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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: gpowell who wrote (17139)	2/11/2004 3:27:35 AM
From: Elroy Jetson	Respond to of 306849

What you refer to as the "interest rate channel" is from my perspective strictly a Sideshow Bob attraction for the Rubes. It's designed to play with people's animal spirits. The wrong borrowers may feel great urgency in response to new reductions in the Fed's change in "eye wash" rate, but when then arrive at their local lender they find the offer does not apply to their particular situation. The right borrowers on occasion even find themselves privy to special unpublished rates. If you don't find this perception useful that's fine. But I think it most closely approximates the truth. The end result of the perceived price of money, however that perception is arrived at, does create wealth effects. But it's entirely obvious from the point of math that this value determination requires a time dependency which is entirely unknown by those market particpants making the determination. So at the end of the day the relationship between announced interest rates and wealth creation is entirely arbitrary and dependent upon the enthusiasm of the public, or market participants if you will. Your very construct of channels is a very Chicago way of seeing the world, although this is my construct so don't feel misperceived. It's nice that you find them useful. Perhaps you know a Chicago boy I used to work with, Chip Parham. Don't take this in the wrong way, but in our office at the time he was known as the "Quant Fool" although his gravity and fits of pique would not have allowed this reference in his presence. He invariably spent his time constructing arcane computer models which would more often than not lead him to pronounce plainly wrong or implausible conclusions with great certainty. Our management would always suggest with some tact that his model may benefit from some additional fine tuning. To this day, I don't know whose protégé he was. He clearly served a political purpose other than usefulness. My point being that I truly doubt that the Fed feels compelled to limit itself or it's actions to any particular description, unless they find that useful in misdirecting you, me or others. The are quite simply in the business of magic. If that appeals to your rational expectations all the better. If not they are just as willing to appeal to your irrational expectations or fears. If the public behaves in unexpected ways not fitting any given model of expected behavior, the current Chairman especially feels entirely entitled to assert his freedom. Like Popes of old he has at his disposal floors of scriveners who will issue encyclicals which make up the plausible reasons after the fact.