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To: Don Lloyd who wrote (326)	6/9/2001 8:39:34 PM
From: Ilaine	Read Replies (2) \| Respond to of 443

>>When the government artificially lowers interest rates and increases credit availability<< It seems to me that this is a bit of a misnomer - in the US, the Board of Governors of the Federal Reserve system sets the fed funds rate and the fed discount rare, which are both interbank rates, charged to member banks of the Federal Reserve system. The Board of Governors changes the discount rate and the fed funds rate at the request of the regional Reserve Banks, which are privately owned. All other interest rates are set by the free market. For example, during 1929, the call money rate from time to time (e.g. July 1, 1929) spiked as high as 15%, despite the fact that the Fed funds rate was only 6%. I'll concede on the "credit availability", but as I pointed out, in 1927, interest rates were kept low not to make credit easy but to ease pressure on the Bank of England. I've expressed recently my belief that dollar-yen ratio is being kept high now to ease pressure on the Japanese economy. I don't think there ever really has been a free market in money - competing political and economic interests are always brought to bear. _______________________________ Why, if the Federal reserve made credit too easy circa 1927, did commodity prices come down? Not very much, in the US, only 2% from 1926 to July, 1929. For the same time period, Denmark -8.6 Spain -6.6 France -12.8 Italy -27.0 Norway -23.2 United Kingdom -7.2 Sweden -7.6 This is according to a publication of the National Industrial Conference Board, dated 1931, Major Forces in World Business Depression. It seems to me that if the US actually had an easy money policy, according to Austrian economic theory, prices would have gone up. ________________________ Easily available credit promotes competition - tight money promotes cartelization, concentration of the means of production in the hands of the oligopoly.