Peter Bernstein: When Should the Fed Crash the Party?
Peter Bernstein repudiates on NY Times the view that the Fed should let market crash and sort out the excesses by itself. A lot of prominent investors, such as Jim Rogers held such view.
Bernstein thinks “today’s authorities are taking risks and are going to make mistakes in managing the complex fallout from the speculative fevers of recent years. Nevertheless, I would still reject Mellon’s advice and those who echo it, because the consequences would be unthinkable.”
What was Mellon’s advice?
In the darkest days of the Depression, Treasury Secretary Andrew W. Mellon, one of the richest men in the United States, opposed any government action to stem the tide of plunging business activity and soaring unemployment. Instead, he urged a policy of supreme indifference.
“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate,” he said.
“It will purge the rottenness out of the system,” he added, and values “will be adjusted, and enterprising people will pick up the wrecks from less competent people.”
Bernstein’s question also echoes the debate in academia whether the Fed should prick the bubble so to avoid large market correction and economic fluctuations later on. It also goes back to the fundamental question whether the Fed can micro-manage business cycles and whether the Fed often does more harm than good in the process.
Two related readings:
Bernanke on “Asset Bubble and Monetary Policy“
Another piece on VOX, “Can Monetary Policy Be Used to Stabilize Asset Prices“
Where is ‘scale of economy’ in Chinese agriculture?
To follow up yesterday's post on China's food production, I think Financial Times proposed the right policy: for China to be largely self-sufficient on food, establishing scale of economy in agriculture is the key, that is, get rid of fragmented farming, improve productivity by reorganizing how agri-industry operates.