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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: Sam who wrote (33681)	3/10/2004 4:47:08 AM
From: frankw1900	Respond to of 793640

Phooey. Neither Roach nor Greenspan know what the price of money should be. The Fed should get out of the interest rate setting business alltogether. So called stabilization activities lead to increased instability. This is the conclusion that can be drawn from Roach's article: Two milestones in Alan Greenspan?s long career are especially noteworthy in that regard -- the first being an overly restrictive policy stance in 1991 that ended up being a serious complication in the failed re-election campaign of the first Bush Administration. The second came in the spring of 1997, on the heels of the March 25 rate hike that was aimed to tame the ?irrational exuberance? of equity markets. Greenspan such took flak on this assault on markets, that he not only reversed course.... Because of the activities of their suppliers, customers and competitors GM and Ford know what price they can get for a car. They can make small changes in prices all the time. Lending is a highly competitive business, or rather, it could be a lot more competitive if the Fed wasn't obscuring everyone's view. Without the Fed's activity changes in rates, and direction of changes, could take place in small increments allowing folk to adapt more gracefully and the so called bubbles would be smaller size, of shorter duration and correction much quicker and less severe in effect. How can Roach know what the rate ought to be? He says himself a 200 BP increase he recommends is "risky". He doesn't know anymore than Greenspan, or you and me. The article's basic premise -the Fed must act- is false. He doesn't have an argument. (What the Fed and other central banks should be doing is monitoring inflation and money supply with respect to productivity, making sure financial outfits are operating properly, and letting rates go where they will).