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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: FR1 who wrote (909)	1/29/2001 10:49:04 PM
From: ahhaha	Respond to of 24758

It doesn't make sense to me that congress at some point told the FED to just go ahead and raise/lower rates anytime they wanted with no approval from congress whatsoever. Until 1978 there was no formal oversight. The FED is quasi governmental. It didn't come out of the Constitution, but was created by Congress in 1913 to govern or regulate the currency and member banks of the Federal Reserve System. It was created because the Panic of 1907 demonstrated that the economy had grown too large for any individual or strictly private organization to function as mediator of the nation's finances. In its first several decades the FED had very limited powers. The FED first started utilizing some entrusted powers specified under the Federal Reserve Act during the '20s and '30s. The Board and its constituents were inept at that time, mostly because they couldn't realistically exercise their implied powers and they were afraid that by doing so they would cause more harm than good. This status pretty much remained until the '60s. That's when the FED started getting significantly more activist. Someone pointed out to me that congress used to oversee and have to approve any rates changes that the FED wanted to do. Totally untrue. Congress has wisely chosen to stay out of the business of the FED, because the FED must operate much like the President. The President can take significant military action without Congress even knowing it. This admission of power has always been deemed necessary ijn order comply effectively with the Constitution's requirement to provide the common defense. Similarly the FED can't be constrained by the slow process of legislation when the financial world decides to self destruct. There's a limit on how far the President or FED can go before the Congress will override what they do. In 1978 Congress required that the FED Chairman provide an extensive review of how it is discharging its duty under stipulations legislated by Congress under the name of the Humphrey-Hawkins Act. Under this act the FED is required to reduce unemployment and contain inflation, with the former condition given priority. The financial community and the FED was willing to compromise some of its private status and power the FED had accrued during the interim years in exchange for an understanding that the FED would remain independent under Humphrey-Hawkins. By independence it is understood that the rate of interest and quantity of money in the economy is strictly under the determination of the FED. Congress has no say whatsoever about the proper rate of interest or about the quantity of money made available. They quit doing this because nobody wanted to be sitting on the committee that raised interest rates. The Congress did this because they recognized that setting monetary policy by committee would precipitate major and regular disasters far greater than the FED can engineer on their own. If Congress had attempted to specify the quantity of money the FED could create, it's certain that that quantity would be way too much. If this is true, wouldn't one solution be to make the FED get approval from congress before raising or lowering rates? If you think the FED is bad at getting it right, the Congress would be infinitely worse. The FED is bad because no one can get it right. That's why we have free markets. The FED is the last bastion of theoretical control. It will eventually be recognized that what the FED does should be done by the free market in money only. At that time the FED will retain much of its current function, it just won't interfere with the market's setting of rates. The FED will primarily create money at a rate proportional to some arbitrary constant factor like the intrinsic rate of creation of added wealth. in other words, just like the Post Office or a utility, the FED would need to plead their case and convince congress before making a move. Well, they do. Do you really think AG likes to go up the hill to explain Econ 101 once again to Senator Sarbanes? The FED recognizes the need to be more transparent about what they do. Some one of the Board is always shooting off his mouth about some aspect of economy that has the rest of them generally freaked out, and AG is always going to testify to the banking committee, the rules committee, the war department, you name it, in order to keep them from shooting us in the foot. They do this because they fear that Congress will try an end around and create new legislation requiring what you suggest. If they ever did that, you have one move and that is to buy gold. I'll bet you weren't so concerned about these matters in '99.

To: FR1 who wrote (909)	1/29/2001 10:53:29 PM
From: GraceZ	Respond to of 24758

I think that if you've read everything Ah here has written here about the FED over the years as I have (well almost everything) you'd know that he feels the only solution is to allow the free market to determine rates. Your suggestion actually gets us going back in the other direction, like towards the Soviet Union (economy by committee). Also, if you'd ever sat through Greenspan's testimony to Congress you'd have a good idea what a can of worms it would be to have a political body such as Congress in there trying to fine tune the economy by fiddling with interest rates.

To: FR1 who wrote (909)	1/31/2001 12:32:54 AM
From: jack bittner	Respond to of 24758

would you really want the stupid crooks who make up the great majority of any Congress to "decide" on interest rates. they're the guys that developed the tax code, which is designed to have you pay the taxes for the powerful who pay them that soft money. if you want to learn what they can do with your money just watch the feeding frenzy they'll perform on the coming tax cut. wait till you see mysterious special breaks these evil creatures stick in for their friends. the newspapers won't let you know which of these rotters are putting in the tax breaks for their masters. rather, the papers will give you the passive voice e.g.: " a provision was passed today ... ". they never tell you who put it in the tax bill. they wring their hands about it for a moment. and then everyone forgets about it. while you get poorer and the masters of these creatures in Congress get richer. and the TV news won't even mention it. it's been going on forever. how come you never noticed?