More Correlation/Causation Findings … with Your Money

“A man always has two reasons for doing anything: a good reason and the real reason” – J. P. Morgan

The Daily Stag Hunt has a great piece from a few weeks ago titled “The Correlation of Laughter at FOMC Meetings” (that’s the Fed Open Markets Committee). It seems that the transcripts of the FOMC meetings through the end of 2006 were just released. You read that right, five years after the fact we are just now seeing the transcripts from the FOMC meetings.

What the boys over at the Stag found was remarkable. They show, in the chart I’ll reproduce here, that occurrences of laughter recorded by the official stenographer had a trend:

Things were holding steady at about 20 outbursts per meeting from 2001 all the way up to 2004 but started to trend upwards very clearly, peaking over 60. For those who have a house, or a retirement plan, or had a job back in 2006, you may notice that the laughter trend correlates very nicely with the bubble in the U.S. housing market and the stock market.

There are a number of ways to slice this. First, I’d note that we don’t have data from 2007. I can’t imagine people were in a laughing mood, but we’ll have to see the data to know where the trend goes. Even still, it’s clear that there is correlation, and given the dire prognostications going on in economic circles (what with the European debt crisis looming) I think the fellows over at the Fed might ought to test the causal relation here. I mean, how hard is it to bring in a comedian and gin up an extra 20-30 laughter moments during what has to be an otherwise boring meeting? They may well save the economy in the process. And, if it turns out that laughter didn’t cause the rise in the housing/stock markets, and their forced laughs don’t save the day, what have we really lost? (I know, I know, the Heisenberg Uncertainty Principle would say that by introducing an external source of laughter we have changed the system and can no longer measure or trust the outcome.)

Of course there is likely a simpler explanation. The FOMC was happier when things were going “well” and felt like laughing. The whole notion of things going well in the market is interesting though. The name “Open” in FOMC would imply freedom (the market is “open” so people can enter and exit freely as they choose). And yet when the FOMC says “free” in regards to the market they often mean “the market is free to go up, but if it goes down we will intervene … and even if it’s not going up fast enough we might intervene.”

With that it’s not too hard to infer that the Fed, which controls money supply (and thus, tangentially, the value of the stored excess production that you hold in your savings account) sees its job as blowing bubbles in various asset markets. And who exactly does that benefit? Well, it would benefit the people who owned the assets before the bubble started (the wealthy), and the folks who leverage up to benefit the from bubble but get a public backstop against losses when it collapses (the banks). The Fed is happy when they are succeeding (rich getting exorbitant gains through asset price increases and banks making huge leverage profits). All the while the folks getting squeezed and eventually wiped out by it all – that would be the people who work for a living – don’t enter into the equation.

The good news is that the backlash against the Fed’s take-from-the-poor-give-to-the-rich policies is growing somewhat. Ron Paul has long wanted to abolish the Fed – but Ron Paul believes in freedom so this is no surprise. But, and I don’t mean this as an endorsement in any way, even other candidates like Newt Gingrich have hinted at auditing the Fed (so you can see the worthless assets that back the paper in your pocket). That would be a huge step forward. Rick Santorum has also indicated he would be in favor of auditing the Fed. Romney and Obama are, well, less than committed to the prospect. For Romney we have to infer his position from interview snippets; and for Obama we have to, well, infer his position from his actions. They both seem fine with maintaining the poor-to-rich-transfer status quo … you know, for the good of us all.

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