leejo

Scratch, the fed and other central banks exist to moderate the boom/bust cycles. You seem to be saying that you believe such cycles wouldn't exist without central banks, but history disagrees with that position.

The dollar's value has much more to do with the national debt and attractive investment opportunities in emerging economies than with anything the fed controls.

xTYBALTx

Not low interest rates?

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A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

leejo

I said "much more to do" not "only related to".

I don't think jacking up interest rates right now would help, though. IMO we're working through a mid-cycle correction similar to the asian banking whoopsie in '97. I sure hope that's what's going on, because otherwise they aren't cutting rates enough.

You young bucks out there haven't been working during a really juicy recession. Or rather, not working during a really juicy recession. They suck.

In any case, note that the Fed isn't the only central bank pumping liquidity (aka cash) into its market. Lowered rates is another way to accomplish the same goal - keep Sammy running.

Kerostasis

You misunderstand me. I do not bring up Ron Paul's nutty-ness as an argument against the Honest Money proposal. I bring up the Honest Money proposal as an argument for Ron Paul's nutty-ness. My complaints against the proposal have nothing to do with the fact that Ron Paul happened to sponsor it -- as I said, I actually like the guy. I'll probably vote for him in the Primaries. But he's still a nut.

As Leejo mentioned, the primary purpose of the existence of the Federal Reserve Bank is to moderate the boom/bust cycles. Yeah, they did a sorry job of it during the Great Depression, but they've gotten better over time. Its not like boom/bust cycles didn't exist before the Fed, or wouldnt exist today without them. That can be easily proved simply by observing that the Great Depression (which the Fed did an admittedly bad job of managing) was a worldwide phenomenon, affecting areas and currencies far beyond the reach of the Fed.

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ScratchMonkey

In my day job, I work on control systems.

http://en.wikipedia.org/wiki/Control_theory

The oscillation of natural boom/bust cycles is similar to that of servo motor systems as they move and settle. The Fed's ostensible function is to "force" the system to reduce the magnitude of the oscillation. But the Fed is politically driven, so it has a natural inclination to drive the booms harder, and the result is harsher busts.

http://en.wikipedia.org/wiki/Public_choice

If the Great Depression was worldwide, could that not be attributed to the large effect of the dollar on international trade? Or was the US a minor player of the time? How did US monetary policy compare to that of other countries? Did they also have legal tendor laws establishing a protected monopoly on currency?

Kerostasis

The US became a serious major player after WW2. Sure, they weren't bad during the 20s, but nothing compared to what we are today. In the 20's the US was just one more of many large economies. To suggest that the existence of Legal Tender caused the Great Depression is absurd, and you have so far provided no evidence of that whatsoever.

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RandomGuy

It was created to avoid this situation.

leejo

The fed has an inclination to drive the booms harder? Tell that to the market next time the fed jacks interest rates up.

Tempus

There are many possibilities for what the fed is doing, if you like conspiracy theories.

1. The fed is inflating our way out of debt. This has long been a suspected exit-strategy for the US and its enormous national debt. By tanking the dollar, we are in effect reducing the size of our debt. The inflation that results will yield higher tax dollars to further help pay it off.

2. The fed is punishing the dollar-peggers, the likes of China. The dollar has borne the burden of other countries' currency manipulation for decades, which is what has helped create the huge trade deficits that we currently have. If China (and others) would release its peg, it will make their products more expensive and ours more competitively priced.

3. The fed is actually controlled by large brokerages such as Goldman Sachs. It acts as a tool for them to make themselves billions while the average sucker on the street suffers through high inflation, etc.

Personally, I think that a combination of 1 and 2 are at work here. A weak dollar hurts other countries more than it does the US. And as leejo says, these things are cyclical in nature anyway. The dollar has been here before. Hell, just a few years ago it was at an all-time high. Surely things haven't changed that much since then.

So yeah, we're going to have some inflation for awhile (but most of the rest of the world has it far worse than we do), but when it's all said and done, the US will be left with a comparatively smaller national debt and a more competitive export base.

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xTYBALTx

http://www.federalreserve.gov/genera...on/default.htm

"Conducting the nation’s monetary policy by influencing the monetary and credit conditions in the economy in pursuit of [1]maximum employment, [2]stable prices, and [3]moderate long-term interest rates"

Items one and three are secure at the moment: Unemployment is low and interest rates are not leaving the ballpark of "moderate" in the foreseeable future.

Which leaves us with item two. Stable prices. What causes unstable prices? Inflation and deflation. Inflation is caused by different things at different times - our current inflation is caused by [a] the weak dollar and [b] an expectation that the Fed will continue cutting rates. How do we put this current inflation in check, then? By raising rates.

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A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

leejo

I think the risk of recession we have right now is far worse than the inflation risk. In any case, next Tuesday I think you'll be pretty disappointed, 'cause the Fed's gonna cut. Maybe .50%

xTYBALTx

1. If I didn't expect the fed to cut, I wouldn't have started this thread.

2. "There's no such thing as a free lunch."

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A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

leejo

Sure, you just seem to think that the price of avoiding a recession is too high, and I, and the fed, and the market, disagree.

Tell you what, I'll betcha $100 that the dollar has rallied 15% by 12/7/2008. Deal?

ScratchMonkey

When I build a circuit, I can be confident that no one's meddling with the number of electrons in the system, or the amount of charge they can carry. I can't say that about the amount of currency in the system, nor the value of that currency. The lack of predictability makes it very hard to plan effectively.

Re: trade deficits

Some discussion here on whether they're bad or harmless:

http://en.wikipedia.org/wiki/Talk:Balance_of_trade

(I always check the talk page at Wikipedia to see what controversy might be present about the article page.)

CingularDuality

All I know is that I want the fed to make a huge cut before I close on my house.

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