By Mark Gilbert
Albert Einstein defined insanity as doing the same thing repeatedly and expecting different outcomes. The crazy gang at the Federal Reserve should heed those words when debating how much more market manipulation to inflict on the world of fixed income.
The worrisome thing about so-called quantitative easing — a concept still novel enough to mean whatever the Humpty-Dumptys in central banking want it to — is that its consequences remain unquantifiable, and the perceived need for more central-bank purchases of securities should make investors uneasy.
Fed Chairman Ben Bernanke said in an Oct. 15 speech that it’s difficult to work out the “appropriate quantity and pace of purchases and to communicate this policy response to the public.” He also said that “nonconventional policies have costs and limitations that must be taken into account in judging whether and how aggressively they should be used.”
Imagine a surgeon telling her patient she wasn’t sure what size scalpel she’d be using or what the likely outcome of the procedure might be. Or an architect admitting to a planning committee that he wasn’t confident about his stress calculations or the durability of the newfangled materials he was using.
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