For today's 5, a conversation with a central banker of considerable renown, who asked not to be identified. We spare you the entire transcript, and pick it up towards the end... The 5: ...Ah yes, but if the Federal Reserve is supposed to maintain the value of the dollar like you said - one of its primary mandates - why has the dollar lost over 95% of its value since the Fed opened for business in 1913?
Central banker: Well, we have to adapt to changing market conditions. After the housing crash of 2008, for example, we had to step in to save the market from collapse by injecting some new money into the economy.
The 5: Some? The monetary has tripled in just a few short years. Nothing like that has ever been done before. Ever.
Central banker: Well...
The 5: But weren't you the guys who changed market conditions in the first place by inflating the real estate bubble with those ultra-low interest rates?
Central banker: Look, after the stock market collapsed in 2001, we had to intervene to save the economy. We had to do something. Would you rather we did nothing?
The 5: You sure did "something." You responded to the collapse of one bubble - that you helped create - by creating another. Sounds kinda like curing a hangover with more booze, as some have put it. Or heroin withdrawal with more heroin. And now you've probably created an even bigger bubble in stocks.
Central banker: (Silence).
The 5: So...what happens when you take away the booze, to return to that metaphor? Won't the entire market collapse if you cut off that continuous creation of credit?
Central banker: But we won't let that happen. We have formidable monetary tools at our disposal to help promote positive economic growth within an accommodative macroeconomic framework. For example, in our latest dynamic stochastic general equilibrium model we -
The 5: Hold on. (A look of vacant idiocy settles over our features.) The what?
Central banker: I don't want to get too specific here, but let's just say we can pursue further...accommodation.
The 5: Oh, so more of the same. So what you're saying is that you need to create more and more money to keep the bubble inflated. Or else it will collapse and God help us.
Central banker: Um...do you plan on publishing this interview?
The 5: Yes. So we're trapped. If this monster bubble bursts we're all screwed, but the only way to sustain it is to create ever-expanding amounts of money - which will eventually destroy the value of the dollar. But it's too late to turn back now, isn't it?
Central banker: Oh my, would you look at the time! Sorry, I have an important meeting that -
The 5: But you said the whole idea of the Federal Reserve was to maintain the value of the dollar. Wait - where are you going? We're not done yet. Come back...
Ugh, we'll get to the bottom of all this in a minute.
But first, here are five things you need to know this week...
The More Things Change...
Need we complete the sentence? Our old friends Fannie Mae and Freddie Mac are back at it again. We're not talking about no-money-down mortgages of the pre-2008 variety -- but it's pretty darn close. What's going on here?
Click here to find out.
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