Mad Fed Should Beware Unquantifiable Outcomes

October 28, 2010 04:43

The guardians of the world economy still seem to think the answer to too much debt is yet more debt. Imagine the response, though, if you had asked any of the current crop of central bankers five years ago about the inflationary consequences of pumping trillions of dollars into the financial system.

By Mark Gilbert – Oct 27, 2010 at


Albert Einstein defined insanity as doing the same thing repeatedly and expecting different outcomes. The crazy gang at the Federal Reserve should heed those words when debating how much more market manipulation to inflict on the world of fixed income.

“Nobody understands QE,” says Fred Goodwin, a strategist at Nomura International in London. “We have no idea how inflationary it really is. A patient juiced up on QE wants to party and it does not matter what anyone says. Don’t worry about what central banks are worried about; worry about unintended consequences.”

Fed skeptic Thomas Hoenig of the U.S. central bank’s Kansas City branch called it “a very dangerous gamble” in a speech this week. “We risk the next crisis four or five years from now.”

Leaving the fortunes of the nation in the hands of unelected central banks, though, strikes me as an abdication of responsibility by government.

When the law of unintended consequences kicks in, the nasty surprise is, almost by definition, unforeseen and unpredictable. I struggle to see how this movie won’t end badly.


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