So here’s the deal: Milton Friedman thinks the fed should be disbanded because it’s wrong so often. Is this another case?

While the board mulls the future it’s important to bear in mind how often they’ve gotten it wrong. My concern is that the fed will somehow get it so totally wrong that they choke off growth.

Plus we get the opportunity to use our magic secret decoder rings to decode whatever Greenspan says. Such fun

Posted by: skip at August 10, 2004 03:11 PM

Yes, why don’t we toss the entire federal reserve system and let another massive crash happen.

Posted by: Lakhim at August 10, 2004 03:15 PM

Recall Alan Greenspan’s determination to off-set what he called “the wealth effect” by increasing the Fed rate starting in 2000. That had disastrous results. It took 9/11 to get him to adopt a more prudent approach.

While he and his colleagues are right to be concerned about inflation, I only hope that they do not go overboard like many believe they did before.

Posted by: Jim at August 10, 2004 03:39 PM

Lakhim, how many nobel prizes do you have? Wanna compare your knowledge of economics with that of Milton Friedman?

I didn’t think so. What a twit. Frankly I think you say things just to say things.

Posted by: skip at August 10, 2004 03:59 PM

Lakhim’s nit wittery aside, the fed deserves the same critical review as that of any other government agency whos decisions aren’t based on our votes.

Posted by: skip at August 10, 2004 04:01 PM

Skip - Greenspan has done a brilliant job in doing what he can to keep us on track, and he did what was needed to be done in 2000 to control the bubble and preventing the crash from being worse then it was (mild at worst).

Besides, if you think that appeal to authority is somehow makes you 100% correct, you’re wrong, as there are just as many economics with nobel prizes supporting the head banks of nations (though they have messed up horribly in the past, Japan is a good example of this).

Posted by: Lakhim at August 10, 2004 04:11 PM

So Lakhim, are you saying that Bush inherited a faltering economy?

One wonders what your last paragraph actually means. Alas my secret decoder ring doesn’t extend to your writing.

Posted by: skip at August 10, 2004 04:16 PM

Lakhim—
for what it’s worth, the great Crash took place fifteen years AFTER the founding of the Federal Reserve…
R.

Posted by: Rambler at August 10, 2004 04:30 PM

Further, Lakhim, rather than respond to my question you simply made a foolish statement.

My question is pretty simple: is this the right move, right now?

if you’ve got some reasoning that supports a position one way or the other, do tell.

but your statement about a crash lends nothing to the discussion. Which I might add is pretty much par for the course from you.

Posted by: skip at August 10, 2004 04:37 PM

Skip - Why yes, I did say that. Oh dear. Could it be that the president has no control over the economy?

Yes, I was busy and edited poorly. Basically, saying that because this guy says that it is true does not make it true, as there are other people who argue for the continuation of the Federal Reserve with the same qualifications.

R - Well aware of that, but the great crash was more the problem of the banks failing around the world. I’m talking about the next one.

Posted by: Lakhim at August 10, 2004 04:40 PM

Skip - I was pointing out how foolish it would be to disband the reserve at a time like this. If anyone was off topic, it was the first poster.

I think that it is the right move, because I really don’t like the way the housing market is looking and it needs to cool down before it bursts. The markets agree, and we have been far under the ideal interest rate for quite some time.

Posted by: Lakhim at August 10, 2004 04:44 PM

I hate to say it, but I’m closer to Lakhim on this one. Greenspan has done a fair (not brilliant) job of manipulating interest rates to try to regulate the fires of the economy. He’s been a little late in my opinion on some changes, but that is an artifact of any sense-and-change control system, particularly if one is cautious. On the other hand, much can be argued about how much interest rates actually do control the economy. Low rates certainly do fuel capital investment and housing/real-estate and flush cash from low yield savings accounts. Gov’t spending and tax cuts also fuels the economy, particularly at a deficit, which is likely lately due both to policy and decreased tax revenue from a slowdown.

There is NO DOUBT that Bush inherited the slow down, as the bubble reached critical pressure, the economy peaked and started retracing in late 1999.

Increasing rates right now? Hard to tell if the time is right due to a variety of factors and many of the best economists could argue endlessly about whether raising rates takes a reasonable bite out of inflation.

Posted by: Max Darkside at August 10, 2004 04:59 PM

As rates rise, the housing market will begin to lock-up until the rest of valuation catches up with it (ie., inflation). Even with small interest rate changes, the number of people that qualify for the average home falls off quickly. Fewer buyers will qualify and few sellers will drop prices unless forced because many homeowners have low equity in their homes due to recent buying and refinancing. You are NOT going to sell for less than what you just bought/refinanced for.

The housing market will freeze. Real estate agents should be retooling.

Max “Econometic Nostradamus” Darkside [snicker]

Posted by: Max Darkside at August 10, 2004 05:13 PM

I was trying to start a discussion about the wisdom of the decision. I added the part about Mr. Friedman to indicate that not everybody finds the Fed infallable.

Also, I think it was John Maynard Keynes who said, “In the long run we’re all dead.” Which is about the only statement ever made by an economist with which other economists might agree.

there are some tough issues though: Oil prices, the impact of the war on our economy, the changes in the global market and on and on. so these have to be thoughtful, careful decisions.

And yes, I am heartened that the market reacted as it did. Presumably these are people who spend most of their day looking at the economy. I don’t. I spend most of my day posting at the CP (just kidding!!!)

Posted by: skip at August 10, 2004 05:15 PM

Technically, Skip, the Fed is not part of the government. It is a private institution owned by its member banks.

That being said, it certainly acts like a central bank, so the point is purely technical.

Posted by: DWC at August 11, 2004 11:47 AM