The Fed shall work to counter business cycles, stabilize the banking system against shocks, and print billions of dollars so as to keep stock market prices as high as possible:
NYT:
Hoping to provide some comfort that there is ample cash available, the Federal Reserve made its largest intervention since the markets reopened Sept. 19, 2001, in the wake of the terrorist attacks. The central bank injected $38 billion into the financial system on top of the $24 billion it put in on Thursday.
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What’s going on with this? Correct me if I’m wrong, but won’t this just make things worse down the line? Will there even BE an economy by the time I’m raising a family five or six years from now? I am no economist, but even I can tell you the problem won’t be solved by throwing money at it…or pulling money out of thin air. What happened to innovation? New markets? Where are all the self-starters with new ideas and new products? Where has our industry gone? It seems a good idea to me to take this time to lick our wounds and try to put some meaning back into life as Americans…something besides guns, bombs, and drugs that is.
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Well Tical, I’d say you are probably preaching to the quire here.
One point, the mention of “ample money” (by the NYT) to inject is incorrect. The Fed never needs ample money since it simply creates more whenever they wish to. And there is no limit, except the fear of a total meltdown, to stop them. And that assumes they understand cause and effect, which I somewhat doubt.
“Well Tical, I’d say you are probably preaching to the quire here.”
Quire? Is that some sort of ultra-irony, or are you not familiar with the word “choir” and the context of that saying?
As usual, I learned something new by cruising the mises blog.
link
If Ron Paul succeeds in ending defecit spending by the Federal Government how can he stop the rapid deflation of m3 ? When the Federal Government balanced the budget under the Clinton administration m3 shrank and a recession was the result. Then a return to defecit spending under Bush brought us back from the brink. As you know when fiat money returns to the bank of issue it is written off the books evaporating back into the air from whence it came. The first solution that comes to mind is paying the debt with United States Notes that do not have to be borrowed into circulation. Has anyone figured out how to get out of the perpetual debt system without wrecking the economy ?
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Probably he couldn’t, but the only way out is through.
/not an endorsement, just a comment.
This is a very depressing story. I had hoped that Bernanke would not be worse than Greenspan, but now I’ve lost that hope.
The similarities between mainstream econ today that of the ancient past is striking. In the crisis in France in the early 1700′s, leading financial thinkers and “economists” blamed the depression on a shortage of money, gold at that time. That made them suckers for John Law’s paper money scheme and an even worse disaster. You ought to read Washington Irving’s account of the John Law episode. It’s very enlightening. Then read Rothbard’s history of the 1819 crisis. It’s the same thing all over again. Then read Rothbard’s account of the Great Depression. Again, the leading thinkers blamed a shortage of money. So did the Germans in the 1920′s. For almost 400 years, the leading intellectuals of the day have always blamed a shortage of money and speculators for financial/economic crises.
Americanism: “When the Federal Government balanced the budget under the Clinton administration m3 shrank and a recession was the result.”
I’m not sure that the correlation between the shinking of m3 and the balanced budget under Clinton is a sound one. The money supply is almost always controlled by the banking system. In serious crises, consumers add their input if they lose confidence in the currency. But fiscal policy should have little effect on money supply.
If I remember Clinton’s years accurately, he balanced the budget by 1) the largest tax increase in history, 2) by gutting the military ad 3) by having a Republican congress who opposed everything Clinton tried. But government spending never decreased; its growth merely slowed a tad. In my book, the real hero of the balanced budget was strong productivity growth in the 1990′s which caused the economy to grow rapidly with little price inflation.
Tical: “Correct me if I’m wrong, but won’t this just make things worse down the line?”
You’re absolutely right! Greenspan’s deluge of paper hurt the recovery from the 2001 recession, making it one of the slowest recoveries in history. Bernanke will do even worse, it appears. Look for a recession followed by a very slow recovery due to high price inflation and stagnating real wages.
Adding more reserves in an attempt to prevent an economic meltdown is analogous to stopping a nuclear explosion by adding more fissionable material. In the end, both result in a bigger explosion.
so will this re start the sub prime loan trend? no reason why not according to their logic
pocket change. The ECB moved in 97 billion euros in 1 day and 60 billion the next day. World wide close to 500 billion dollars was injected by central banks
If a recession begins and if deflation occurs, where is a safe place to invest to weather the storm? A flight to cash and the prior satisfaction of debts seems intuitive, but if deflation is staved off by inflation or hyper-inflation that strategy is hosed. Gold has been a traditional answer should that occur. Is it still or has the linkage to money been severed?
Just wondering. I’ve fled to cash reserves in IRA and 401k plans but gold is not an option there yet.
All the more Reason to understand Ron Paul, and his insistance on Constitutional government.
The Fact of the “Federal Reserve” is as Insane as the thinking of those that ask: “what about the “tanking” of the Economy”.
Simply, the adjustment, to the rational, after irrationality, comes with shocks, to those ill-prepared.
The idea of “Fed” intervention only continues to propagate the Moral Hazard of “Heads I win, Tails you Lose.”
I just want to throw this out there to see if I am looking at recent events properly: After 9/11 and because of fears of economic slow-down, the Fed “targeted” lower interest rates (this means the “made” new money, right?). One of the results of this was that people who just maybe, probably shouldn’t have been getting loans for houses, did. So now, the fact that these loans aren’t getting paid back coupled with other factors (I am not sure of everything that is going on in the financial world) is putting pressure on the money supply – something that, if we just let the market do its job, would push interest rates to a more realistic level in order to correct past mistakes. And now, the Fed, fearing looking bad (?) decides to stop this correction by repeating the mistake that got us into this mess.
Maybe I am over simplifying things, but this is about how I understand the current situation. Does that seem pretty accurate?
Oh yeah, tell your friends to VOTE RON PAUL!
(Like you haven’t already
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Amy
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