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To: Zardoz who wrote (66879)	4/6/2001 8:20:02 AM
From: long-gone	Read Replies (2) \| Respond to of 116764

More junkies quoted by Smithers? Andrew Smithers - Evening Standard Central bankers who were distracted by bubble Monday 2nd April 2001 The bull market in central bankers is over. CNBC reported last week that hundreds of investors were calling for US Federal Reserve chairman Alan Greenspan to resign. Bank of Japan Governor Masaru Hayami has been forced to reverse his policy of raising interest rates. Central bankers' stock, which unfortunately is non-voting, rose to absurd heights last year, but is now well below par and falling fast. Markets, of course, overdo things in both directions. The present criticism is unfair, but it is the natural result of the previous praise. It is widely recognised that the US and Japanese economies are in trouble. This would not be possible if central bankers had good judgment and could control economies. Either their power or their judgment must be poorer than was previously believed. Neither possibility is encouraging. If our current problems are the result of their past poor judgment, we can have little faith in their ability to get things right now. On the other hand, if their actions are random, they presumably have a 50/50 chance of getting things right now. If the problem is that they are powerless, then there is no point in worrying about them at all. We can give them the same status as Grooms of the Chamber or Masters of the Horse; posts which are honorific rather than of national importance. The recent criticism is way off target. The US central bank is being blamed for the falling stock market. It should have been blamed for not resisting the bubble. The Fed does not have the clear overriding duty of the Bank of England or the ECB. They have inflation targets. The Fed is meant to watch unemployment as well as inflation. But while the Fed's aims are vague in theory, in popular perception they are clear. Americans look to Greenspan to avoid recession and push up the stock market. The problem is that these are the wrong targets. The trouble with the US economy is not that share prices are falling and the economy is threatened by recession. It is that share prices have gone up far too much and it has not had a recession for far too long. Recessions are like earthquakes. Little ones do not do much damage, but big ones are horrible. In both cases, lots of little ones is the way to avoid a big one. The Fed has failed America, not because it has been unskilful, but because it has been trying to do the wrong job. When economies avoid recessions for a long time, then euphoria takes over. Stock markets rise to absurd heights and lending gets out of control. Japan's troubles started when the so-called Izanagi Boom came to end. This was probably its longest uninterrupted boom ever. The US has followed in Japan's footsteps. In little more than a decade we have had stock market bubbles in Japan, South-East Asia and Wall Street. Those who ignore history are condemned to relive its troubles. Central bankers should learn that they must watch asset prices as well as the cost of living.

To: Zardoz who wrote (66879)	4/10/2001 1:55:42 PM
From: long-gone	Read Replies (1) \| Respond to of 116764

Key quote: "The federal debt of some $5.5 trillion would be inconceivable in an unhampered market order functioning smoothly with commodity money. The classical gold standard would have been an insurmountable obstacle to such heedless spending of the people's savings. This is why politicians and officials passionately disparage and decry it as a relic of the distant past. Their deus ex machina which resolves any financial difficulty is the Fed. " The Greenspan Myth by Hans F. Sennholz [posted April 5, 2001] Ever since the ominous fall in stock prices and the economic slowdown in recent months many Greenspan fans have turned into bitter critics who censure the master for having hiked interest rates unnecessarily in 2000. Millions of investors have lost most of their savings in only twelve months as four trillion dollars in wealth vanished when Nasdaq prices fell by 70 percent, 80 percent, even 90 percent. They now fault the Fed for not having lowered the rates quickly and sizably since the downturn came in sight. "The Fed is asleep at the wheel," they are moaning. They are clamoring for big interest rate cuts "in order to save the economy." The loud hustle and bustle for lower interest rates do not diminish the cult of the Fed. All eyes continue to be on the Fed. If only its critics could hold and wield its controls, they would slash the rates which would revive the economy. At least, that is the talk of today, the explanation given by nearly every analyst, fund manager, and news commentator. A few economists of the Austrian School view the Greenspan Fed in an entirely different light. They perceive it as the very cause of instability and not the solution. They fault it for having fostered the biggest and longest bull market in history, the most speculative market with the greatest public participation, the largest volume of trade and the greatest overvaluation of corporate stocks. And they censure it for laboring to avert corrections and readjustments. While public opinion applauds the Fed for averting the financial crises, these economists deplore all such Fed efforts for being counterproductive, aggravating, and prolonging the readjustment pains. Booms and recessions do not spring from the nature of the market order, they contend. Central banks and many financial institutions with central-bank backing and support create them by issuing fiat money and credit which falsify interest rates and distort the market structure. Low-interest fiat credit in particular misleads producers in their entrepreneurial decisions. Led astray, many embark upon uneconomic construction which in time is bound to inflict losses. When many businesses expunge the losses through correction and contraction we speak of a recession. The projects that looked so promising during the boom must now be written off as entrepreneurial errors. (cont) mises.org