making the "market interest rate" perpetually too low
It cracks me up that while you know that there is no free market for money you still think that in the absence of a free market where the single most important signal is price, the thing that conveys the most information about the state of the market....that you can know that price is "too low". If the price is fixed it isn't possible to know if it is too high or too low. Get it?
And no the Fed doesn't set the "market rate" by announcing it. They help create the "market rate" by creating money and removing it from the economy through injections of debt and regulatory changes.
Not quite accurate, but then you aren't particularly articulate. I think I might have actually been the first who explained the entire mechanism to you and you still don't understand it.
For those who really do want to know the mechanism by which the Fed defends the FF rate that they announce (as opposed to Elroy who clearly could care less about accuracy in his puerile posts) The Fed doesn't inject debt. The Fed buys existing debt, they don't "inject debt". They defend the FF rate using short term repos that automatically reverse themselves within a period of time (they occasionally use reverse repos to defend the rate on the downside), so the reserves they create aren't permanent. No bank would make loans to the public on temporary, this is the part the nuts who go on and on about temporary always forget to mention. The FF rate is the rate used for interbank borrowing, when banks have temporary shortages in their reserves or excesses that they would lend to another bank. Temporary only raises the total reserves from which banks can lend if it persists, if the free float rises and stays high.
The Fed doesn't start the process of creating higher transactional balances (the thing we call the money supply, M1 and M2) until they do a permanent coupon pass (nothing to do with defending the FF rate). This is where they buy Tbonds or other bonds and hold them to maturity (or sell them when they want to contract). This has the effect of raising reserves in the system, the base from which loans can be made. But this still doesn't create money. It just increases the amount in the system by which loans can be made.
To say that the Fed is ahead of themselves, or behind themselves, because their posted rate varies from the "market rate" they create through their actions is an oxymoron.
Well then you agree with me that you can't say that the Fed sets the rate correctly or incorrectly. You have no idea how important the point I was really making and that is it isn't possible to know if the rate is "right". This would be true even if it was set by the free market without the Fed interference. The best you can hope for is that various market participants who disagree with the price will be spurred on to discover additional information to support their convictions, discovery which is expensive, and add that bit of information to price with their actions pushing the price closer to equilibrium.
This is the essential insanity of Monetarism which you have defended for so many years.
I have never defended Monetarism, I've explained it because I can't stand the idea that you'll infect others with your false information, as I did above by correcting your idiotic explanation of how the FF rate is defended. You've attacked it using me as your whipping post. I and several others here have pointed out that you can't even accurately define what it is that you are attacking. You can't define Monetarism and still can't. You have a child's understanding of how the monetary system works. Apparently, looking at the number of recs you got so do a lot of other people here as well, you've hit the lowest common denominator here.
Why not go slap around Barney Frank? He was crying for a cut. As long as types like him are elected we'll have the people continually crying for the Fed to keep rates below real to bail 'em out. |
