Obfuscation is an art form in which the Federal Reserve Board excels. It follows a few simple rules:
- Never use a word or phrase that is simple and widely understood when a word is available that is less well known (e.g., “obfuscation” instead of “confusion”).
- Act as though you know what you’re talking about.
- Act as though everyone else knows what you’re talking about.
- Ignore failure and act as though you’ve succeeded. No one will know the difference.
First, we had “quantitative easing.” The Fed couldn’t just call it bond buying. What does “quantitative easing” mean? Is it the opposite of qualitative easing? Or quantitative hardening? How does one go about easing quantitatively? What exactly is being eased?
The Fed couldn’t just reduce its bond buying – it had to “taper” its bond purchases.
The Fed also flirted with “forward guidance,” which, as we’ve previously explained, is simply talking about what you’re going to do without doing it. Mario Draghi, chair of the European Central Bank has perfected this technique. Too bad The Fed hasn’t, because it could have avoided buying trillions of dollars in bonds it will soon have to sell.