The Fed spent years railing against the moral hazard of bailing out banks because it encouraged excessive risk taking. The Fed’s repeated bailouts of Washington do the same thing.
Fed members patted themselves on the back for not tapering in September. They say it was the right call because the combined burden of a taper and Washington tomfoolery would have been a damaging shock to the economy.
Here’s a different angle: Maybe the bad actors in Washington would have behaved better if markets were backpedaling from a Fed taper?
Maybe not, but it’s part of a bigger problem: The Fed is the great enabler for Washington. When a politician is seeing 3% money-printing-fueled growth and stocks at record highs, he’s willing to take some chances with the economy. If the Fed crutch is removed and stock are flat-lining then CEOs start calling their Congressmen to tell them to stop screwing around.
The Fed needs to understand that it isn’t the problem and it isn’t the solution. Sensible policy from Washington, heck even clear and cohesive policy, would do far more for the economy and with none of the risks of a $2.4 trillion balance sheet.
Bernanke doing his thing
