[I’ve corrected some dates post-email. Senior moments.]
One of my favorite interviews. Thanks to the friends of the show at Realvision.
“this is basically permanent debt monetization.”
When Boyce made these comments, the Fed’s debt monetization was already up almost $3.6 trillion above 2008 levels. They managed to take it down by $700 billion (15%) by August 2019 - even though the stock market had a 20% tantrum (worst since 1931!!) in December 2018.
Still, they persisted, but by September 2019 the Fed chose to step in and save some big hedge funds, and basically gave up.
The Fed’s balance sheet is now $4.25 trillion bigger than at the time of Boyce’s interview.
June 2017: Fed's Yellen expects no new financial crisis in 'our lifetimes'
The current Federal Reserve is an echo chamber with no biodiversity. Senior staff there is 100% PhD Economists. And they got their jobs, they maintain their positions, and they get promoted by producing research that backs up what the Chairman and the FOMC have already decided.
And I believe that is a big change from back in the '80s when, to start with, the FOMC and the Board of Governors was a mix of people, not all PhD Economists. And the staff itself wasn't a bunch of PhD economists. And the marching orders, at least when chairman Volcker was there, was to find the right answer. And that was a clearly defining thought process for the Fed.
And I can remember very distinctly when I went in May of 1982 to DC to interview for jobs there-- who was it-- Alice Rivlin at CBO. And it was pretty clear that there was a lot of politics involved in the analysis that CBO economists would do. I got to interview with Larry Kudlow at the CEA. And it was not only obvious, it was stated, that the job there was to back up what the White House said. And the Fed, in their own opinions and opinion of everyone else in DC, was out there actually trying to come up with the right answer. And I think over the last 30-something years, the Fed has become like the rest of the economic organizations in Washington DC, where they're given an answer and they justify it.
But it's worse than that, because they've wrapped it in some pretty complex computer models. Dynamics stochastic general equilibrium model in particular, which ignores the financial sector. So that DSGE didn't see the last financial crisis coming because they ignore the financial sector. I tried to point out to people at the Fed back in '05 and '06 and early '07, that we should pay attention to it. The mortgage market had grown from 2 and 1/2 trillion in the United States to over 10 in the space of nine years, whereas US GDP had only increased by like 20%. And they thought that that didn't matter at all. And I think it's only been worse since then. It hasn't gotten any better. They have not learned. They don't keep track of their type II error. And the staff has closed ranks. And they support guys that support the Fed line.
Look - you worked at the Fed, surely they can't be this stupid?