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

To: frankw1900 who wrote (3430)	11/5/2001 7:43:32 PM
From: ahhaha	Read Replies (2) \| Respond to of 24758

Yes. It's a mistake on Kudlow's part. Kudlow believes as do all those who he criticizes that there exists a right policy which is findable or determinate by analysis. He criticizes the FED for not finding the right policy, but he doesn't believe that it isn't findable by anything in the universe except by a free market in money. Even then the market only finds the right way randomly and instantaneously. However, that's all that needs to be done as far as pricing money is concerned. If FED doesn't interfere with the market's pricing of money all the problems disappear. Further, he isn't separating interest rate management from money supply management. The only way the two retain the inverse relation that he assumes is if an economy is debt oriented, but not so debt oriented that there is no trust in the creation of further debt. FED can drive interest rates to 0, but that doesn't mean people will borrow. Similarly, the FED can create lots of money in the form of reserves, but that doesn't mean that people will use the reserves to create loans to do business which is the way the reserves become what everyone calls money. FED can create currency at will, but that doesn't have any leverage except on prices. When FED attempts to manage economy by controlling money directly they still make errors, but money targeting is extremely forgiving, so it doesn't matter whether the targets are hit and there is no detectable effect to economy when they miss. On the contrary with interest rate targeting every little action they take is multiplied so that they have no idea what will be the outcome of actions taken. The error of money supply targeting is inverse in its magnitude to the error of interest rate targeting.