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Gold/Mining/Energy : Newmont Mining(NEM) & Newmont Gold(NGC) -- Ignore unavailable to you. Want to Upgrade?

To: gpowell who wrote (272)	7/6/1999 1:11:00 AM
From: ahhaha	Read Replies (1) \| Respond to of 587

Nothing was tried during '79 - '82. FED had lost most of its credibility. Few believed that they could maintain discipline. They had abused demand management tools to such an extreme degree that adding money to the system caused rates to rise through rational expectations. Those expectations were motivated by borrowing to beat or speculate upon rising prices. This is sometimes referred to as throwing gasoline on a fire in order to extinguish it. Once credibility was lost it didn't matter what the NY Fed was doing in the market, and the result was that the market took fed funds up to 21%. It wasn't the FED. They just went along with market pricing and posted whatever the interbank rate reached. This is a very important point. The 21% federal funds rate was not achieved by FED's selling of securities. It was the refusal of private banks to lend amongst themselves that did. The rate heights held and slowly fell so that little borrowing was occurring. There was little trust and FED couldn't come back in and start the demand management pumping game again, because the market had learned to withdraw fund availability. You have to restrict gasoline sales when terrorist activity is rife. The stock market reached an internal money bottom in Sept '81, but in Jan '82 Wall Street invented all sorts of reasons why the US must go bust. Wall Street always does this and it presents a lock 100% long opportunity with guarantees. The experts and pundits all agreed that the sky was falling and so they got the boys selling until Aug '82. By then FED felt they could go back in and start pumping because various factors including psychology seemed to suggest they could get away with it and the stock market was dangerously close to busting out on the down side and dropping to depression lows. The FED had to fight the war they failed to fight in 1931, and so on Aug 12, 1982, they opened the money flood gates and dared the market to chastise them. Lo and behold, the market didn't. It was a big surprise to the Board. The FED figured that if the market was going to damn the economy for what they had failed to do during the depression, then they might as well let the market damn the economy for what they did do in 1982. They are so courageous with your future. The funny thing about all this is that rates would have peaked in '78 at 12% had FED not gone back in and made an attempt to drive them down by flood gating. The inflation game at the structural level had lost its momentum by then and so the market had no need to apply Draconian measures except to bust the pretense of the FED and its insidiously stupid intervention. Thus, it was a moot issue as to whether the market would react negatively to FED pumping in '82, because it would have been moot in '79 with respect to economic factors provoking the 12% rates in the first place. None of this has anything to do with money supply targeting. In the mid '80s in order to win back confidence the FED started publishing money supply targets. It was a shell game because the country was in an extended recession and so money supply couldn't de expected to grow. The targets were meaningless. Then because the academic community finally saw the light 15 years after the fact and wanted to parade around showing that they had renounced Keynesian demand management, the FED launched the great experiment and started making an effort to create money at a rate commensurate to potential output. The problem was that they couldn't use flood gating to get people to do business. It was pushing on a string and the money targets they set were too low in the environment in which the country was operating. The FED set the targets as though it were 1972. The thinking was productivity is rising at 2% so we set money growth at 2% and we fix it there. Over long periods of time there is no question that this will create an environment of adamantine prosperity, but the amazing thing was that they should and could have gunned the money supply. They ended up making the same error they made in 1931 by adopting a "I'm disciplined" macho relative effective tight money supply policy when gunning it would not have caused rates to rise. We were in extended deflation so how could high money growth lead to inflation? You have to get deflation to at least flatten out first. The FED was fighting the last war like they always do. The result was that the money supply targeting seemed meaningless and when Greenspan freaked over nothing in '94 and tightened to prove his macho, the deflation accelerated. The tightening was a formal break with money targeting policy and a reversion to demand management. So was the reaction that it produced which was the money flood gating in '95 which caused the dynamic stock market move. The hardest thing for demand management types is to see that none of this has interest rate consequence. You must be in a demand regime for that to be the case. Last year with respect to Japan I heard so many comments built on the assumption that money supply growth and rates are inversely related. It is surprising that few have come out of the Japanese experience with a realization that the inverse relation is not fixed. To the extent that economy is in a demand regime, to that extent is the inverse relation rigid. In any regime it is critical to let the market determine the cost of the funds the central bank creates, whatever quantity they create. The central bank can control the quantity of money, but it can't use the quantity of money created to control the pricing of money. To do otherwise is pretense to knowledge and as long as it is in place there will not be long term planning horizons in economics. That means there is no long term in the stock market. So there you have it: money managers with their index fingers twitching above right click to confirm the sale. The FED never gets it right. The result is wild in the streets. Every action they take is wrong. EVERY. When you assimilate this you will have learned. Who has learned? Not the clowns who call themselves "monetarists" and certainly not all the names you have heard in the modern era. When these events of the past were occurring the leaders, if you can call them that, were organizing protests against the evil and greed of corporations in order to bring about the socialist fair society. Now we have trusted these kiddies with the keys to the kingdom?. They haven't got a clue. They're a disgrace to the concept of central banking. They have compromised principle in the only place where you can't afford to do that. The market doesn't have to go along with this pretense, but it will up to the quantity of suffering of the previous era. This year the market has been diverging from pretense. In '79 the bankers had learned to follow the market. Now they are amateurs and socialists which came out of the "revolution", and so they haven't any idea about what action to take. Also, from their socialist realism they have become greedy and so they will try to be opportunistic. They'll adapt to any squat the FED wants dish out. That's what the boys learned during the '70s after they copped a similar attitude and it failed. The only problem now with adaptation is that the Net will be log jammed when they try to get out.