Tuesday, January 13, 2015

Catch 22 - Reality Is Blurred

From Epsilon Theory:

The Army will grant your release request if you’re insane, but to ask for your release proves that you’re not insane. 

If X and Y, then Z. But X implies not-Y. That’s a Catch-22.
Here’s the Fed’s Catch-22. If the Fed can use extraordinary monetary policy measures to force market risk-taking (the avowed intention of both Zero Interest Rate Policy and Large Scale Asset Purchases) AND the real economy engages in productive risk-taking (small business loan demand, wage increases, business investment for growth, etc.), THEN we have a self-sustaining and robust economic recovery underway. But the Fed’s extraordinary efforts to force market risk-taking and inflate financial assets discourage productive risk-taking in the real economy, both because the Fed’s easy money is used by corporations for non-productive uses (stock buy-backs, anyone?) and because no one is willing to invest ahead of global growth when no one believes that the leading indicator of that growth - the stock market - means what it used to mean. 
If X and Y, then Z. But X implies not-Y. That’s a Catch-22.