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Source link: http://archive.mises.org/6538/does-fed-transparency-fuel-growth/

Does Fed Transparency Fuel Growth?

April 20, 2007 by

In their various speeches Fed policy makers have been emphasizing the importance of price stability for economic growth. The policy of price stability is therefore a policy of stabilizing an arbitrary price index, which supposedly represents the price level. The main tool that the Fed employs to influence the general price level is the manipulation of the federal funds interest rate — and hence the interest rate structure — which falsifies the key signal for capital allocation. This causes businesses to overinvest in tools and machinery and underinvest in the production of non-capital goods. FULL ARTICLE

{ 16 comments }

David White April 20, 2007 at 8:18 am

“This is in contrast to a hampered economy where central bank policies give rise to expectations that are out of sync with reality.”

You can say THAT again. And if your heart isn’t in your throat at the end of this, you weren’t paying attention:

http://www.speculativebubble.com/videos/real-estate-roller-coaster.php

John Coleman April 20, 2007 at 8:30 am

I’d like to offer a suggestion to my colleagues who participate in this von Mises website. Each day, as I tune into the latest installment of my von Mises email report it seems like an incessant anti-government screed railing against this or that oppressor or infringement of rights or property, etc., etc. I never read anything positive or upbeat but always the words of disgruntled dead men or the occasional disgruntled pre-dead man seeking perhaps to salvage some personal goal. At last count, there are more than 190 nations in the world, including our own United States of America. Surely, with that amount of diversity we should be able to find a nation with an economic system that satisfies our most steadfast critics. Maybe not. As an experiment, then, we should invite our von Mises membership to send in messages that praise something, anything, anywhere in the world that fits their structured concept of what should be. This would be at a minimum an exercise in equanimity, one that separates the political schizophrenic from the real thing. We might do this for just a day or so to see if anyone out there can come up with anything positive to say about the USA or any government or nation, for that matter. I, for one, would be thrilled to see this, as I’m sure others would also be and it would help allay the fears of critics who might think everyone who subscribes to or participates in this website is a delusional anarchist or a hopeless utopian.

Brainpolice April 20, 2007 at 9:41 am

Or, you can refrain from making disingenuous lines of arguement such as that one and people here will continue to have opinions that you don’t like about political power. I, for one, would be thrilled to see you refrain from making such disingenuous arguements and actually advance one against the ideas being proposed here. It is not people’s duty here to be “positive” for you. If you object to an idea, you are welcome to voice your objection. But don’t just go ad hominem on people’s characters. This article is about the federal reserve and monetary policy. You are welcome to voice your objections over it; but simply dismissing everyone here as a “utopian” and “anarchist” doesn’t cut it.

Michael Woods April 20, 2007 at 10:18 am

I agree with Brainpolice. I also think that there is often material posted here that IS of a positive nature, relating to the rollback in government in the formerly-communist nations, the immense improvement of quality of life in many countries adopting more pro-market (albeit still somewhat statist) policies such as India and China, and so on.

And it stands to reason that if you want positive examples amongst the countries of the world, simply look for those with less governemnt intervention/abuse and greater respect for property rights. Singapore and Hong Kong, although they are both flawed in many ways, are certainly far better examples of governemnt than the monolithic leviathan that is the EU or the crusader behemoth that the US federal government has turned into.

That’s not to say the US and the EU also don’t have positives, for instance, strong protection of press freedom (though increasingly under assault from multiculturalism and civil rights “activists”, just ask Don Imus), strong rule of law (alson under assault: ask Duke Lacrosse team), reasonably free market (although government expenditures and entitlements are constantly growing).

The so-called “negativity” you are criticising in my eyes reflects a passion for liberty and a worry that the basic values of Western Civilization are increasingly under assault. And a love for one’s God, culture and liberty are not “negatives” in my eyes.

TLWP Sam April 20, 2007 at 10:19 am

Come again BrainPolice? What’s wrong with asking for signs where free markets are working in the positive rather than hearing about how governments are in the negative? Your reply reminds of how a Creationist would debate: find an area where evolution seems to have a hole, proof therefore evolution is false and the Bible is right after all. I’m sure many other posters here would take J. Coleman question as a genuine query and not a cheap slander saying that ‘Libertarians suck!’.

Francisco Torres April 20, 2007 at 10:50 am

What’s wrong with asking for signs where free markets are working in the positive rather than hearing about how governments are in the negative?

You mean there are no obvious signs of free markets working positively? Would you really need screaming beacons to show you this?

DC April 20, 2007 at 11:04 am

John Coleman, you may simply need to search a bit harder. Here’s what I produced with less than 5 minutes of effort:

http://mises.org/daily/1615
http://mises.org/daily/2219
http://mises.org/daily/1241
http://mises.org/freemarket_detail.aspx?control=521&sortorder=articledate
http://mises.org/freemarket_detail.aspx?control=405&sortorder=articledate
http://mises.org/daily/879
http://mises.org/daily/1701
http://mises.org/daily/1214

I’m sure 10 minutes of effort would nearly double that link list — and I was only focusing on articles, not even the numerous full-text books available here!

Take a little time and search for yourself; I think that you’ll be fairly surprised at how often Austrians write *in praise* of things rather than simply criticizing something they don’t like.

David White April 20, 2007 at 11:09 am

John Coleman,

There is at least one so-called Misean economist publishing on this site claiming that deficts don’t matter and that we can essentially sell cows to buy milk forever. That would be wonderful news if it were true, but the video I pointed to above, the link for which appeared below the chart it mimics here — http://mises.org/daily/2448 — suggests something else entirely.

