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

To: mishedlo who wrote (52053)	6/5/2006 9:09:11 AM
From: Tommaso	Respond to of 116555

It's hard to know just what the Fed can control. Milton Friedman considered that they had complete control over the money supply. With all the ingenious ways that have been devised to let people acquire goods, I am not sure that the Fed really can control purchasing power, which I suppose is one way to deciding what money is. The limits between money and credit are hard to discern. It seems to me that in the absence of a gold standard to limit money creation and to give money value, the only thing that makes money valuable is its capacity to earn interest. So raising interest rates raises the value of money, making people willing to hold money rather than spend it, since they will have more of it in the future if they hold it. I already find that my ability to get 5% instead of just 2% on a cash balance is an inducement to hold more wealth in cash. If the interest rate went to 10%, I might want to hold a lot more.