In his dissent to the Federal Reserve Open Market Committee otherwise unanimous initiation of QE3 (no, not another big luxury ship), Richmond Federal Reserve President Jeffery Lacker stated that, "channeling the flow of credit to particular economic sectors is an inappropriate role for the Federal Reserve." President Lacker is technically right and is a voice that needs to be heeded by those outside the FOMC and much closer to the Capitol dome. But, his voice-in-the-wilderness warning echoes off the walls of the Housing Act of 1949 which initiated the transition of life insurance hegemony on banking to mortgage insurance. And these walls neither listen nor tell secrets. The Committee's decision to amplify the role of the Federal Reserve as a surrogate for the much besmirched ecosystem overseen by the odd couple of Freddie and Fannie - both now convalescing in an asylum - is unlikely to produce the stated outcome and may actually worsen the present condition.
Like the life insurance fiduciaries who needed to construct fractional reserve banking in the image of their actuarial (30 year) obligations, the mortgage world (ironically also 30 year durations) is vital to the monetary policy of the U.S. and, by extension, the world which carouses in our opiate den of debt. And, in the minds of the FOMC, returning to the heady days of "houses as ATMs" is the short term path to employment and economic stability. This is the same erroneous assumption that led Greenspan and his merry band of jesters to respond to the Bush-era economic debacle with the dynamic which directly created the collapse in 2007 and 2008. The only thing worse about doing it now is that consumers are actually decreasing their debt-based consumption so the drug that seduced consumers a decade ago is no longer strong enough to bring them back. "Until unemployment turns around," which is Chairman Bernanke's new temporal nexus to end the Twisted QE3 is a horizon that is both illogical and ephemeral.
President Harry S. Truman reportedly knew nothing about the Manhattan Project before Franklin D. Roosevelt's brain hemorrhagic death. Four months later, he dropped bombs on
Hiroshima and Nagasaki
to "save lives". He neither
understood the physics of fission nor the countless futures his nuclear fueled
action would cloud. Failure to fully
comprehend a tool used in expediency was bad for Truman. And in these days of Israel, Iran, Pakistan,
India, China, North Korea, Russia, U.S., France and other quasi-sovereign
actors' convolution around owned and aspired bombs, he could never discern the futility
of his uninformed acts. FOMC's
laser-like focus on housing and Treasury debt would benefit from an
understanding of the physics of light to consider the difference between
illuminating a path out of the darkness vs. exploding the future with a laser
of collimated energy.
Understanding the quantum properties of light requires a bit more than the scope of this blog post. For those who want to dive into the edge of understanding, I commend the writings of Dr. MacRae and his colleagues at the Institute for Quantum Information Science at the
of Calgary and the Russian Quantum
Center in Moscow.
What I find helpful for the purposes of this conversation is the
entanglement between photonic excitation (the energized emancipation of light
from atomic particles) and the effect of reflected or absorbed power resulting
from such excitation. This sentence
requires a bit of unpacking. When
exposed to magnetic and/or thermal states, light energy can be released from
atomic ensembles in varying wavelengths and intensities using excitation energy. That energy can be focused (made coherent or
at least resonant) or can be scattered.
Once released, the photonic energy can do all sorts of things based on
its organization. If it's appreciated by
us mere mortals, it's most often appreciated for its effect of reflecting off
of things and causing a spectrum of reflected light to hit our eyes and, voilà,
we get colors, shapes and edges. What we
don't see (because our optical receptors don't give us much dynamic range)
interacts with many other physical dimensions and can heat, cool, or ablate
(blow up) things.
Now, to stitch this into economics. Let's say that we operate in a belief "wavelength" presuming Truman's "Fair Deal" mandate advocating housing as the primary visible evidence of economic development in society. In that zone, we'll see as laudable both the energizing of the housing financial sector and the excitation of the sector as a means to unleash energy in times of stress (like now). By pulsing energy into the atomic mass called "housing" (added to our already active Operation Twist where we're extending the duration of debt purchases to mirror housing) we will hope to release an optical state that manifests as a collimated flow of energy (in the form of economic activity - both consumption and employment). If, however, we seek to activate these economic outcomes using an atomic mass that does not emit at the proper wavelength or we fail to energize energy in dissimilar, yet parallel excitation bands, we cannot hope to illuminate an outcome or a path thereto. Stated another way, a Mortgage + Treasury formula fails on its face because the phase resonance is identical (thirty year correlated periodicity). If we want either light or ablative energy to unleash flow in the system, we require collective spin excitations of somewhat dissimilar periods to achieve quantum effects.
What the current Fed intervention is doing is analogous to pulsed lasers which require massive amounts of energy pumped into an excitable medium. With excessive power and with the applications of focal optics in the form of lens, this approach is effective at blowing things up (think the aspiration of Reagan's Star Wars program). If we want illumination or flow, we are better served by the developments made by Iranian physicist Ali Javan who developed helium neon lasers and Robert Hall who demonstrated the utility of gallium arsenide lasers, both in the early 1960s.
What we can readily discern is the certain futility amplifying the energy being pumped into equivalent isotopes of 30T and 30M (a little isotopic joke for those of you paying attention). We need to mix up the excitation and reduce the pumping energy.
So what can those of us seeking to change things up actually do? Well, for starters, we can engage in conversation those who blindly rally following every announced intervention. There are some interventions that DO NOT HELP. We can engage in a public dialogue (using either my light metaphor or one that makes more sense) to actively practice coherent monetary use. If, for example, we're buying a coffee or having lunch, match the flow of monetary exchange to the duration of benefit. Thirty day consumer credit does not match the momentary utility of a beverage or prepared food. Using capital (and debt, when applicable) in a rhythm which is derived from and matches utility will go a long way towards REDUCING capital flow inefficiency and LESSEN the inventory of temporally uncorrelated debt (like mortgages and sovereign debt) which can be subjected to interventions which do more harm than good. We the People can intervene by changing the supply - the reckless use of uncorrelated debt - and regain some harmonic that is more resonant to the actual flow of value exchange.