Does the Fed Really Believe What it Says? What About Krugman?

In response to BIS Slams the Fed; Ridiculous Question of the Day: "Is The Fed Going To Attempt A Controlled Collapse?" a number of people commented the Fed cannot be so stupid as to think there is no asset bubble. Here are some examples:

• Gordon says " The Fed is not stupid and yet many think they are. They know there is a bubble but what good will it do if they announce it and the bubble bursts?"
• JFHogan says "Nobody could be stupid enough to believe that money printing will create wealth."
• R2bzjudge says "If I can understand there is an asset bubble, so can the Fed.
• Ax123man says "There is no way on earth Paul Krugman could actually believe (deep down) the things he says publicly"

As a huge fan of Occam's Razor, I disagree with all of them. Occam's Razor says the simplest explanation (the one with the fewest assumptions) is likely the best.

Alternatives

1. Members of the Fed purposely lie to the public. They are in a conspiracy with other Fed governors, some of whom claim they want the Fed to hike sooner than later because they see potential asset bubbles and inflation problems. The whole thing is a setup to convince the public there is discord when there isn't. They all realize there is an asset bubble, because no one could possibly be so stupid as to not see it. Yet, collectively they choose to ignore those bubbles even after the experience of the housing collapse, and in spite of what the BIS says.
 
2. Yellen, Paul Krugman, and others live in academic wonderland, devoid of real world experience, and are incapable of recognizing asset bubbles, income inequality, and other problems caused by QE, low interest rates, and monetary printing.

Door number 2 is overwhelming likely to be correct.

In general, when sheer stupidity is one of the choices, then stupidity is likely the best answer or part of the best answer.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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