The Fed's Open Mouth Operations

By Daniel O'Connor of Integral Ventures, LLC

In recent comments, Federal Reserve Board Governor Edward Gramlich said that he was troubled by the nation's low saving rate.

"The one thing that I think is a little bit of a worry is that if you look at the share of output that the U.S. economy devotes to building up the future -- that share is called the nation's saving rate -- that's on the low side.  It's actually at a post-World War Two low."

"I'm among those who would argue that we ought to get our budget deficits down and do what we can to think of measures to raise personal savings."

I think he's referring to these trends:

As I've said before, the Fed's deliberately ambiguous open mouth operations is perhaps its most powerful method of influencing the markets.

Market opacity and widespread economic ignorance provide the Fed, indeed the entire government, with the policy traction it needs to shape economic development in its own image.

How fortunate for the Fed that even financial journalists are apparently incapable of pointing out the simple fact that the Fed's low interest rate policy has directly (not to mention indirectly, via the vast global positive feedback loop) contributed to this erosion in the nation's rate of saving.