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

To: heroes4sale who wrote (919)	1/30/2001 10:46:26 AM
From: ahhaha	Read Replies (2) \| Respond to of 24758

Does that mean that there is no 'wealth effect' driven demand? There is no measurable such demand. The wealth effect could be said to add those extra earnings which you see when the stock is plunging. If consumers and businesses alike use stock as currency, why can't the wealth effect have some direct impact on profits? It's against the law to use stock as currency like they did during the 19th century. It isn't considered "safe" when you have your name somehow identified on a currency. There is no currency in stock because it's rubber money. While the company increases its earnings the stock currency can be shoveling them down the drain. If you can define "wealth effect", you'll then realize why there is no connection between that abstraction and the real result of profitable effort. Well, can you define it? also, what do you think the role of the Fed should play? Should they act as lender of last resort? The FED should play all the roles they currently do except the setting of the price of money. It's in their and everyone's interest to get out of the pretense to knowledge game. If they did that, they would find that they are returned to obscurity that they once had. Part of the problem is the Chairman and others like the visibility and press. If you get AG to admit it, he would say he has made blunder after blunder, and the public has cheered every one of them although they have suffered greatly. If FED goes back to what they were forced to do in the early '80s, relinquish control of the determination of the cost of money to the market, quite contrary to their fears they would find a benign and constructive economic environment. This is the result they seek, but they can't bring themselves to trust the market. They, like the public, believe the world is filled with evil greedy powerful men who would destroy the world if it meant two more cents to them. Let's say its true. None of them would agree with the others. You'd end up with a lot of power on opposite sides. Dynamic equilibrium! No net force. No sturm und drang. That's what occurs anyway and the FED is powerless relatively to truly intervene. Everyone suspicious and cautious and so not much volatility. The price of money would clear the market intraday and its fluctuational amplitude would shrink so that its variance would be small. The result would be gradual interest rate change over time with lower amplitude and longer frequency instead of the result of interventionism which generates higher amplitude and shorter frequency in the interest rate cycles. As for "lender of last resort", this is part of the raison d'etre for the creation of the Fed System. One of the consequences of letting the market do the work is that the market obviates any need for "last resorts". Chaotic outcomes don't evolve when the market infinitesimally adds and subtracts all the infinitude of concerns on an instantaneous basis. When FED fixes the price in the market the concerns are bottled and prevented from being reflected infinitesimally in price. They quietly build until at an economic event which has suddenness, they are released and distort the extent to which price reacts. The FED usually tries to contain these distortions, but the containment action itself only adds to the potential for another chaotic reaction. No matter has severe a calamity the market handles the after shocks far better then the FED. You see this when the economy starts plunging due to previous FED excesses, and FED reacts by pumping in money, only to see that they're pushing on a string with the consequence of rising general prices. Then they react and withdraw money only to see the economy start plunging again. Square well management. It has always been believed by the most astute that there exists a policy which can tight rope walk between these extremes, but the problem is that it isn't findable. Each Board believes though that it has the moxie to do the job. They're "can-do" warriors and they're wrapped in the sanctity of all the LOLs they think they protect. They have a job to do and they will do it at your cost. Don't let them.