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Non-Tech : Tulipomania Blowoff Contest: Why and When will it end?
YHOO 52.580.0%Jun 26 5:00 PM EST
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To: KeepItSimple who wrote (2687)3/13/2000 12:10:00 AM
From: Hawkmoon  Read Replies (1) of 3543
 
KIS,

Applying the K.I.S.S. principle to Fed policy may sound useful, but I perceive it is a bit more complicated than that.

briefing.com

One, productivity is something that AG claims is difficult to fake since the data is effectively measured. That said, so long as productivity continues and inflation remains contained, restricting money supply effectively places an uneccessary artificial chokehold on the economy.
If anything will cause the economy to collapse it would be such a heavy handed Fed making irrational conclusions as to how fast the economy can actually grow.

And that would place the Fed in even greater disrepute and undermine their power. The Fed exists to keep the economy under control and maintain a safe and stable monetary system. Draining liquidity to a percentage rate that is minus the rate of economic growth would be tantamount to overreaction to nonexistent inflationary pressures.

If the Fed is worried about the stock market, they will just raise rates until people are attracted to the real return in safe debt instruments as opposed to the equity markets. In a highly productive economy, interest rates will need to be higher than in an inefficient economy. Already, we can see the DOW being broken by the faster growing Nasdaq stocks. And within the Nas, a sector rotation that constantly shifts to the industry promising the greatest growth prospects.

Regards,

Ron
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