You made Thread talk..way to go!
siliconinvestor.com
2001: An economic odyssey
A Silicon Investor Highlight
By David Zgodzinski
December 28, 2000
"I'd like to introduce my nomination for the next Chairman of the Federal Reserve. We call him -- Al 9000."
There was a gasp in the crowd of reporters as President Bush unveiled the server, a monolithic box with unblinking red lights. Long ago, Nobel economics laureate Milton Friedman advocated putting a computer in charge of the money supply and interest rate decisions. According to monetarist theory, steady mechanical monetary growth would alleviate boom/bust cycles and make for a smoothly growing economy. The President had decided to make that technological leap.
Mr. Bush explained with a smile, "The '9000' stands for the level of the Nasdaq at the end of my first term, based on Al's future fair value computations."
It was necessary to replace Mr. Greenspan with Al 9000 after the ex-Chairman's bungling led to the great recession of 2001. Ron Reece explained Mr. G's misstep to the Ask Michael Burke thread back on Dec. 23, 2000 . . .
12 months ago AG was all about trying to soothe nervous investors who could have created a self-fulfilling prophecy by causing a Y2K financial crash. But AG flooded the system with liquidity, made everyone feel comfy and maintained a positive psychology.
But as you will note, right after Y2K, AG was decreasing liquidity and reaching the top of the rate hikes. So now we're around 1% real money supply growth as opposed to 16% reached last year. He got us drunk on liquidity, and then suddenly made us go "cold turkey" and we're having serious withdrawal symptoms that we wouldn't have to go through were he to give us a little economic "methadone" to tide us by until he finishes getting us back on an even keel.
There were certainly enough warnings that the Fed had overreacted to meager signs of inflation and that more pain than necessary was being inflicted on the nation. But humans have an inclination to meddle with monetary affairs. And after all, fiddling with the rates is the Fed's main function.
How else could the Chairman really justify a nice salary, lots of government perquisites and the rapt attention of the media? Two books about Mr. Greenspan had been published almost simultaneously. Was he showing off to stomp on the neck of the economy by raising rates too often and then stubbornly refusing to back down?
Sam Sara observed to the Home on the range where the buffalo roam thread . . .
The phenomenon of the Fed is a bizarre one. It is not a stretch to say that they are becoming the most-watched institution in this country. Their function, as far as I can tell, is to dampen volatility in economy, and that is a good thing to have as a goal. I have my doubts as to whether the Fed as an institution is the best way to do it. I wish I had a better idea.
Well, after the freezing-up of the economy in 2001, the new administration felt that it had to come up with a superior system, and perhaps take down the visibility of the Fed a notch or two. Computers don't have knee-jerk reactions and emotional handicaps that can cloud the decision-making of even the most dispassionate of bankers. Hence the program to develop Al 9000.
Mr. Bush said, "We believe we have the technology to do the job." The way Mr. Bush pronounced "technology," you could tell it was important.
Mr. Greenspan and the Fed should have seen the problems coming. John Lacelle wrote about the hazards of the market on Christmas Eve of 2000. . .
I myself am starting to see some opportunity to get into companies that I always thought were overpriced but still don't see the bottom yet. Scary stock market. If I was George W., I would be very concerned that a lot of Americans have been wiped out and we are headed into an ugly recession.
Sure enough, even before he took office, Mr. Bush remarked that the economy might be changing course from North to South. No doubt the new President wanted to make sure the nation understood that the turn of the wheel did not occur on his watch. Still, the very mention of the "R" word by the incoming President on the eve of Christmas was less than a confidence builder, and might have exacerbated the situation. Zeev Hed wrote to the Currencies and the Global Capital Markets thread that consumers were still in a spending mood for Christmas . . .
I for one believe that confidence is a major factor in the market and a real bottom will not be put in place until confidence is "shattered". I still remember the days when the Michigan (Consumer confidence) survey was reading in the 70 range not the 130 as it is right now. Sure it has declined a lot, but it could decline much more. Bush/Cheney talk about a recession surely could help that Michigan index down quite rapidly. I think that they have already sealed their fate to be a "single term" team.
But Paul Engel wrote . . .
Every day old and new economy companies are reporting NEGATIVE news for their business - A T & T, Lucent, Georgia Pacific, Gilette, Coke, Merrill Lynch, Intel, Microsoft, AMD - EVERY BODY !! Fact - WE ARE IN A MAJOR SLOW down that could VERY WELL be on the slope downwards into a recession. Why the hell can't Bush talk about this? It is REAL!
