The Federal Reserve’s “White Noise” Economy

By Chandrashekar (Chandra) Tamirisa, (On Twitter) @c_tamirisa

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If in linear regression models @federalreserve “white noise” and not exogenous variables always explains economic behavior why do we need economists?

These days Congress no longer declares wars but the president does, circumventing the war powers clause in Article 1, Section 8 through the Federal Reserve and the financial markets in preference for the unconstitutional shock doctrine (Naomi Klein) and not the constitutional shock and awe (Donald Rumsfeld):

Alan Greenspan explaining the Asian Crisis of 1997 and all financial crises since the early 1990s?

“Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape. As a consequence, the conduct of monetary policy in the United States at its core involves crucial elements of risk management, a process that requires an understanding of the many sources of risk and uncertainty that policymakers face and the quantifying of those risks when possible. It also entails devising, in light of those risks, a strategy for policy directed at maximizing the probabilities of achieving over time our goal of price stability and the maximum sustainable economic growth that we associate with it.”
Monetary Policy Under Uncertainty, Remarks By [Then] Chairman Alan Greenspan At A Symposium Sponsored By The Federal Reserve Bank Of Kansas City, Jackson Hole, Wyoming, August 29, 2003

Random walk is typically exemplified as the perambulation of a drunk. Unpredictable when the cops pull the person over to check for blood alcohol level, swaying and zig-zagging with hands over the head while walking under the influence of bourbon and weaving while driving under it.

In econometric models, intimately familiar to the former New York consultant Alan Greenspan, the behavior of the stock market tomorrow morning is the white noise of random walk. The marble structure on Constitution Avenue where Greenspan had spent 18-1/2 years of his life every day (as long as my marriage to my economist former-spouse) is the only certainty in the landscape of financial market behavior according to the Chairman of the Federal Reserve who was superseded by Benjamin Bernanke, the college professor.

Stabilization policy is a contentious subject in economic science. The Federal Reserve’s reaction function in response to various degrees of inebriated behavior of the money traders, as much as it is not its job react to stock market movements except in crises faced by the member commercial banks of the Federal Reserve System in accordance with the mandate set forth in the Federal Reserve Act (FRA) by the United States Congress, proposes interesting implications for economists.

Government is the trader bigger than all traders put together in New York, trading cash, one form of government liability, for bonds, another form of government liability. The Federal Reserve, therefore, induces random walk when its intents to transact government liabilities are deliberately masked at which time uncertainty ceases to be the landscape of monetary policy.

Monopoly supply of money by the United States government, in practice, ought to happen, in a timely manner, both in expectation and in reaction to deviation from desired expectation (risk) of (to) real economic variables under the objective of a regulatory structure that provides for the possibility of perfect information symmetry, in a business landscape that is otherwise prone to information asymmetries, to mitigate Knightian uncertainty.

Non-transparency of Fed actions renders the rest of the real variables (Consumption C and Government expenditures G), arising from sufficient domestic national savings (S) or investment (I), in the econometric models of the Keynesian national output (Y) equation fostered by moderate long-term interest rates which determine the performance of the Federal Reserve measured as stable prices (inflation) and maximum employment (100-U) induces conditions of market failure: information asymmetry in money supply (M0) by the Fed leads to moral hazard and adverse selection in financial market behaviors, triggering contagions of negative externalities in the global economy connected to the United States through net exports (NX).

Inducing moral hazard as a policy reaction, confessed to by Ben Bernanke to his overseers in the Congress, is corruption, akin to selling more alcohol to a drunk cited for driving under the influence when the established correlation between drunk driving, insurance claims and deaths on the road is high, unless the intent is to cause damage or kill by accident. Goldman Sachs’ bond trading desk, the alma mater of former Secretary of the Treasury Robert Rubin and many government officials in Washington, for example, in the many decades since 1987, when Alan Greenspan took office, leading up to the current financial crises in America and Europe is among the largest of Fed’s beneficiaries.

The government-bond trading portfolio of the central bank explains interest rates in all time horizons, contrary to confessions of conundrums by the Fed brass decoupled from the brass tacks of real growth, enveloped by the landscape of the Fed’s flawed worldview and policy judgment despite an enabling regulatory structure.

Money supply @secretservice is war @whitehouse (@GOPoversight @oversightdems?) by other means only when making real things for real people is shadowed (explaining the Asian Crisis of 1997 and all financial crises since the early 1990s?)

Bilderberg Gate, are the Chinese next?” to bail out Goldman after the Greeks (@barackobama @mittromney China’s unceremonious dispatch of Bo XiLai who has support in the Communist Chinese military is not good for FDI)?


About Chandrashekar (Chandra) Tamirisa
This entry was posted in China, Hong Kong, Taiwan and Mongolia, Constitutional Law, European Union, Monetary Policy, National Security and Defense, North America and Caribbean, Politics, Transformations LLC and tagged , , , , , , , , , , , , . Bookmark the permalink.

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