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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (23629)	2/15/2005 7:05:24 PM
From: mishedlo	Respond to of 116555

Date: Tue Feb 15 2005 16:11 trotsky (kapex) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "The point that your not getting is that the same guys you speak of that created the money for the war, had the same ability to keep the economy going as well. But they instead chose to raise interest rates to a level that choked off growth. " well, i can't leave this unchallenged, because it's simply untrue. first of all, you err in fundamental economic terms - once the pool of real funding is in trouble, NO AMOUNT of money printing can 'keep the economy going'. a little bit of common sense should suffice to prove this to be true. if all it took for an economy to flourish was the printing of money, the third world would be a debt free Utopia rolling in luxuries. and NO, the did NOT 'raise interest rates to choke off growth'. up until the rate cutting spree of 2001/2, the post 1929 rate cutting spree was the fastest and deepest in history. the interest rates directly controlled by the Fed remained at 1% and below from 1932 to 1949, a full 17 years. this is not to say that the Fed bears no responsibility for the depression - just not in the way you and the writers of the article you quote imagine. the mistakes were compounded during the bust, especially via FDR's 'new deal' fallacies, but the Fed made the biggest mistakes during the boom of the 1920's - and the mistake was that they left interest rates TOO LOW. this exacerbated a wild credit and speculation boom, which ultimately produced the bust of the 30's. so i definitely agree that the central bank is behind the boom/bust cycles, but this is a general failing of this central economic planning agency - it doesn't produce these cycles 'on purpose' - on the contrary, it sees itself as an institution specifically charged with averting the occurrence of such cycles, or rather, averting the 'bust' part of them. that it can not possibly succeed is inherent in its make-up, one can't on the one hand accept that the free market is the best economic system we have, and then exclude money from that same free market and make it a centrally planned affair. note however that the authors of the article are deeply opposed to the free market - at its end, they demand that the government take more direct control of money, which would be an open invitation to even bigger disasters. Date: Tue Feb 15 2005 12:22 trotsky (frustrated) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "does not the whole premise of that 10:19 article ASSume that one could trust the Fed to create a measure that actually measures what it is suppose to measure..." that's one way of putting it - you are hitting on the very difficulty inherent in a central economic planning operation - namely, 'how do they know what they purport to know'? the answer is of course that they don't - which is why i frequently point out what a truly atrocious economic forecasting record Mr. Greenspan has. in short, the very man upon whom the policy decisions of the most important economic agency depend has proven to be extraordinarily incapable of making even a single correct economic forecast...a record that stretches back all the way to the 1970's. the institution he heads is clearly an impediment to economic stability, not to mention that it's redistributing wealth through the back door, from the producers of wealth to a parasitic, but well-connected industry.