After getting a B.A. in economics from BYU in 1998, I went to work for Thredgold Economic Associates for two-and-a-half years. Jeff Thredgold took an unconventional route to becoming a Chief Economist for major banks. He came up as a bond portfolio manager. As such, I always felt like he had very good intuition for what was happening in markets on a day-to-day basis.
One of Jeff's most insightful arguments is one that he has been making for as long as I've known him. In this week's issue of his weekly economic newsletter, The TEA Leaf, Jeff drives the point home, yet again, in compelling fashion.
One of Jeff's most insightful arguments is one that he has been making for as long as I've known him. In this week's issue of his weekly economic newsletter, The TEA Leaf, Jeff drives the point home, yet again, in compelling fashion.
"What [Ron] Paul and other Fed critics don't understand is that the Federal Reserve has an overseer...something or someone IT has to answer to. That something is the American bond market."
Jeff begins his piece by noting the key points that Congressman Ron Paul (R-Texas), and often Libertarian Presidential candidate, makes in his new book entitled, End the Fed. Jeff then takes you through a recent history of Federal Reserve performance since the 1970s.
Jeff's acknowledges that the Federal Reserve has tremendous freedom and independence to "create money out of thin air." However, his thesis is that this Fed freedom has a powerful check and balance in the U.S. bond market. I would add that U.S. monetary policy is also held in check by the international bond market.
So the next time you start feeling like the Federal Reserve nothing more than a big and powerful government institution that devalues your money at will, just remember that the policy makers at the Fed have to answer to arguably the most powerful market force in the world... the bond market.
If the periods of poor Federal Reserve monetary policy in the late 1970s can be characterized as the emperor not having any clothes, Jeff Thredgold concludes about the Fed today:
Jeff's acknowledges that the Federal Reserve has tremendous freedom and independence to "create money out of thin air." However, his thesis is that this Fed freedom has a powerful check and balance in the U.S. bond market. I would add that U.S. monetary policy is also held in check by the international bond market.
So the next time you start feeling like the Federal Reserve nothing more than a big and powerful government institution that devalues your money at will, just remember that the policy makers at the Fed have to answer to arguably the most powerful market force in the world... the bond market.
If the periods of poor Federal Reserve monetary policy in the late 1970s can be characterized as the emperor not having any clothes, Jeff Thredgold concludes about the Fed today:
"...the emperor has clothes.... the bond market wouldn't have it any other way."
Proffesor Evans
Your class was awesome
http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html
What say ye to this?
And is the Fed actually "answering" to the bond market? What does the bond market really have to do with firing up the printing presses?
Just wondering,trying to keep an open mind and would like to know your thoughts .
Very good article. Funny how everyone assumes the Fed and many other in the econ proffesion are outside all spheres of influence. Politically/financially or otherwise. absolute power corrupts absolutley
In response to the above the bond market has everything to do with printing money in that it is the mechanism the FED uses to get money in and out of the economy. Of course Ron Paul and other critics know that, but that's not the arguement.
I find it laughable however that the writer of the article would imply that Ron Paul somehow doesn't "understand" when in reality Paul probably is the most well read politician on the subject of economics in office today. Just because he is not a "proffesional economist" who has ever taught at a university and a does not have a Phd is he to be discounted? I was not aware the Austrian school had been so thouroughly marginalized and discredited.
Just because the writer of this article was a bond trader does that give him some sort of secret knowledge about the necesity of the Fed? As if there are not people in or very familiar with the bond trading market who would ever take opposing viewpoints, Rick Santelli on MSNBC for example.
Is the FED answering to or manipulating and distorting the bond market? i guess that would depend on your definitions. Consider the following. http://reason.com/archives/2009/10/27/fed-up
http://www.marketoracle.co.uk/Article8361.html
http://www.gata.org/node/6241
http://www.marketskeptics.com/2009/08/uncle-sam-manipulating-bond-market.html
I'm not even in Ron Paul's "camp" but reading this blatently one sided article in Tea Leaf provoked a response. As if anyone questioning the supreme authority and necessity of the Fed is some sort of whacko and there is and can be no better or less corrupt way. How many "poor periods" of monetary policy must the American people endure? Late 1970, Greenspan's bubbles etc etc. Why can't the free market do it better, it's never really given a chance. We're all socialists now