Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: frankw1900 who wrote (4195)	4/11/2002 8:22:33 PM
From: ahhaha	Read Replies (2) \| Respond to of 24758

The Greenspan FED thinks a little inflation is crucial for economic health. AG has stated as much himself. The real issue is that if the people expect the central bank to provide control and thereby stability, they will have to pay for it with a little inflation. That's all a smoke screen of course. Get out of the market for money and there will be no inflation and without compromising the true function of a central bank. AG hides a predilection for Keynsianism and its implications that it is possible to engineer prosperity behind this rationalization that a little inflation is constructive. He feels empowered behind the screen. There is a price to pay for such meddling and the price is that FED creates a destabilized monetary environment. By interfering at the margin the market never knows the appropriate rate of interest. The market now after 10 years of gradually being weaned away from money growth targeting to interest rate targeting has no clue where equilibrium lies. The players just go along with the FED and its machinations. The problem has been that FED ran high money growth to prop up economy or prop up pseudo prosperity. Now the price of gold is advancing so they have to cool permanent injections with the result that both M2 and the base have flattened out for months. By slowing base growth the country is now headed back on the depression trail, so FED will reverse gears and start the pump, but the POG won't go back down to a previous low, rather, it will make a higher low. As soon as they started targeting interest rates this inevitability started also. What they can't control is the response time of their policy actions. Thus they introduce random shocks to the system which causes an instability in the expected price of money. The instability feeds back into their own evaluations as seen in their reaction to a persistent firming in the POG. This is an amplitude increasing effect of interference and it is sensed by everyone including those who make decisions for IT spending. The FED is locked into the traditional cycle now and so inflation, at a core rate, will rise. Stocks rise initially too as money is forced into superior returns. The returns are there at least for awhile and awhile can last for years. Eventually FED has to raise rates to slow economy. Maybe by that time Blinder will be chairman. That would mean that FED elects to add money to keep rates from rising. That's when the mischief starts.