The Fed as "Pusher"

I strongly disagree with this op-ed, the NYTimes ran:

At Long Last, Stocks Get a Jolt by William D. Cohan

What happened to change the mood so dramatically, so quickly? Is the panic selling justified — or is it just the first glimmer of hope that the Fed will finally take the metaphorical morphine drip out of the arm of the capital markets and allow the forces of supply and demand[!] to set long-term interest rates?

Like the Great Depression happened because the forces of supply and demand and panic were allowed to run rampant.

Demand management is set by the government in concert with the private sector. The government utilizes monetary and fiscal policy to set demand levels - up to a point. If the private sector is bubblicious, the government should take away the punch bowl and reign it back int. If the private sector is fearful, depressed and sitting on their cash, the government should inject some "metaphorical morphine drip" and help boost demand and employment.

The economy should not have a large output gap (which grinds away at long-term growth potential and productivity) just because the private sector is malfunctioning.

Fear Is Contagious by David Glasner

...

But for a contrary view, have a look at theeditorial (“Monetary Withdrawal Symptom”) in Friday’s Wall Street Journal, as well as an op-ed piece by an asset fund manager, Romain Hatchuel, (“Central Banks and the Borrowing Addiction”). Both characterize central banks as drug pushers who have induced hundreds of millions, if not billions, of people around the world to become debt addicts. Hatchuel sees some deep significance in the fact that total indebtedness has, since 1980, increased as fast as GDP, while from 1950 to 1980 total indebtedness increased at a much slower rate.

Um, if more people are borrowing, more people are lending, so the mere fact that total indebtedness has increased faster in the last 30 years than it did in the previous 30 years says nothing about debt addiction. It simply says that more people have been gaining access to credit markets in recent years than had access to credit markets in the 1950s, 1960s and 1970s. If we are so addicted to debt, how come real interest rates are so low? If a growing epidemic of debt addiction started in 1980, shouldn’t real interest rates have been rising steadily since then? Guess what? Real interest rates have been falling steadily since 1982. The Wall Street Journal strikes (out) again.

The NYTimes editorial board did run this editorial which agrees with Krugman that the Fed has little to be optimistic about.

The Fed’s Next Move by the Editorial Board