Yes, there’s genuinely goods news out there, but urging people to essentially play government — i.e., divert people’s attention with “good news” — is about as irresponsible a thing as one can do.

We are 36 years into a monetary experiment that constitutes the greatest fraud in the history of the world. It is a direct result of the state’s corruption of money, the consequences of which are going to be beyond dire. For as renowned historian Will Durant rightly said, “Money is the root of all civilization.” And with that root now ripped out of the ground, it’s going to be awhile before it’s replanting bears fruit again.

That’s the bad news, the good news being that there are measures you can take to protect yourself, the first of which is to understand that precious metals are approaching a Nash equilibrium whereby “an ideal financial strategy for everyone on Earth is to buy as much gold and silver as they can, as soon as possible” — http://www.safehaven.com/article-5205.htm

So do yourself a favor and load up while supplies last.

N. Joseph Potts April 20, 2007 at 9:59 pm

John Coleman – I’ve written some daily articles, and sure enough, out of a dozen or so, only ONE was positive. To alleviate your suffering, however, I offer it (find it in Daily Articles – Authors – Potts) “The Wonderful World of Parrillas”. It has to do with food, cooking, and globalization, which certainly upsets a lot of OTHER people (but not me). Perhaps your own take on the subject will be . . . negative.

I would also commend you generally to the writings of Robert Murphy, who writes, on this site, who makes a practice of reviewing woes and fears such as the negative trade balance of the US, and showing how these are no cause for concern at all. He’s ALWAYS worth reading, even when he lapses (briefly) into negativity.

TLWP Sam April 21, 2007 at 5:51 am

It’s rather interesting when I do a search as to why gold is good, I end up at sites after explaining gold=good, fiat=danger, they actually want to sell gold! Huh? If I knew the financial world was coming to a crashing halt I’d keep my mouth shut and buy up as much gold, silver and platinum as I could afford (a.k.a. well not much at all). I sure as heck wouldn’t praise my gold stores then try to sell it to anyone who is interested.

Nonetheless I heard that when the gold from South Americas reached Europe the purchasing power of gold fell 60 – 80%. Yet while some tout the virtues on the future of gold because current mining techniques are all but hit the problem of the Law of Diminishing Returns.

But . . .

I stumbled upon a website which if true and its promise is commercially viable then we should be all careful and do our homework before rushing out and buying precious metals.

http://www.nanotechwire.com/news.asp?nid=2869&ntid=126&pg=9

lester April 21, 2007 at 9:19 am

tiny bits of communism aren’t necassarily any less dangerous than big ones.

adi April 21, 2007 at 3:53 pm

Modern central bankers have highly educated army of economists at their pay-rolls and many of those have great knowledge of statistical methods of econometrics.

And modern economics is full of statistics and mathematics and that has lead many economists to believe that they can actually manage complex systems by their methods, which are often borrowed from engineering and/or mathematical physics.

This fatal misunderstanding causes all sorts of problems. Central bank is too powerful centralized force of economic control which has ability to seriously disrupt workings of normal economic order.

Few suggestions: De-nationalization of money and acceptance of free-banking regime. Then quick withdrawal of state from economic activities.

Erasmus April 22, 2007 at 2:27 pm

The real tragedy associated with the Fed’s interest rate manipulations is that the rest of the market gets tricked into following along. If you look at a graph comparing the “real” rate of inflation with interest rates, it is readily apparent that they can become decoupled quite significantly for long periods of time. It just doesn’t make sense for inflation to be 5% and interest rates to be 15%. Yet this magnitude of disruption is not unknown.

RogerM April 22, 2007 at 6:21 pm

adi:”And modern economics is full of statistics and mathematics and that has lead many economists to believe that they can actually manage complex systems by their methods, which are often borrowed from engineering and/or mathematical physics.”

You’re completely right. I was surprised to read Schumpeter in his history of economics write that the advancements in statistics and econometrics made it possible for governments to control economies better than free markets. He wrote that in about 1950. Afterwards, we unleased on the unsuspecting world an army of econometricians who set about to destroy everything in site with central planning. What a shame!

As for price stability, I think the Fed is not completely honest. When they say “price stability” they mean “low levels of price inflation”, on the order of 1%-3%. They are terrified beyond reason of falling prices. Many blaim the Great Depression on falling prices. But if the money supply increases at say 3% (wouldn’t that be nice?) and productivity increases at 4%, then prices should fall by 1%. But the Fed will never, under any circumstances, allow prices to fall. Price stability for the Fed and for most economists really means mild price inflation.

RogerM April 22, 2007 at 6:25 pm

John Coleman,
The negative people you read are anarchists, for the most part, and they hate everything about the US because it’s not an anarchy, just as the left hates everything American because we’re not totally socialist (only partly socialist). Anarchists and socialists both lust for disaster and the collapse of the US because they have the insanity to think that they will rise from the ashes and create a utopia. In that regard, they share a common hope with Al Qaeda.

TLWP Sam April 22, 2007 at 6:36 pm

I’d cringe-agree with you to some extent RogerM when hearing how some folks here like the thought of society of going to heck in a handbasket especially as their precious metals should theoretically be worth heaps. However I did read a website regarding societal collapse that guns & ammo might a better investment and if you’re hauling your wealth away to a more pleasant locale you’d be better off carting diamonds than gold bars. And actually yes it’s interesting that various groups hoping for society’s collapse always think it’ll be their ideals that will arise from the ashes.

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