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The Fed’s Abilities

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Chumly
 
  1  
Reply Sat 25 Mar, 2006 04:24 pm
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cicerone imposter
 
  1  
Reply Sat 25 Mar, 2006 04:33 pm
Chum wrote:
In essence, my contention is that the Fed is not able to moderate the net negative effects of inflation via manipulating the short end and/or the money supply (in essence the same effect) because such abilities would impute the Fed's ability to predict future market conditions.

It seems to me that the discussion we're having goes to the root of your premise. You can't isolate any one part of inflation as a discussion on economics.
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Chumly
 
  1  
Reply Sat 25 Mar, 2006 04:42 pm
cicerone imposter wrote:
It seems to me that the discussion we're having goes to the root of your premise. You can't isolate any one part of inflation as a discussion on economics.
Your point has merit alrighty! I simply wanted to focus on the one argument as the starting point for the reasons initially stated. There is a method to my madness.

Must go now, always a pleasure talking to you.
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Chumly
 
  1  
Reply Sat 25 Mar, 2006 05:12 pm
Gentleman, while you're digesting, see if you can find consequential mertible third part unbiased evidence to support the contention that the Fed can mediate the net negative effects of inflation (at least without causing problems that are in effect equal if not much worse than the underlying inflation itself).

No I don't mean the rhetoric the Fed supplies, nor popular convention, as neither meet the criteria of mertible third part unbiased evidence.

Also I am not saying that the Fed does not have a place and by mediating the net negative affects of inflation I mean specifically the day over day, preemptive inflationary hawkishness, via the manipulation of short term rates.

We can get into the benefits of the Fed for emergencies, wartime, stock market crashes etc. later on, OK?
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Thomas
 
  1  
Reply Sat 25 Mar, 2006 05:20 pm
cicerone imposter wrote:
Thomas, I probably confused the per capita amount of the federal debt. The CBO article that follows answers most of my opinion on why the continual increase in debt is not sustainable.

But even so, your figure overestimates it by a factor of two or so. I agree the US budget deficit is unsustainable because it will lead to a balance of payment crisis, or to a deep recession, or both. But this is a completely different thesis from the one that you started with, which is that overall debt, public and private, will create runaway inflation.
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Thomas
 
  1  
Reply Sat 25 Mar, 2006 05:26 pm
Chumly wrote:
1) Would you accept the argument that the Fed cannot know what the structural economic fundamentals both domestically and globally will be say 15 years from now?

Well, it's not much of an argument, but I accept this factual statement.

Chumly wrote:
2) Would you accept the argument that if the Fed cannot know what the structural economic fundamentals both domestically and globally will be say 15 years from now, the present day manipulations of short term rates dues to incorrect future assumptions may exacerbate/induce/magnify/extend what may be a period of stag-flation (or other unforeseen but problematic and structural economic negative)

Yes, but I find the argument irrelevant because the Fed does not make assumptions about fundamentals 15 years in the future when it sets short-term rate.

chumly wrote:
3) We need to agree on what inflation & deflation mean, here is what I intend to use
Inflation: Too many dollars chasing too few goods
Deflation: Too few dollars chasing too many goods

I would have defined it as a general fall or rise in prices, but I'll go with your definition for now.

chumly wrote:
4) Have you given some consideration as to how Burton Malkiel's assertions can affect the Fed?

No, I haven't.
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cicerone imposter
 
  1  
Reply Sat 25 Mar, 2006 05:35 pm
From John Taylor at a debate at MIT:
Taylor constructed a policy that supports a more conservative position.
Charles Taylor has developed the "Taylor rule", which states that the federal funds rate should be set at a level that is equal to the inflation rate plus an "equilibrium" real fed funds rate that is consistent with full employment in the long run) plus a weighted average of two gaps:
1. An inflation gap, current inflation minus a target rate.

2. An output gap, the percentage deviation of real GDP from tan estimate of its potential full employment level.

Federal funds rate target= inflation rate + equilibrium real feds funds rate+ 1/2 (inflation gap)+ ½ (output gap)
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cicerone imposter
 
  1  
Reply Sat 25 Mar, 2006 05:40 pm
I thought this answered the question, "But this is a completely different thesis from the one that you started with, which is that overall debt, public and private, will create runaway inflation. "

"Inflation is an increase in the volume of money and credit relative to available goods,"
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Chumly
 
  1  
Reply Sat 25 Mar, 2006 06:03 pm
Hi Thomas,
Thomas wrote:
Well, it's not much of an argument, but I accept this factual statement.
1) Good.
Thomas wrote:
Yes, but I find the argument irrelevant because the Fed does not make assumptions about fundamentals 15 years in the future when it sets short-term rate.
2) I did not suggest or impute "the Fed make assumptions about fundamentals 15 years in the future when it sets short-term rate". The period of time in question (15 years) was not to infer that the Fed looked that far ahead, but that the Fed's actions can have effects that far ahead. OK? Also it's important that you at the least understand that I assert that the Fed does indeed have the intention to act preemptively (time period not specified) and I will argue this case later. OK?
Thomas wrote:
I would have defined it as a general fall or rise in prices, but I'll go with your definition for now.
3) Good, the reason I choose my definition is because it refers to both variables; goods and money. Inflation: Too many dollars chasing too few goods.
Deflation: Too few dollars chasing too many goods.
Thomas wrote:
No, I haven't.
4) I would ask that you consider the efficient market hypothesis and how the Fed would need to circumvent this hypothesis in order to maximize the efficacy of it's articulations. The Fed is not independent of the market nor is the Fed the market maker.

Also as discussed I asked
Chumly wrote:
While you're digesting, see if you can find consequential, mertible, third part unbiased evidence to support the contention that the Fed can mediate the net negative effects of inflation (at least without causing problems that are in effect equal if not much worse than the underlying inflation itself).

I don't mean the rhetoric the Fed supplies, nor popular convention, as neither meet the criteria of mertible third part unbiased evidence.

Also I am not saying that the Fed does not have a place and by mediating the "net negative effects of inflation" I mean specifically the day over day, preemptive inflationary hawkishness, via the manipulation of short term rates.
It will be tomorrow before I have a chance to check in and move forward.

Cheers,

Chum
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