1) As a consequence of "massive" credit growth that distorts the cost of credit, such that there is the "illusion" that the cost of money is exceptionally low, if not free, and if as a result asset prices are distorted because the lack of "real" returns on savings encourage holders of financial assets to speculate so as to obtain a real return on their capital,
To believe this one would have to believe there isn't a free market in credit. Credit markets are notoriously free. They can't be controlled by the FED. Proof: you don't have to play.
2) In a stable monetary environment, where the "real" cost of money is not artificially depressed, and prices in an asset class rise because of increased scarcity of the asset class relative to the rest of the economy.
This claim is ambiguous. The cost of money is never depressed and can never be manipulated even by FED except over short periods of time. Proof: at some terms you would withdraw from the credit market.
((Historically RE rises in price when interest rates fall. This occurred even before there was a Fed to set short term rates or make permanent passes.))
Well, manipulation of the money supply certainly didn't begin with the Fed ... although, they would seem to have perfected the art.
FED wished they could manipulate money supply to the extent you imply. They've tried all degrees of excess and dearth and all of them failed to achieve their implied policy objectives. One noteworthy attempt was in the late '80 early '90s when FED tried to implement Friedman's program of money supply targeting. It worked exactly as it should, but FED and Friedman expected something else, something that couldn't ever happen, along the lines of stable prosperity. They got it but they it didn't deliver what they expected, so they abandoned it. Money didn't matter and Friedman tended to agree even though it worked as it should. Nothing like being right and thinking you were wrong. Nothing like losing patience with something that's good but doesn't deliver instant gratification.
Regarding the above, I love the following introduction to Chapter 9 of G Edward Griffin's The Creature from Jekyll Island ... "The condensed history of fractional reserve banking; the unbroken record of fraud, booms, busts, and economic chaos; the formation of the Bank of England, the world's first central bank, which then became the model for the Federal Reserve System."
Griffin attributes to a credit creation method things that have nothing to do with it. And, by the way, FED wasn't modelled after BOE. There are few similarities between the two.
That says it all really.
It says nothing. If you disagree, put some claims of Griffin up and I will crush them to within your technical comprehension.
Then again, I'm probably as much of a dullard when it comes to economics as I am about history, so perhaps ahah could make an appearance again on this forum and set me straight on these matters. However, he is SO brilliant, I probably won't be able to even BEGIN to comprehend his insightful analysis.
I can dumb it down. |
