We had to wait five years. But it turns out our suspicion that the Federal Reserve is clueless, at best, is true. We know because we read it in The New York Times.
Welcome to another Friday the 13th… Where if things aren’t exactly scary, they’re definitely surreal.
The Fed performed its ritual year-opening document purge overnight… unveiling the transcripts from Federal Open Market Committee (FOMC) meetings in 2006.
The account of The New York Times is so remarkable, we allow it to speak for itself: “The officials… gave little credence to the possibility that the faltering housing market would weigh on the broader economy.”
“We just don’t see troubling signs yet of collateral damage, and we are not expecting much,” said New York Fed chief Tim Geithner, who now afflicts us as Treasury Secretary.
We pause here to note that in December 2004, we posted a report called The Total Destruction of the US Housing Market.
It was the only conclusion we could draw after seeing an internal Fannie Mae document revealing the firm’s exposure to the derivatives market. So provocative was the report that Fannie pulled the document off the Internet and fired the poor guy who wrote it.
Back to the Times: “The transcripts of the 2006 meetings, released after a standard five-year delay, clearly show some of the nation’s pre-eminent economic minds did not fully understand the basic mechanics of the economy that they were charged with shepherding. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in economic forecasting models that turned out to be broken.”
Might we submit the problem was a more basic one: Hubris. Or as Friedrich Hayek called it, The Fatal Conceit.
“The power and responsibilities of the Federal Reserve… are premised on the idea that somehow its managers know something that we do not,” writes Laissez-Faire Books executive editor Jeffrey Tucker. “This is the essential error of the central bank’s planning powers.”
“It’s… embarrassing for economics,” grouses University of Pennsylvania econ professor Justin Wolfers to the Times. “My strong guess is that if we had a transcript of any other economist there would be at least as much fodder.”
More surrealiciousness: A CNN alert just flashed on our desktop announcing that the Obama administration plans to elevate the Small Business Administration to a cabinet-level agency.
Whether the agency will do anything to make it easier for small business to stay in business… we suspect is another matter entirely.
Major U.S. stock indexes are down today… and in keeping with the surreal Friday the 13th theme, there’s no obvious reason.
JPMorgan’s profits are down 23% year over year… but that’s no surprise. Rumors swirl that S&P is about to downgrade Austria. And maybe France. Maybe as early as today. Or not.
In any event, the Dow and the S&P are both down about three-quarters of a percent.
The U.S. trade deficit ballooned by 10% in November, according to a report out this morning from the Commerce Department.
At $47.8 billion, the gap was wider than any of the guesses submitted by dozens of economists to Bloomberg.
It’s the first time in five months the trade deficit grew. Blame it mostly on rising prices for (imported) oil.