Wednesday, September 9, 2009

The most current thought process regarding monetary (Fed) policies: Reading the minds exercise, part 522

This post will be more evolving, new materials as we go along.

Old materials first:

The Taylor rule: taking into account GDP (real output) and inflation (paper supply) to set short term interest rate.

Verdict: Didn't work. Paper supply does not adequately describe BUBBLES when they occured in the past.

Competing goals in 2009:

Reinflation - largely complete with a very heavy excess of liquidity currently in the system, chasing extraneous and "secondary" assets, which have nothing to do with "financial stability" - gold and oil to name a few.

New World mandate - for both O and Benny, that "FREE MARKET" (The one that had Lehman, Freddie, AIG, and Citi in it) got the "Price" wrong more than several times. Any sense of nascent, systemic-endangering bubble will from now on be dealt quickly and harshly before they create untold damages.

What is out: is the Reaganism - unchecked, collusion-based, cronyisms, Islamophobic "free market" - where the power that be is empowered to predate among the lower classes and have the galls to call it "FREE MARKET".

Which one and when does one COMPETING GOAL ends and ANOTHER started?
- Can only be answered looking back.
The other things that can also be answered by looking at past data:
1. Which cycle it currently is.
2. What kind of price changes have occured, particularly those outside the intended policies.

Wassa-llammual'aiqum for now (Toodaloo in Arabic - I hope I copy and paste that correctly)

1 comment:

Steve said...

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