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

To: DMaA who wrote (2224)	5/6/2001 12:15:06 PM
From: ahhaha	Read Replies (2) \| Respond to of 24758

The interbank market for fed funds determines the price of overnight reserves. The bond market determines the price of longer term money. The FED wanders into these markets and disrupts their function of balancing supply and demand through price by changing these factors based on the FED's calculation. The markets never calculate. They scramble blindly and discover by accident the optimal price which instantaneously balances demand and supply. Calculation never does that, but it does sustain disequilibrium and so favors demand or supply with disruptive consequences for the economy. The purpose of this intervening control is to smooth out economic cycles, but it accomplishes the exact opposite. If there was no intervention, markets like the stock market would lose much of their swing volatility, For example, during the '50s the FED stayed out. The monetary base was flat for a decade. The stock market had a stable uptrend that was difficult to trade, but very investable.