In response to an FT Blog by Larry Summers on 9th September 2015, entitled 'Why the Fed must stand still on rates'
"I understand the argument that zero rates are a sign of pathology and the economy is no longer diseased so policymakers have to increase rates"
Then you understand wrong. That argument is false. Zero rates are a sign of pathology...correct...but the the economy is as diseased now as it has ever been:
1. The Fed's balance sheet is still grossly inflated
2. The non-participation rate is at record levels
3. The majority of the 'new jobs' are part-time low wage jobs, often held by one person doing two jobs, and thus being counted twice
4. The jobs being lost are predominately 'middle class' jobs
5. The so called inflation figures are a spreadsheet generated farce which reflect the 'goal seeked' behaviour so beloved of central planners everywhere, and bear no relationship to the cost of living increases being faced by Joe Sixpack. To the 48 million people on food stamps, they are an insult
6. The stock market has been inflated by a sea of QE and balance sheet equity to debt chicanery which is a sickness waiting to erupt in severe symptoms. Corporate targets are downgraded every quarter to the point where if Wall Street brings the targets any closer to the arrows, a bow won't be necessary
7. The misallocation of capital into speculation and zombie companies is still prevalent.
"We know the current US recovery is in its seventh year and that confidence in public institutions is at a low ebb"
No. An economy still on monetary drugs after seven years is not in recovery. We've had 7 years of below trend growth amidst un-paralelled stimulus. This isn't a 'recovery' - it's a depression.
Yes - public confidence in public institutions is at a low ebb.
Finally, and to my mind laughably:
"The greatest damage (The Fed) could do to its credibility would be to embrace central banking shibboleth disconnected from current economic reality"
The Fed has been disconnected from economic reality for decades, ever since Mr Greenspan hooked the punchbowl up to a drip. The Fed's credibility is entering a long overdue bear market whatever the stock market does, along with the tooth fairy economics of which it is the major exponent.
The resolution of the financial crisis that started in 2007/08, which is still playing out now will be either massive inflation, a deflationary collapse, conscious restructuring of the global monetary system, or a combination of one or more of these. Kicking the can down the road, listening to the same group of people who got us here will achieve nothing but more of the same.