The Time for Fed Overkill Has Arrived

Not the First Time the Fed Screwed Up

You may ask, who in the heck am I, a two-bit hedgie in West Conshohocken, Pa., to dare instruct the Federal Reserve Board? Well, I denounced Greenspan for his participation in the new era/tech bubble stupidity. That appears correct. I called the Greenspan 1% rate cut a hoax motivated by his desire to goose the financial markets and economy until his retirement. With hindsight, that sounds about right. And let's not forget my criticism of the "Greenspan put".

I then turned against the last few Fed rate hikes and maintained that a 5%-6% fed funds rate would generate a recession. I was not "data-dependent" but rather was anticipating the effects of the many rate hikes and the real estate bear market we were entering.

At first, that seemed wrong, as the economy held up fairly well through the last few hikes. But by the end of this summer, the economy was looking very top-heavy, and for the past few months I have resumed my call for quick and substantial short rate reductions.

I blasted the Fed for terrible oversight in the banking and mortgage industry, permitting, some would ever say encouraging, irresponsible lending practices in the housing market. Finally, in 2005 I predicted an RTC II. That agency will open in 2008-9.

Apparently, my advice has no standing in Washington whatsoever. But I believe my commentary regarding the Fed mis-execution over the past decade can stand on its own. The Fed has created big problems overreacting to data in the past. It needs to be more forward-looking than "data-dependent."

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