of a process that only we fully understand. We have a ratchet in here where, if we were to move forward, we can’t go back. So the concept of transparency is a very important concept but one that should be approached with a recognition that we cannot move back and forth on it.

I’m a little concerned here that by raising certain issues we may not be able to backtrack. I hadn’t thought about it when I originally read the draft minutes, but in seeing the concerns that other people had, I think there’s something here that we have to consider. I do not recall so many people raising questions about the minutes before because I think most of us read the minutes passively. That suggests to me that, if there were really a strong focus on them, we’d find a greater degree of disagreement among us about their content. Now, I don’t know whether what I just said is true.

Greenspan is weighing in on a debate about Fed transparency — that is, how much the Fed wants to reveal about its thinking on inflationary pressures and monetary policy at that particular moment. He is not talking about whether to let the public in on whether there might be a housing bubble. (At that point, Fed economists had just started sounding the alarm. In June, the Fed started hiking the interest rate.) Greenspan was worrying that suddenly announcing real concerns about overheating might provoke an adverse response, particularly if things started cooling off by themselves. Avent explains:

Greenspan’s quotes are taken somewhat out of context. His comment is made, specifically, in the context of the phrasing of the Fed’s statement. Several presidents have remarked that the balance of threats to the economy is unpredictable, and the motion has been made that the statement change to reflect a balance of concern between upside (inflation) and downside risks, where before inflation was less of a concern than lingering economic weakness. And Greenspan is saying that with increased transparency, the Fed needs to be more careful about the language it uses lest it give markets whiplash by appearing to veer from one fear to another. Put more simply, if the language were to be changed in the March meeting and subsequent data revealed growth to be more of a worry than inflation (or something else) then the subsequent reversal would not generate a lot of confidence.

So the comment relates to the Fed’s public statements on monetary policy, which are as carefully worded as marriage proposals. Greenspan’s quote in isolation sounds horrible, but makes a bit of sense with more context. (Whether the Fed should be engaging in such elaborate minimalist kabuki in the first place? An entirely different question.) The misunderstanding and misreading of the rent ratio chart — where some of the country’s great economic minds sat around, bickering about what a chart of a basic macroeconomic statistic should look like and missing a bubble right in front of their faces — struck me as the more frightening part of the transcript.

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spo1
Comment posted May 4, 2010 @ 1:46 am

The Concerned Citizens, I know, have had it and can’t take NO MORE! 2010 has been the year of “WHAT the #*~/” Are you kidding me? Every problem the USA is now facing can be traced back to a culture of LOW GRADE THOUGHT PROCESSES and Conservative ideology. Bush/Cheney and the Republican controlled Congress of 1994-2006 put the warped policy into practice. The money pit WARS, unfunded policy, corporate welfare, reckless economics, Wall Street fraud, banking scandal, the UNREGULATED oil spill in the Gulf, on & on &…

The maddening part of this phenomenon is that Republicans/Conservatives either refuse or don’t possess the capacity to ADMIT THEY WERE WRONG! These right-wing hypocrites constantly make WEAK excuses, avoid accountability like the plague and dance around any issue like they were Morning Joe Scarborough… lol. Only in right-wing world can silver spoon LOSERS like William Kristol AND Jonah Goldberg make a good living from being WRONG all the time…

Then Conservative wacko voters elect some of the most evil beings on the planet who do little beyond ravaging and expatriating all our national wealth/resources. Now that we’re living the dire results of your misinformed choices, do you say WE’RE SORRY or at least TRY to make things right? HELL NO! What do you lowlife, dumb@$$, degenerate m#*~/s DO? BLAME POOR PEOPLE AND FOREIGNERS! (I’m talking to YOU Arizona)

I want to know something else… WHY is it that every other civilized nation on the planet, EXCEPT the USA, REQUIRES Oil drilling operations to have back up plans and top shelf shut off valves in case of emergency? I guess British Petroleum thought $500,000 was TOO MUCH for a workable shut off system. I know they LOBBIED in 2003 against the US government putting such REGULATION into place… (and I heard Cheney’s Halliburton is involved with this and other spills)
You Big Oil m#*~/’s should be strung up! Talk about TERRORISTS!
aaaaaggggggghhhhh!
Before I could take the first sip of coffee this morning I heard the latest news about that car bomb in Times Square. HEY, I’ve got family in NYC… this is BS! Just from what the breaking newscasts are telling… I’m thinking this is another case of Conservative Wacko Terrorism! (with connections to Texas, Connecticut and Crazy Joe Lieberman promoting his S.3081 – Enemy Belligerent, Interrogation, Detention and Prosecution Act of 2010 )

Even if this is a result of Middle Eastern, Islamic fanatic cults I’ve had it with ALL you extremist, religious fundamentalist degenerates… foreign OR domestic!
aaagggggghhhh!
ENTER:
“Ok, you lunatics want to cause TERROR? We’ll give you a reason to be afraid. I know a coalition of Italian-American and Native-American WARRIORS that are getting together to fight against these vicious LOW GRADE THOUGHT PROCESSES! Here’s what’s going to happen if you vicious idiots cause terrorist acts on US soil…
I think we’ll call it “Operation Swordfish”. We’ll find out who was involved with ANY terrorist act and then come after YOU… If we can’t get to YOU then we’ll find your parents, husbands/wives, cousins, aunts/uncles, best friends, etc… You want pain and suffering then that’s what you’ll get. Imagine you or your loved ones getting dipped in pigs blood then slowly chopped up into little pieces, ground into sausage patties and fed to the homeless…”
(sorry, I got mixed up with this fiction movie script I’ve been working on)
lol
I’m joking, right?
COME ON terrorist @$$#*!s… bet, check or GO AWAY!
consciousmc.blogspot.com

QUOTE OF THE DAY:
“a foreign accent is a result of someone who speaks two languages… A Southern accent is the result of someone who can’t even speak one language right” RANDI RHODES


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