Making (Of) A Statement

I am decidedly in favor of going back to the way it was twenty-five years ago. These constant communications from the Federal Reserve, designed to increase transparency, have accomplished the opposite. Alan Greenspan was made famous for first being an accidental genius (no, it wasn’t massive offshore monetary growth that made the Great “Moderation”, it was 25 bps moves one way or the other in the federal funds rate!) but more so he achieved celebrity for Fedspeak.

This latter term referred to the “maestro’s” keen ability to string together often nonsensical terms that were purposefully nonsensical but were reported upon by a dutifully obedient media as if it was all golden wisdom received directly from the mouth of King Solomon. Ironically, it was Greenspan who fought the hardest against conducting monetary policy out in the open; the more he resisted with obfuscation, the more it made him a TV star (if little else).

We don’t know for sure exactly when the central bank switched to a federal funds target. The FOMC did so in what were, by comparison, the Dark Ages. I don’t mean that in the respect that the Fed simply acted in complete secrecy and darkness; rather, policymakers realized that after the seventies the monetary system had evolved in such a way that they could no longer define let alone measure money (missing money). How do you conduct monetary policy without money?

It’s clear that was one of the driving forces behind the push toward openness. When everything was simple, and M1 still meant something, you really didn’t need to explain yourself. In a world where you can’t even say why M1 is no longer appropriate, you better say something out in public. If you don’t you risk the public suspecting that you are, forgive me, pulling policy decisions directly out of your ass.

That’s what really happened, of course. But these official statements were meant to convey the idea that’s not what was going on behind closed doors. Monetary policy ceased being monetary in the seventies, so by the nineties, it became the precursor to American Idol.