Siegfried & Roy were one of Las Vegas’s most popular acts until 2003, when Roy Horn,  the trainer of big cats, was attacked by a tiger.  He has still not recovered. Siegfried was an illusionist.  We call these people magicians, but the magic they employ is illusion. 

The more I think of it, the more I see Ben Bernanke as the replacement for Siegfried & Roy.  The show must go on.

THE ILLUSIONIST

    The illusionist relies on his ability to get the
audience to look at one thing while he manipulates
something else.

    The stage illusionist doesn’t harm anyone.  Any
illusionist who harmed people would be written out of the
guild.  That’s why the Federal Reserve has never been able
to gain membership, despite its consummate mastery at
getting the audience to look somewhere else than where the
FED is doing the manipulating.

    On Wednesday, April 30, the Federal Open Market
Committee met to decide if it should announce another
reduction in the target rate for Federal Funds, the rate at
which American banks lend money overnight to each other.

    Wall Street had predicted that the rate cut would be
minimal: a quarter of a percentage point (25 basis points).
All day, the Dow Jones Industrial Average slowly rose by
145 points.  Then, as soon as the FOMC announced its
expected reduction, the market fell.  It closed down almost
12 points.

    In previous sessions, the Dow had soared several
hundred points upon the FOMC’s announcement, only to fall
back the next day or by the end of the week.  This time,
sellers wasted no time.  The shot in the arm didn’t work at
all this time.

    The FOMC published its usual press release.  It
admitted what everyone suspects: slow growth ahead.

    Recent information indicates that economic
    activity remains weak. Household and business
    spending has been subdued and labor markets have
    softened further. Financial markets remain under
    considerable stress, and tight credit conditions
    and the deepening housing contraction are likely
    to weigh on economic growth over the next few
    quarters.

    The FED’s approach has always been to accent the
positive.  When the positive is barely visible, the FED
emphasizes as much of it as it can.

    Economic growth never departs entirely in a FED
announcement.  Whenever economic growth plays hide and go
seek, the FED announces, “We can see you!  You can’t hide
from us!”

    Look at the words in the announcement: “weak,”
“subdued,” “softened,” “considerable stress.”  This is
indicative of an economy under pressure, but not in
recession today.

    Then there is the familiar refrain, which is rarely
absent from any FED announcement.

    Still, uncertainty about the inflation outlook
    remains high. It will be necessary to continue to
    monitor inflation developments carefully.

    Year after year, decade after decade, the FED
continues to monitor price inflation.  Price inflation does
not go away.  It seems to exist in order to make work for
Federal Reserve statisticians.  Entire careers are devoted
to monitoring price inflation.  ”There’s always more where
that came from!”  And there almost always is.

    The key to a successful illusion is the illusionist’s
ability to get the audience to focus its attention on
something peripheral.  That’s why he uses a wand.  Or he
may wave his hands in some flashy way.  ”The action is over
here.”  No, it isn’t.  Let me show you how this works.

    The substantial easing of monetary policy to
    date, combined with ongoing measures to foster
    market liquidity, should help to promote moderate
    growth over time and to mitigate risks to
    economic activity.

    “Yes, sir, watch the easing of monetary policy.”  They
mean: “Watch our announcement that it’s there.”

    I prefer to watch the FED’s figures on monetary policy
rather than the FED’s official press releases.  The FED can
control only one monetary aggregate directly: the monetary
base.  It buys, sells, or holds assets that serve as a
legal reserve for the nation’s commercial banks.

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