Most of shifts in the monetary aggregates over the last 30 years are the result of increasing wealth, individual choice, and financial innovation in an era of relaxing regulation. In fact, much financial regulation was rendered moot by financial innovation prior to that regulation being repealed. For instance, regulation Q (abolished in 1980), which set the maximum interest rate that could be paid to demand deposit accounts, had already been circumvented by NOW and MMMF accounts.
The point is when looking at the monetary aggregates one must keep in mind that the Federal Reserve is not necessarily the primary cause of every wrinkle and shift. But, that is not to say that Federal Reserve actions are not without real consequences. Thus, the mission of this thread is to analyze the actions of all market participants, government and its agencies included, giving proper accounting to each.
For some this may seem an obvious mission, but too often among popular accounts of economic activity there is an assumption that the public’s tastes and preferences are fixed, and therefore, any change in relative prices (house prices for instance) must come from government interference.
Consider this post, for instance:
Message 21547164
Free market interest rates and no creation of money in excess of savings? Sounds good to me. Your house would still sell for the same amount of money you paid for it in the 70's. Could you live with that ?
Apparently this poster has never heard of goods with an income elasticity greater than one: tutor2u.net
The original poster (OP) must either assume an income elasticity of one, or that wealth growth is zero. Whatever the actual hidden assumption, the result of such erroneous assumptions is bound to lead to a sub-optimal portfolio allocation. |
