Gobbledygook, I say! What other word could describe the 4 paragraphs of economic nonsense that led off yesterday's Fed minutes (highlighted text here) which said (and I sadly quote): "A number of participants indicated that they expected short-run r* to rise as the economic expansion continued, but probably only gradually. Moreover, it was noted that the longer-run downward trend in real interest rates suggested that short-run r* would likely remain below levels that were normal during previous business cycle expansions, and that the longer-run normal level to which the nominal federal funds rate might be expected to converge in the absence of further shocks to the economy…" It just goes on and on like that.
"r*" is, of course, the "neutral" or "natural" real interest rate. Well, I say "of course" becuase the Fed made it up and now that's what it is and soon you'll hear all sorts of blowhards on TV pontificating on what r* is at the moment – it's our new distracting talking point! The Nattering Naybob summed it up quite nicely in our Live Member Chat Room, saying:
As for their inept discussion of R, as in rates: The pace of economic activity has slowed due to inappropriate monetary policy. A lack of thin-air or ex nihilo credit growth in the NB's and CB's is a symptom, not a cause. Ceteris Paribus, the cost or price of money is represented by various price indices. Interest is NOT the cost of money, it is the cost of loan funds. Supply and demand for loan funds determines interest rates and bond prices. Demand at zero bound is present, it is SUPPLY due to NIM compression and former lending institution disintermediation that is NOT forthcoming. The 300 Phd's on staff at the Fed, who spoon feed the appointed idiots from Goldman Sachs banksters that are running it, and who have never predicted a recession in advance, don't know money from mud, much less their ass from a hole in the ground.