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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Ken98 who wrote (34658)	5/30/1999 1:54:00 PM
From: ahhaha	Read Replies (3) \| Respond to of 116768

The FED must create money in order to support or promote prosperity. As long as they only do this at a rate commensurate to the ability to output, there is no problem. When they err on the side of promotion, when the increment of money added is greater than the increment of output added, prices must rise. You can't expect to get something for nothing. The FED doesn't know that they have crossed over to the regime of false promotion. The market suspects it has as represented by the price action in Treasuries. The result of past actions in the fed funds market where the FED has fixed the price of money below the market, is to create a false prosperity which needs more permanent reserves to support it. The short term RP actions are not enough to encourage money supply growth from economic action, in particular, the growth of C&I loans. At this point in the now revived business cycle liquidity must be increased to encourage the banks to expand their loan portfolios. The risk is that an increase in economic activity due to excess loan creation will enable a rise in labor costs. This has the effect of lowering the potential increase in output and so prices would rise. When FED believes they have passed the point into the regime of excess money creation, they will let the market take rates up to equilibrium. Since interest rate targeting creates an environment of confusion as to where equilibrium lies, the FED can wait too long and create too much false prosperity enabling instability in general prices. They observe the effects of yesterday's action today and then respond. The market responds infinitesimally today based on today's action. The accumulation of time lag enables instability. Lag is accumulating and FED has indicated that they may have to cool reserve creation accordingly. When is indefinite. It depends on the choices of individuals. Will many go out on strike for higher wages? Already there is upward pressure on costs from past settlements which do a good job of hiding costs. When core CPI rises due to absorption of rising wages for three months in a row, fed funds will be allowed to rise. That is at least six months from now. During the interim FED will continue to pump.