Morning Audibles 8.10.10 - FOMC Day

Sure - This is the day that the markets have been nervously anticipating for the past 6 days of doing SQUAT... In an attempt to "entertain" you all in the process... I've tried to keep you up to date on all kinds of current events such as "family vacations", "boy scout jamborees", and a myriad of "pop artists"...


Alas... As always, CV faces a "fickle finger of fate"...

EACH & EVERY DAY he risks exceeding the boundaries of political correctness... (Sometimes - the audience just isn't "LAUGH-IN")... Indeed - This blog doesn't come with an imbedded "laugh track", but maybe I could find one... Maybe a few more Justin Beiber videos would suffice...


But today I have help (in the mirth category)... It's IMBEDDED... It's FOMC Day!... And while I know you all (and the markets) wait with nervous anticipation on how to TRADE THE NEWS later on... There's still the matter of "how do we pass our ZERO VOLUME moments" up until that moment arrives?... So I thought I'd give you an IN DEPTH look at actually how the FOMC comes up with policy decisions (or the history thereof)...


From the FED's own website:


"The Federal Reserve controls the three tools of monetary policy--open market operations, the discount rate, and reserve requirements. The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements, and the Federal Open Market Committee is responsible for open market operations. Using the three "tools"..."


BLAH BLAH BLAH... It goes on from there... But CV is a quick study... I quickly understood that in creating policy, it uses "three tools"...


I don't have time for a detailed assessment, but let's examine ONE of those tools...

Ben Bernanke

Role: Chaiman

Field of Study: The Great Depression

Minor: Helicopter Maintenance

Here is a sample of the body of economic work (formerly at Princeton)...


Question: If ever you became FED CHAIRMAN, what would be your stance on the supply of money?

Explain your "toolbox" for such a policy maneuver...

Extrapolate...

Can you illustrate a mechanism you'd use to accomplish such an complicated agenda?

And the "mechanisms" of your colleagues?

There are rumors that there are others (such as the 'de-facto' leader of the White House economic team - de-facto because he's the only one left not named TREASURY SECRETARY), that would covet the job of Fed Chairman... Can you explain, or illustrate why you're more capable than he? (it is acceptable to use his responses to exam questions as evidence for your claim)...

Evidence submitted:

Solve the following two problems...

OK... You're hired... And I'm sure you're going to do a fine job... But please... All your work seems to be in the realm of PhD wizardry... How in the world are you ever going to explain the complex details of your inner workings to your boss, and the people you're appointed to serve?...

And if they STILL don't get it?... I mean, I know people are STUPID... But some of them possess "street smarts"... Some just simply KNOW when they're being lied to... It's a characteristic that has been developed in human evolution... It's evolved from the PREDATOR/PREY symbiosis... That might be something to overcome... 

How would you deal with it?