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Psychoanalyzing the Fed
Be prepared for the next great transfer of wealth. Buy physical silver and storable food.
oftwominds.com / By Charles Hugh Smith / September 13, 2012
Few of the many analyses on Federal Reserve policy consider the psychology of diminishing political and financial returns of Fed promises.
Rather than regurgitate the usual economic analysis of the Fed’s policies, let’s hazard a psychoanalysis of the Fed. Given the primacy of psychological factors in human behavior, it is astonishing how little attention is paid to the psychology of the Fed’s statements and policies.
Zero Hedge offered just such a psychological insight (with a deliciously Freudian twist) with this question:Does the Fed need to re-instill some discipline in order to regain its omnipotence? Why (For The Fed) It Is All In The Foreplay
Exactly. Subservience is a slippery slope, and if the Fed “caves in” to market demands for a massive QE campaign, then where is the Fed’s vaunted autonomy? It’s gone. So what happens in a few months when the market is once again in danger of rolling over? Will the Fed cave in again and issue more QE? If it doesn’t, the market reaction will be violently negative, and the Fed will get blamed for the catastrophic decline.
You see the positive feedback loop of Fed subservience: the longer the Fed puts off regaining autonomy, the more disruptive their refusal to obey the market will be.
The more they appear to meekly comply to the demands of the market, the greater the pressure will be on them to continue giving the market what it now needs to continue rising: QE.
The only psychologically wise choice is to nip Fed subservience to the market in the bud before it becomes even more destabilizing.
ZH’s reference to Fed omnipotence raises a critical question: what happens to the Fed’s power to manage market behavior with mere words if they launch QE3 and it fails to move the market? Jawboning, promises and threats are the primary tools of “perception management,” and Bernanke has masterfully manipulated perceptions with promises of future QE “should the need arise” for the past 15 months.
Thanks to BrotherJohnF
2012-09-13 03:22:14
Source: http://silveristhenew.com/2012/09/12/psychoanalyzing-the-fed-2/
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