MB - (...If the Fed was to raise interest rates at home right now, it would slow the economy and perhaps burst the stock market bubble...)
Your points about there being other factors besides interest rates are certainly true.
The primary missions of the FED are the soundness of the currency, and to maintain the functioning of the financial markets that are needed for a healthy economy, either in expansion or in contraction.
The Austrian viewpoint would seem to require as little interference with the economy and the markets as possible, subject to the structural realities that have tied the FED and the government fairly tightly into the economy and the markets.
If the FED allows the bubble to either deflate or burst on its own, it will then have a better chance of being able to minimize the damage to the real economy. If it deliberately acts to burst the bubble, and then has to quickly reverse course, that will make the markets even more skittish in trying to beat the FED to possible FED actions in the future. In any case, I suspect that the current market runup in rates is preferable to actual FED action.
While the FED has undoubtedly contributed to the current bubble, the bubble was probably inevitable due to the fact of the relative economic health of the U.S. vs the rest of the world, as well as the momentum factor.
Regards, Don |
