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To: Wildstar who wrote (88842)	9/11/2007 10:45:26 PM
From: patron_anejo_por_favor	Respond to of 306849

>>Doesn't having the Fed as the lend of last resort distort the price of borrowing money?<< Hmmm.....Why does my brother-in-law cling to the notion that I'm the lender of last resort?<G>

To: Wildstar who wrote (88842)	9/12/2007 8:47:26 AM
From: GraceZ	Respond to of 306849

Your question is hypothetical since they have never stuck to that role.

To: Wildstar who wrote (88842)	9/12/2007 2:15:44 PM
From: ahhaha	Read Replies (4) \| Respond to of 306849

Doesn't having the Fed as the lend of last resort distort the price of borrowing money? It's good to see the quality of questions improve. Yes, it is true that intervention of any sort takes away the extremes that a free market in money can reach, and thus, the ability to discover rate levels that fully express the degree of fear or confidence. Is perfection required or would mere rationality suffice? One has to distinguish between chaotic states and average states. Let's say FED does intervene at times when it judges chaotic states are developing. That doesn't mean FED always, daily, should be in the market with its Dual Mandate trying to promote eternal prosperity which has nothing to do with FED's raison d'etre. Occasional intervention just means FED is another player among the borrowers and lenders which comes in unexpectedly according to its own randomly distributed logic, much like all the other players. What we have now is chronic intervention, intraday, every day, at big scale, so that the market can't identify what it is, and doesn't allow all participants to transact. FED floods out the smaller players who in their second order fluctuations undo mistakes caused by first order players. The average state can never exist nor abide. FED subtends the zero-th order. This has the effect of causing all players to go along, rarely fight, where FED sets the bid/ask. The average state is eliminated and the average state carries all the relevant information not reachable by FED economists due to its sheer volume and obscurity. Thus, NO price discovery takes place. The market is fixed based on FED's judgement about the proper price of money. How good is that judgement? No better than your's. No better than anyone else at predicting price in free markets. FED claims they act on the data. The data arrives months after the fact. The market acts on random fluctuation and discovers at the infinitesimal margin where the best knowledge about the present resides in the instantaneous present. It does so because the best knowledge resides only in the brains of all people involved in the economy, rather then in a few brains who have some knowledge. What should be trusted? Democracy or authority? Where there is knowledge in an individual, there is ignorance. If you have any doubt just consider AG's action at the LTCM pump, the y2k pump, and the 3 years of holding fed funds at a negative real rate under the guise of promoting or saving eternal prosperity. What did that get? Another financial crisis. There is a much longer history that shows FED at best is a loose cannon which always shoots the country in the foot. It should be pointed out that this intervention aspect of FED which actually surrounds the cabal of demand managers at the NyFed has little to do with the Federal Reserve System

To: Wildstar who wrote (88842)	9/12/2007 3:09:24 PM
From: gpowell	Read Replies (1) \| Respond to of 306849

Doesn't having the Fed as the lend of last resort distort the price of borrowing money? Any entity acting as a "lender of last resort" is distortionary in that it allows transactions to take place that would not otherwise have occurred. This affects both prices and resource distribution. From a free market, libertarian, view, few would use the somewhat pejorative term "distortionary" to describe the presence of a market evolved lender of last resort - just as few would say the presence of any market participant is distortionary - even though it is an accurate statement for each and every one. As for the Fed and its role as a lender of last resort, obviously it is not a "natural" entity in that its existence does not rely on its ability to exclusively serve a market function, consequently the distortion introduced by the FED, will (most likely) create a different price and resource distribution than a market evolved structure.