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p$u
Guest
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 Posted:
Mon Nov 07, 2005 1:00 am Post subject:
fed policy - Mr Greenspan you will be missed |
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What do people think of the current debate on Bernanke's belief in
'constrained-discretion'? Is it true that if the Fed were more open
about its inflation targets, that it would place undue pressure on the
policy makers at the central bank to achieve those targets, and would
this in turn also mean that the markets will be more stable? Does this
not then lead to the possibility of a unchecked crisis of confidence in
the central bank, say if they consistently miss inflation targets over
some period of time? In extreme situations, does this in turn not lead
to chaos in the markets, and a loss of the ability of the fed chairman
to reign in that chaos (since investors would then worry that the
policies aren't working, and thus, the fed has no idea what it is
doing?) Is the ability of the fed chairman to bluff once in awhile key
to maintaining confidence in the central bank?
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Perpetual Bull
Guest
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| Posted:
Mon Nov 07, 2005 1:00 am Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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| Quote: | ... and would this in turn also mean that the markets will be more stable?
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MORE stable? Are you kidding me? Pull up those historical S&P 500
charts and you will see that we have had one of the most stable general
markets ever, since 2003. Volatility has been at historic lows. You
think this is volatility now? Were you even trading 5 years ago?
In normal markets, you can easily see a +15% rally followed by a -10%
correction; or even +20% rises within the same time the general market
is falling -50% ! We are in an abnormal stock market right now, one
where no major moves happen.
| Quote: | ... say if they consistently miss inflation targets over some period of time?
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I didn't exactly follow your posts, but you should know that the
central bank's job is to deliberately create inflation -- dropping
rates causes a stimulus of liquidity which trickles into the economy as
a whole and drives up asset prices. They create wealth. It did
precisely this for the value of real estate, for the value of bonds
(now at all time highs) and for the stock market. |
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EMD
Guest
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| Posted:
Mon Nov 07, 2005 1:00 am Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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NO...we do NOT need the Fed or a Fed.....the mkts will
take care of rates and inflation.....as they've always done.....
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Pies de Arcilla
Guest
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| Posted:
Mon Nov 07, 2005 8:02 am Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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Perpetual Bull wrote:
| Quote: | I didn't exactly follow your posts, but you should know that the
central bank's job is to deliberately create inflation -- dropping
rates causes a stimulus of liquidity which trickles into the economy as
a whole and drives up asset prices. They create wealth. It did
precisely this for the value of real estate, for the value of bonds
(now at all time highs) and for the stock market.
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What happened in the 1970's? |
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Perpetual Bull
Guest
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| Posted:
Mon Nov 07, 2005 9:00 am Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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| Quote: | I didn't exactly follow your posts, but you should know that the
central bank's job is to deliberately create inflation -- dropping
rates causes a stimulus of liquidity which trickles into the economy as
a whole and drives up asset prices. They create wealth. It did
precisely this for the value of real estate, for the value of bonds
(now at all time highs) and for the stock market.
What happened in the 1970's?
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The average fed funds rate from 1961 to 1967 was 3.5%, quite a low rate
that stimulates asset values (was a recovery period). From what I have
read, the money supply was growing quite rapidly around 1964 and demand
for loans was quite strong. There is always a delay...
Then Inflation became apparent -- there's more to this than just the
federal reserve, but they played a role. Commodity prices went through
the roof and the fed had to tighten credit. That's how they can
control inflation, get that runaway money under control.
Volcker is the one who fixed the mess, by tightening credit he brought
stability to the system. What a guy... put fed rates over 10% and the
bonds soon followed. That's what put the system back in check. Strong
medicine would set us right today too; it's about keeping the economy
running in the future, not just this quarter. |
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Perpetual Bull
Guest
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| Posted:
Mon Nov 07, 2005 5:01 pm Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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| Quote: | I didn't exactly follow your posts, but you should know that the
central bank's job is to deliberately create inflation -- dropping
rates causes a stimulus of liquidity which trickles into the economy as
a whole and drives up asset prices. They create wealth. It did
precisely this for the value of real estate, for the value of bonds
(now at all time highs) and for the stock market.
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Just to clarify this point, the central bank obviously hopes to avoid
runaway inflation but they are after SOME inflation. Don't believe me?
http://finance.yahoo.com/columnist/article/futureinvest/1391
"Bernanke has extensively studied the destructive effects of deflation,
and he concluded that by keeping the inflation rate comfortably above
zero, but not at level that is harmful to the economy, policymakers can
minimize the probability the economy faces the deflationary dilemma."
