Yes, this is Ambrose being Ambrose:
Markets are losing faith in the Federal Reserve’s credibility
But this speaks to the P³
He compared the Fed’s insouciance to the onset of the 1970s. Others see echoes of the 1940s when the Fed was co-opted by the Roosevelt and Truman administrations to ensure cheap funding for federal programmes. It capped yields by means of financial repression. The aggregate price level rose by 50pc over five years. It was a haircut for creditors.
Ultimately the bond vigilantes may cease to believe assurances that inflation is under control and take matters into their own hands, imposing monetary tightening on a reluctant Fed. Rather than a taper tantrum, it would be a data tantrum.
Why do we have independent central banks? It’s not a perfect solution, certainly. But the base argument is that people don’t trust politicians with the money supply and inflation. That – valid to my mind but what I think isn’t the point here, it’s what everyone else things – uncertainty about whether politicians will rein in their spending if inflation rises, to put it in MMT terms, means that interest rates are always higher, thus growth lower, than it could be.
Stick believable central bankers in there, who will manage things technocratically, not politically, and that interest rate premium reduces.
The P³ insists that central banks should not be independent so that politicians can act democratically with the money supply and inflation.
D’ye see the problem here?