Fed Sees Plenty of Stimulus in the Pipeline

by: Dr. Bill Conerly

Fed Vice Chairman Donald Kohn gave a speech that was actually intelligible--must have been some big blunder among the PR staff. The general thrust was that the economy was not doing too badly, and the economic outlook was mildly positive, which is a lot like my forecast. Here are a couple of interesting points from Kohn:

"The pace of activity should continue to improve next year, with an important part of the gains coming from the abatement of the forces currently restraining activity."

This is an important insight into the economy. It normally grows, all by itself (that is, without governmental stimulus). Just removing the negatives is enough to get it re-accelerating, in all but the most extreme cases.

Kohn also mentioned that there was a lot of stimulus in the pipeline. The public could use regular reminders of the time lags involved, which mean that after the Fed eases, it takes six to twelve months to feel the effect. Finally, on a different subject,

"Securitized assets need to be simpler, more transparent, and less reliant on the imprimatur of a credit rating agency."

I made this point in part 5 of my Why Did the Mortgage Crisis Happen series. Always nice to see a smart person agreeing with me.