Did the Fed go too far?

Economics Economics Questions
1

I happened to browse over to CNNMoney.com tonight and to my surprise found a few articles criticizing the Fed. Unfortunately, it wasn’t exactly the kind of negative press I would like to see them get.

“Still, others think that the rate cut sets a dangerous precedent for Fed chair Ben Bernanke since it may give the markets the impression that he can be pushed around.”

You can check out the rest here.

And I even found another one, demonstrating how all the attempts to manipulate the economy are still no no end, making us wonder why we let these people run our economy (besides you know, the power associated with wealth).

After Fed cut, debt market problems persist

At least the media isn’t demonstrating 100% confidence in the Fed these days. I would say a small step in the right direction.

2

What is also lacking in the general media coverage is that despite the earlier cut the the fed funds, the adjusted monetary base continued to drop. Gary North wrote a great article about this. Despite all the lip service otherwise, probably to prop up the market, it appears the Fed is still pursuing a disinflationary policy.

http://research.stlouisfed.org/publications/usfd/page3.pdf

3

No, i do not think the Fed went too far with the 1 point rate cut. The housing market will have a huge effect on the overall economy, and this cut will ease the problem.

What WOULD be going too far are the various legislative schemes being considered that would bailout the ill-advised lenders and investors. They MUST learn their lesson, or history will quickly repeat itself.

4

Doesn’t the Fed go too far anytime is convenes? :slight_smile:

While it is nice to see the Fed looked upon in a very slightly less trusting manner, I wonder how much of that has to do with Bernanke? The media adored (and still adores, as evidenced by the last few weeks) Alan Greenspan. His predictions are still taken without so much as a “really?” from the media.

5

Really? Then why has it worked in the opposite direction?

Why doesn’t it ever work?

Should he have gone farther? Two points? Five? Ten?

When does the logic step in?

6

i am unsure as to what you mean…the rate cut was a mere 10 days ago…much too early to state it’s effects, much less to state it has worked in the OPPOSITE direction!!!

it is not an exact science, but to say monetary policy has NEVER worked is a bit naive… minimal government intervention in economic policy does NOT mean NO intervention.

7

true, greenspan was seen as a god.

what is so ironic is that just as his book came out, he has been taking media heat for his “home for everyone” policy in his last few years, which has helped create this sub-prime mortgage debacle. i feel history will judge him in a somewhat lesser light due to that approoach in his later years.

8

The discount rate was cut 10 days ago. They dropped the fed funds rate in Aug to prop up the crashing markets. What the chart shows is they are likely offsetting the drop with decreased FOMC purchases. Secondly, how do you define “worked”? In the Keynseian sense all Fed action works in regards to “stimulating” economic activity by creating dollars out of thin air. It does not work in the sense that the corresponding boom/bust cycles achieve the stated fed goal of price stabilization.

9

The FED goes to far if it does anything at all.

10

You don’t need to look into a crystal ball when you have a videotape of past events. Did rate cuts work in Japan? Did the first twelve rate cuts work in America during the early 2000’s? What of Hoover in the 1930’s?

Still no?

When are people going to drop the fallacy of “reflation” and get it through their heads that the problem is not liquidity, its capital.

You can cut your rates like a tree, but it won’t matter if there are no more trees to cut.

Btw. You’re probably one of the only people on the Mises website that would say that. We want NO intervention in the economy. None. Zero. Period.

11

yes, rate cuts HAVE helped in the past, including the early 2000s you mentioned.

your interpretation of Mises wanting NO government intervention in the economy is mere ignorance. it must be drastically reduced, but still available. The FDA is a joke, but if we had NO intervention, WE would have had scores of “THALIDIMIDE baby” like disasters over the past innovative years in the drug industry.

yes, in 99% of cases, the market can sort out the good from the bad; but the thalidimide case is an example where we cannot wait for the market to reveal disasterous mistakes that may take years to uncover with thousands of deaths or disabilities in the wake.

PURE libertarianism is anarchism.

Mises.com wants DRASTIC reduction of government intervention, NOT complete elimination of it.

12

Do you speak for all of Mises.com? I am not so sure all would agree. I doubt many here support any existence of the Fed reserve. Anarchism is a good thing.

13

Thaladimide babies occured because a disfunctional government agency caused people to think that they did not need to pay attention to the safety of drugs, while in reality the government agency was not doing what people thought that it was doing. It is similar to the case of FDIC and the S&L meltdown in the 80s: people thought that the government would bail them out if their bank went under (as it did, unfortunately) so they paid no attention to risk. If, in the Thaladimide case, nothing could have determined the safety of the drug beforehand, then no government intervention could preempt the problem. If prior investigation could have detected the problem, does any reason why the free market would not have found it exist? I do find it rather odd that you are using an example of the failure of a government agency as an example of why libertarianism would not work. In any case, it could not do worse than the FDA.

If Mises stopped short of advocating complete noninvervention in the economy, then I disagree with him on that point.

14
15

John Dolce, find me one person here other than the gentleman we are both replying to that would agree with him.

I do not think you will be able to.

Mises.org is an Anarchist site or at least one that finds many sympathies with Anarchism and if not offically pronounced Anarchist, quite blatantly de facto Anarchist.

Whoever believes Mises advocated intervention other than through defense of property rights (not through market safety mechanisms) has not read anything by Mises.

16

I agree. Not being an anarchist is not prima facie evidence of supporting any market intervention; for three or four years I was a minarchist who opposed any government intervention in the economy and I saw no contradiction. I will not accept that Mises supported state intervention in the economy without a direct quotation.