The Fallible Fed: 50+ years of policy "wrongness"

Tuesday, July 04, 2017 // Written by Enzio von Pfeil

Those "experts"at the Fed are no better than "Joe Sixpack" at forecasting - but they are more powerful.  What follows are 50 years of  policy  mistakes. How to preserve your capital based on  the Fed's consistent "wrongness". 

  1. "The pretense of knowledge".  As some of you will recall, this is the Nobel prize speech of one of my erstwhile professors, Friedrich von Hayek. In it, he rails against forecasting, instead advising pattern predictions. Step in my Economic Clock®.  But it does not seem like the  "experts"at the Fed ever have bothered to read von Hayek's brilliant simplicity, instead sticking to the arrogance of ignorance, i.e. forecasting numerical values  by driving with a rear-view mirror. 
  2. Appalling policy track record.  In the Financial Times of 3rd July, p. 8, Distinguished Senior Fellow of the R Institute in Washington D.C.  (DC =. "Dysfunctional Capital", your author) , Alex J Pollock,  recapitulated the Fed's policy mistakes since 1966 succinctly as follows: "Considering only the last half century, the Fed created the Credit Crunch of 1966, the Credit Crunch of 1969, and then the massively destructive Great Inflation of the 1970s, which led directly to the financial crises of the 1980s.  Based on the 1990s, which included the dotcom bubble, in the 2000s, the Fed announced with pride that it was presiding over the Great Moderation, which turned out to be the Great Leveraging. After the collapse of the dotcom market, the Fed decided it needed to promote a 'wealth effect' by promoting a housing boom.  It got the boom, which turned into the Great Housing Bubble. The Fed utterly failed to understand the dangers of this bubble, failed to forecast the crisis and failed to forecast the ensuing deep recession. It did indeed carry out the lender of last resort function assigned to it since 1913, but has gone far past this to purse more wealth effects by imposing negative real interest rates for the eight years since the crisis ended, thus expropriating savings and inducing new asset price inflations in houses and securities. Nobody knows where these will end, including the Fed."
  3. Investment implication.  The biggest prize is that the Fed has been wrong consistently, which creates a track record of sorts. This "consistent 'wrongness' " suggests that the Fed will  stick with its dogged adherence to the fallacious trade-off between tight labour markets and inflation (the "Philips Curve") and thus raise rates far too much, leading to a marked worsening of the Economic Time® come 1H18.  The market will discount this by inducing a crash in 3Q17.  Caveat emptor! Stick with the safety of short-dated government bonds as well as the stocks of consumer staples with a consistent dividend payout.



Share this post:


The information, including but not limited to, text, graphics, images and other material contained on this blog are for informational purposes only and do not necessarily reflect the views or Enzio von Pfeil. The purpose of this blog is to promote broader understanding, knowledge and awareness of various financial and economic topics. It is not intended to be a substitute for regulated professional investment advice. Always seek the advice of your a regulated investment advisor with any questions you may have regarding your specific investment needs or concerns.

Enzio von Pfeil does not recommend or endorse any strategies or ideas mentioned in this blog. Reliance on any information appearing in this blog is solely at your own risk.


Any information provided to you by us, including any promotional material such as photographs, written descriptions, any plans or models, any income estimates or projections (“Information”) have been provided to us by other sources and although we aim to perform due diligence on all information we provide to our Blog subscribers, the Information is provided for general purposes only, we cannot guarantee the accuracy of the Information and we do not make any representations, either express or implied, as to the accuracy as to the Information. We recommend that our Blog subscribers undertake their own due diligence in relation to the asset they are considering purchasing, including seeking independent legal and financial advice in relation to their own financial objectives and personal circumstances, prior to signing any agreement or contract with any third parties.

No representation or warranty is given as to the accuracy, likelihood of achievement or reasonableness of any figures, forecasts, prospects or returns (if any) contained in the message. Such figures, forecasts, prospects or returns are by their nature subject to significant uncertainties and contingencies. The assumptions and parameters used by ( are not the only ones that might reasonably have been selected and therefore does not guarantee the sequence, accuracy, completeness or timeliness of the information provided herein. None of, its members or any of their employees or directors shall be held liable, in any way, for any claims, mistakes, errors or otherwise arising out of or in connection with the content of any form of communication, documentation included in the Blog, via e-mail or any other form of communication.

You are reminded that the content is for personal use and general information only. Under no circumstances is the content intended for and hence the content should not be regarded as an offer or solicitation or recommendation to dispose/sell, an offer or solicitation or recommendation to subscribe in, nor an offer or solicitation or recommendation to buy/acquire and under no circumstances should the content be constituted as provision of any recommendation or investment advice on any securities, investment products, investment arrangements and any other form of investments or legal, tax or other professional advice and therefore should not be relied upon in that regard for making any decision. Unless specifically stated, neither the information nor any opinion contained herein constitutes as an advertisement, an invitation, a solicitation, a recommendation or advice to buy or sell any products, services, securities, futures, options, other financial instruments or provide any investment advice or service by

Unless stated otherwise, any opinions or views expressed in this communication may not represent those of Opinions or views expressed in this communication may differ from those of other departments or third parties, including any opinions or views expressed in any research issued by

Any e-mail and any accompanying attachments are not encrypted and cannot be guaranteed to be secure, complete or error-free as electronic communications may be intercepted, corrupted, lost, destroyed, delayed or incomplete, and/or may contain viruses., therefore, does not accept any liability for any interception, corruption, loss, destruction, incompleteness, viruses, errors, omissions or delays in relation to this electronic communication. If verification is required please request a hard-copy version. Electronic communications carried within the system may be monitored. Any communication or message in email form or otherwise may contain confidential information. Any use, dissemination, distribution or reproduction of the relevant information outside the original recipients of any messages  is strictly prohibited. If you receive a message by mistake, please notify the sender by reply email immediately and permanently delete the emails and its contents. Unless otherwise stated, any communication provided is solely for information purposes only.