Anyway, I'm one dude who will NOT miss Greenspan -- who has sent
American markets to the brink of disaster by throwing free money at a
fundamentally weak economy. Now both consumers and businesses, from
Joe next door to Citigroup are basically bankrupt. There is excessive
speculation, excessive use of leverage, and a mad addiction to lending.
Not to mention undeniable inflation in commodities and other goods and
services.
http://www.perpetualbull.com/
The federal reserve MUST now keep raising interest rates, otherwise we
are headed for a bonds meltdown or USD disaster. I would be shocked if
Bernanke doesn't understand this, but he is really making it sound like
he will continue along Greenspan's destructive path by encouraging
inflation. This guy talks about dropping free money from helicopters.
Let me guarantee you, if he does this America will be in shambles
within a decade. |
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p$u
Guest
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| Posted:
Mon Nov 07, 2005 5:01 pm Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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Under ordinary circumstances the markets would take care of these
things, but i'm referring to periods of crisis. Having a fed / central
bank that controls the influx of capital through a control on credit
clearly has many advantages over a free for all system. What about
during periods of depression or when the market crashes? How does one
restimulate the economy except by infusing new capital (not too much to
cause inflation, but just enough to stimulate new investment) to get
things moving forward again. The creation of wealth is quite an
important function is it not? |
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p$u
Guest
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| Posted:
Mon Nov 07, 2005 5:01 pm Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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I'm not saying *more* stable with respect to the current markets, i'm
referring to stability in *general*. If there are well defined
inflation targets, doesn't this then trickle down by limiting interest
rate risk, since we then know (or have a better idea of) what the value
of the dollar might be relative to some other currency in the near
future? If i'm not misunderstanding things, the interest rate is the
*cost of borrowing*, which to me implies that directly affects the
value of the dollar.
My whole post is about whether people like the idea that Bernanke plans
to have well defined targets, and then will attempt to implement
policies that will try to reach those targets; as opposed to the
Greenspan approach where the inflation target would not be announced
beforehand. I realize that it is the job of the fed to maintain a
healthy inflation rate, that isn't the point in question. I would like
to understand *HOW* Bernanke's policy of 'constrained-discretion' as he
calls it would affect market confidence in the Fed. |
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Perpetual Bull
Guest
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| Posted:
Mon Nov 07, 2005 5:01 pm Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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| Quote: | Under ordinary circumstances the markets would take care of these
things, but i'm referring to periods of crisis. Having a fed / central
bank that controls the influx of capital through a control on credit
clearly has many advantages over a free for all system. What about
during periods of depression or when the market crashes? How does one
restimulate the economy except by infusing new capital (not too much to
cause inflation, but just enough to stimulate new investment) to get
things moving forward again. The creation of wealth is quite an
important function is it not?
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I agree, it sounds like a good system! And many central banks are very
responsible. But Greenspan has acted irresponsibly, directly
encouraging consumers to take on variable rate debts (ARMs) while he
pumped up the new asset bubble. Not only did he fail to act to prevent
the 1999 insanity, but 4 years after that he was too gutless to tighten
the exponential credit expansion that resumed.
I'm not a conspiracy theorist. He meant well, but he failed to act
responsibly and in the best interest of the country.
Yes, central banks should stimulate the economy with easy money when it
is needed but if there is too much stimulus -- too much free money --
credit growth gets out of control. It is out of control right now,
there is excess credit, excess liquidity. The central bank should have
put a stop to this earlier, instead they kept fanning the flames:
http://www.perpetualbull.com/creditdebt.png
There is no way they are going to control the current credit and
inflation problem by raising rates little by little. Don't get fooled
into thinking we're reaching some sort of equilibrium. |
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Perpetual Bull
Guest
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| Posted:
Mon Nov 07, 2005 5:01 pm Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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| Quote: | I'm not saying *more* stable with respect to the current markets, i'm
referring to stability in *general*. If there are well defined
inflation targets, doesn't this then trickle down by limiting interest
rate risk
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No, I don't think so. The problem is that government measures of
inflation are notoriously bad. They are so far off from reality. Look
at what has happened to the price of homes, price of fuel, natural gas,
electricity utility bills. Do you really think this is just low single
digit inflation as the government suggests? Not even close. The stats
are wrong.
There is a disconnect between REAL inflation as felt by citizens and
inflation as the central bank sees and reports it. This is why the
idea of an inflation target is useless. Adhering to that rule, the Fed
would keep interest rates low for too long until their phony inflation
measures start to look dangerous. Then credit and asset prices would
be so out of control that either an "event" would occur, or interest
rates would have to go through the roof.