Computers can measure tiny fluctuations and detect signals that can't be measured by humans, especially humans in their 70s who wear thick glasses. The problem with human economists and central bankers has been amply demonstrated in recessions of the past. By the time they gather the data, check the figures and plug them into their models, and finally determine that we are officially in a slowdown, every car salesman knows that we've already been underwater for six months.
On Dec. 22, 2000, Earlie warned . . .
I note a bit of discussion on the thread pertaining to the possibilities of a recession. All the stuff we track at this end says that we are already well into it. Haven't seen things come unglued so quickly, . . . ever.
The incoming President may or may not have established that he was not to blame for the problem, but the solution was definitely his baby. And unfortunately he inherited some baggage from the outgoing administration. Yaacov wrote to the Stock Attack - A Complete Analysis thread . . .
Bush team will not allow the Feds to screw this thing up! Democrats don't mind to screw the GOP but Bush will not make the same mistake his dad made! You mark my word, AG will not finish his term, he will go away! I believe George Bush Sr. gave one advice to his son, don't let AG cost you a re-election, get rid of him!
President Bush explained the benefits of the new system. "Al 9000 will be connected to the Internet, and will monitor millions of other computers. This will act as an early warning system in case of any economic problems. If inventories are going up and production numbers are getting soft, Al 9000 will be able to spot the changes and alert the rest of the Federal Reserve, recommending the proper procedures. Vice-President Cheney and I are certain that the economy will begin to improve once Al 9000 goes online."
The Chaircomputer would not only crunch up the right monetary policy to guide the nation out of recession, but the proper application of technological economics would keep recessions from occurring in the future. At least that was the theory.
Now, there are those who believe that recessions are almost acts of God, part of the grand natural cycle. AntMan wrote to fellow posters at the CLOWN-FREE ZONE... sorry, no clowns allowed thread . . .
Not that i disagree that people losing jobs, etc, is bad. but do you see any good in such things? like a forest fire, while it kills stuff, also provides for new growth. if we don't ever have glitches in markets or economies, we never work off the garbage like excess production, bad investment, etc.
heinz blasnik seemed to imply that recessions are medicinal . . .
Recessions are per se not a bad thing. especially REGULAR recessions, that allow the excesses of the preceding boom to be cleared out in a relatively quick and painless manner, restoring the economy's long term health. what doesn't work are protracted, artificial booms. . .they can only resolve in equally protracted, and very painful downturns.
But like forest fires, recessions are difficult to control. When businesses close and people lose their jobs, fear takes hold. It begins to seem that everything is on a clearance sale, everything solid wants to become liquid. Investors switch from seeking opportunity to seeking shelter.
Some think about the safety of real estate. But Mark Goldshein warned the Gorilla and King Portfolio candidates thread . . .
Gold, oil, diamonds, stocks, real estate, whatever, are only worth what somebody else is willing to pay for them at a given moment in time. The valuation of houses in your neighborhood can swing just as wildly as the price of Network Appliance __ just wait for the upcoming recession, continued pessimism amongst the affluent for major purchases, Greenspan's failure to act soon enough or forcefully enough with lowered interest rates, and one homeowner dying in a house where his relatives, itching to cash out, put the house on the market for thirty percent less than what a comparable house sold for last month.
marginmike was looking to foreign holdings as a means of protection . . .
I am thinking about taking all my dollars and buying Swiss francs and Euros. The dollar dies, then inflation, then massive recession. Bank puts and Foreign denominated bonds will be the only SAFE investment.
But KyrosL responded . . .
A deep recession in America will cause a depression in both Europe and Asia. America has much better chances than Europe to recover quickly from a recession in terms of demographics, public finances, and cultural attitudes. If you expect a depression in America, I think you are better off buying guns, freeze dried food, and a bunker in Montana, rather than Euros.
The dollar did begin to soften as the new administration took office, but alternatives to U.S. securities were also unappealing in some ways. As was the case in previous downturns, consumers and investors sat on their wallets and watched as the economy dropped. The compass needle fluttered back and forth between recession and inflation caused by currency devaluation. Steering the right course was a delicate task, and the Fed faltered.
There were plenty of questions at the news conference introducing Al 9000. Would the computer be considered a hawk or a dove on inflation? How would the rest of the Fed's Open Market Committee feel discussing economic policy with a computer? Then someone asked, "What is Al 9000's operating system?"
Mr. Bush responded happily "It's been specially programmed for us by some of the best software designer people at Microsoft. The government got a good deal on this because of certain legal arrangements that we have made with that great company."
A vision gripped many in the room -- the image of the sad, bespectacled face of Mr. Greenspan in an astronaut's suit as he gently floated out into space. |
