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Subject:  Rewarding bad behavior... Date:  12/13/2012  8:01 AM
Author:  notehound Number:  411175 of 565367

The Fed, by announcing in advance that they'll be there to extend cheap credit no matter how much or how little politicians tax or spend, is merely encouraging bad behavior. Or, as suggested below, it has created a case of ""Münchausen syndrome by proxy."

The Fed is repeating the same mistake that banks did in 2003-2007 by extending Home Equity Lines of Credit to homeowners who were funding lifestyle off their soon-to-be-diminished "home equity." We all know how that turned out.

Now, all the politicians need to do (to make sure they can keep kicking the can down the road) is make sure their policies will keep unemployment high enough to stay above 6.5% (which, according to Pimco's El-Erian is probably the "new normal" unemployment, anyway).

If the Fed were going to announce something that would be beneficial (long term), the Fed should have said "we will stop buying Treasurys on June 1, 2013, unless before then the Congress can come up with a fiscal deal that will balance the budget within 10 years." That might have started some serious fiscal adjustments. Instead, the Fed has promised more rewards for bad political/fiscal behavior.

Promising an addict that you will keep supplying him drugs so long as he continues to be bed-ridden gives the addict no motivation to try and get out of bed.

More accurately, the Fed has turned the entire political class into a neurotic/psychotic entity exhibiting symptoms of "Münchausen syndrome by proxy (MSbP/MSP), which refers to the abuse of another person, typically a child, in order to seek attention or sympathy for the abuser. It is an obsessive [desire] to create symptoms for the victim in order to obtain repeated medication or even operations."

So long as the politicians know the Fed will continue to give them cover to spend money we don't have - to buy votes and keep them in office - they will make sure the "sick child" of America's fiscal condition continues to elicit the sympathy of the good Doctor Bernanke.

Look for the markets to rally every time new layoffs are announced and to fall every time an improvement in the job numbers comes out.

Has no one in Washington, D.C. ever even taken a single college-level course in behavioral psychology?

Apparently not - and we're all the worse off for it, too.

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