I don't see it as introducing stability, if anything I see it as
destabilizing. That's just because of the ineffectiveness of
government measures of inflation, plus the time delay between detection
and action.
| Quote: | My whole post is about whether people like the idea that Bernanke plans
to have well defined targets, and then will attempt to implement
policies that will try to reach those targets; as opposed to the
Greenspan approach where the inflation target would not be announced
beforehand.
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I don't like it, and I doubt that bond traders like it either. The
bias in such a system would be dangerously in favor of the inflation
side -- both because 1) Bernake already stated he is biased towards
inflation, and 2) the government inflation measures are faulty. I
think a disaster is brewing unless Bernake acknowledges the need for
tightening from the obvious credit and inflation problem today. |
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p$u
Guest
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| Posted:
Tue Nov 08, 2005 1:00 am Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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| Quote: | No, I don't think so. The problem is that government measures of
inflation are notoriously bad. They are so far off from reality. Look
at what has happened to the price of homes, price of fuel, natural gas,
electricity utility bills. Do you really think this is just low single
digit inflation as the government suggests? Not even close. The stats
are wrong.
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But how can you use real estate and the prices of natural gas and other
energy commodities to generalize to the entire consumer goods market? I
don't think there is a case of *general inflation*. I think that there
are fundamental issues of supply/demand at work with respect to those
specific examples you gave, especially now due to investment
uncertainties (arising from fears of corporate scandals and not
investment bubbles) and the need for capital due to war, natural
disasters, and so on. Real estate's value is derived in a different way
than oil or natural gas. This isn't so much *inflation* as a problem of
constricted supply, and worries regarding the future supply. Inflation
suggests that they are overpriced due to factors other than
supply/demand ...right? Inflation has to do with perceived value,
whereas an asset's true value is derived from supply/demand equilibria.
Am I way off base? |
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p$u
Guest
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| Posted:
Tue Nov 08, 2005 1:00 am Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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Also, if the prices of other commodities are up, its purely due to
increased transportation costs ... trickling up from increased energy
prices. |
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Perpetual Bull
Guest
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| Posted:
Wed Nov 09, 2005 1:01 am Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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For a good article on this (which I think is spot on), see
http://www.mises.org/story/1947
Also a very interesting quote from Alan Greenspan many years ago:
"The law of supply and demand is not to be conned. As the supply of
money (of claims) increases relative to the supply of tangible assets
in the economy, prices must eventually rise. Thus the earnings saved by
the productive members of the society lose value in terms of goods.
When the economy's books are finally balanced, one finds that this
loss in value represents the goods purchased by the government for
welfare or other purposes with the money proceeds of the government
bonds financed by bank credit expansion." |
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Perpetual Bull
Guest
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| Posted:
Wed Nov 09, 2005 1:01 am Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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| Quote: | But how can you use real estate and the prices of natural gas and other
energy commodities to generalize to the entire consumer goods market?
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There's more to costs faced by the consumer than these things
certainly, but I'm pointing out that it is hard to argue that inflation
isn't a problem when housing and energy costs are skyrocketing as they
are. There are other inputs yes.
| Quote: | than oil or natural gas. This isn't so much *inflation* as a problem of
constricted supply, and worries regarding the future supply. Inflation
suggests that they are overpriced due to factors other than
supply/demand ...right? Inflation has to do with perceived value,
whereas an asset's true value is derived from supply/demand equilibria.
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I certainly understand what you are saying, but I subscribe to a
slightly different economic theory. I think there is a substantial
effect from the supply/demand relationship of MONEY. Supply of money
includes liquidity and credit, which many economists argue trickles
through the economy and causes increased demand in many things --
energy being one of them.
So in my view, the Federal Reserve controls a vital part of the global
economy in the form of supply of money and credit. If there is
inflation in commodities and asset classes, then the Federal Reserve
can have an effect by restricting money supply.
I guarantee you that if the Fed actually raises interest rates to
reasonable levels, maybe a few half-percent increases, you will find
that some of those inflated asset prices (bonds, real estate, energy)
come down. |
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Bruno R
Guest
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| Posted:
Wed Nov 09, 2005 5:00 pm Post subject:
Re: fed policy - Mr Greenspan you will be missed |
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Perpetual Bull wrote:
| Quote: | For a good article on this (which I think is spot on), see
http://www.mises.org/story/1947
Also a very interesting quote from Alan Greenspan many years ago:
"The law of supply and demand is not to be conned. As the supply of
money (of claims) increases relative to the supply of tangible assets
in the economy, prices must eventually rise............"
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........and rising prices makes most people happy and that's the way it is! |
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