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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED
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To: edamo who wrote (33979)3/19/2001 11:45:11 PM
From: FR1  Read Replies (2) of 65232
 
but the real responsibility is at the feet of the federal government who has the ability to control the fed reserve, and if required, abolish it with the sweep of a pen..

That's what I have always felt. Congress should at least tell (IN LAW) the FED that their job is to act only in an extreme emergency - war, international financial collapse, inflation that is clearly out of control. Otherwise they are not to raise or lower interest rates and let the market work.

It is significant to note that not one single news source points this out.

It will never happen because all 4 of the major players in our society do not want it to happen:

1) Congress wants to blame the FED if anything goes wrong. If they tell them not to act, the FED will constantly be blaming congress for tying its hands.

2) The newspapers love the idea of the current situation. A crisis every year. Suspense every day. It sells tons of newspapers and lots of ad time. If the FED simply kept out of the news and waited for an emergency it would be dull and boring.

3) Wall Street actually likes the FED. Most fund managers are restricted in what they can invest in by law. Consequently, most funds do 20 - 30%/year in a good year. If the FED was not around to kill the market every few years, people would all invest in high growth stocks and make the fund managers look like fools. In early 2000 mosty fund managers looked foolish. After the FED kills the economy the fund managers can all say "You see - it was a bubble and I am here to save you from that."

4) The FED won't quit doing this because they are all academics. Academics do not live for money. They live to have their superior intellect proved right. They want to be on the cover of Time Magazine with the label "Genius of the century". You can not be proven right if you do nothing. So the FED is constantly fiddling with the interest rates and then claming afterward that they were being proactive and saved us from a impending terrible fate. The FED assumes nobody will notice that they have changed their job description from "crisis intervention only" to "proactive intervention whenever your hunch says do it". Also note that there is no way that you can prove the FED wrong. When Junior throws rocks at cars and the cop asks him why he is doing it, Junior says "To scare away the tigers!". The cop says "There are no tigers around here!". Junior says "Yeah, thanks to me!!". The press and Wall Street, for the reasons above, always get around to painting the FED as a savior. They never point the finger at congress. It makes you feel like we are living in a kingdom in the medieval ages.

IMHO this kind of structure can never last. We are doomed to repeat this FED cycle several more times. Eventually the FED will start one of its rate hike rants and everyone will move their funds to Germany or China and not come back. It will take another 10 years for them to get strong enough but it will happen.
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