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Mr. Mauldin has just put up a new piece: "Sea Change at the Fed
by John Mauldin
September 21, 2007"

Anybody can get it, because everyone knows where his website is... unless you're a Neanderthal and trying to figure out how to italicize "Cruelest" with a mastodon’s rib bone. For the Neanders among us:

He takes a look at Mr. Mishkin's Jackson Hole paper in which Mr. Mishkin apparently does 2 things: he attempts to justify 1)- FOMC inaction, or benign inability, to prevent bubbles, and 2)- FOMC preemptive aggressiveness in reacting to bubbles when they collapse. Of course, to Mr. Mishkin’s credit, he allows that reaction to bubbles ought to be begun when it is perceived that they are about to collapse. I must inject that in the case of the housing bubble, the FOMC had the perception of a sack of hammers, witness Mr. Greenspan's recent “I just didn’t get it.”

My opinion is that all Mr. Mishkin does is to i-n-t-e-l-l-e-c-t-u-a-l-i-z-e a mechanism for allowing the FOMC to ignore its responsibility for stabilizing prices (inflation). I’m not saying that was his intent, mind you, but just that it seems to have been the net message conveyed in light of the topic of discussion at Jackson Hole. I don’t doubt Mr. Mishkin’s integrity or his veracity, just his analysis.

Read the stories… see the pictures. They are pictures of what a bank run looks like. We haven’t had these on a large scale since the Great Depression years of the 1930s. I certainly hope we don’t have any more outbreaks like this, although it’s certainly possible. These are the direct responsibilities of central banks throughout the world that had probably gravitated to Mr. Mishkin’s permission slip type mechanism for staying home from school, playing hooky:

Bank runs come from shocks… SHOCKS!… they don’t come from recessions. Market participants have time to adjust to declining asset prices and earnings that are the ordinary effects of the business cycle. They have only one means of reacting to shocks that result from inattentive regulators and central banks, and this is it:

You can read my work posted on this blog regarding “The Perceived Liquidity Substitution Hypothesis” and you’ll learn what ultimate detrimental effect shocks like this can have on what little effectiveness monetary policy still has at present.
BTW, that Mr. Mauldin!… What a nice man he is (I don’t know him). Intelligent, analytical, responsible, successful, patient, purposeful, realistic… he’s a good father I know from reading what he writes, and a good friend too I’m sure. Congratulations Mr. Mauldin on being a good example. It would be great if Congress and the rest of government were stationed by many like you.

Posted by: Eclectic | Sep 22, 2007 9:25:45 AM

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