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

To: ahhaha who wrote (1319)	2/28/2001 4:41:48 PM
From: ahhaha	Respond to of 24758

FRANK: So you brought the slowdown on a little earlier than I thought? GREENSPAN: Possibly. The reason that we moved in 1999 was basically because long-term interest rates had started to move up earlier in the year... At least they were trying to follow the market then a little. FRANK: I was talking about 2000, Mr. Greenspan. GREENSPAN: I meant 1999, I'll get to the 2000. OXLEY: If the chairman could sum up, we're passed the five minutes. GREENSPAN: Just very quickly. What we did was in recognition of an excess of investment demand over savings, (read, stock market margin speculation) followed the path that the long-term interest rates were leading us to during that period, (read, we had to raise rates to cool speculation. I'm giving you this follow the market stuff because it tends to avoid the issue) which was a normal reaction for an economy which was running off balance. (read, the excess money creation which we had allowed because we think we can deftly control demand and we thought productivity warranted it, was developing into economic overheating and inflation) And had we not raised interest rates, either then or through 2000, in order to hold the rates down, Note the use of the words, "hold the rates down". He is saying they would have had to hold rates down by supplying money and that would have been contrary to the market's assessment. we would have had to engender a massive increase in liquidity in the system, which conceivably could have exacerbated the imbalances even greater. This is the condition that exists now even though relative economic strength is different. Part of the problem was that the FED undermined its efforts to raise interest rates by targeting which "holds rates down". They wouldn't let rates rise to equilibrium, so they did a half-assed job. The result was that the effective rate was apparently enough to enjoin a slowing but the quantity of money used to fix the target lower than the market would enabled a kind of economic strength, that of rational expectations, which led to the remarkable firmness in prices we all pay now. The FED put themselves in a straight jacket. This has dire consequences because it leaves the country vulnerable with little operational latitude if an unexpected exogenous force develops that requires money creation. The issue of the economy running faster than we knew was sustainable over the longer run was fully evident during all of that period. This is false, if only because he himself has stated it can't be known what the sustainable rate is. This is as determinable as productivity to which it is related, and productivity is not very well determined, not even way after the fact. The sustainable rate needs never to be known when the market is exclusively in charge of determining the price of money. The growth rate limit rises and contracts based on all the same factors, but the difference between authority setting the rate and the market is that the market is always in motion. This results in very gradual transitions between different growth rates. It also relieves individuals of responsibility for the disasters that come from rate fixing and its pretense to knowledge.