posted on September 18, 2003 11:36:39 AM
Greenspan's Latest Speech: We Noticed, Did You?
BY: Anna Troupe
Did you hear about Mr. Greenspan's August 29th speech? It was a significant departure from his usual vague econo-speak, yet somehow didn't draw the attention that his pronouncements usually receive.
The title of the Fed Chairman's speech -- "Monetary Policy Under Uncertainty" -- piqued our interest enough to read the text. We even tracked down the media's "coverage," such as it was -- here are some noteworthy points from what we found. (Language taken directly from Greenspan's text is in italics.)
--- 1. The economy is outgrowing the Fed's understanding of it: "Our knowledge base is barely able to keep pace with the ever-increasing complexity of our global economy."
--- 2. Economic changes are hard to predict: "Recent history has [shown] that the relationships… change over time in ways that are difficult to anticipate."
--- 3. Economic models are not reliable: "A prominent shortcoming of our structural models is that…economic responses are presumed fixed through time…and are generally assumed to be linear… These assumptions are never met in the real world.
--- 4. The meaning of the term "money" is increasingly unclear: In the past two decades…what constitutes as money has been obscured by…technologies that… have altered the empirical relationship between economic activity and what we define as money…
So without a clear definition for money, the Fed cannot control the money supply.
--- 5. The Fed's best solution is to manage the risks, including its own risk for error: "These considerations have inclined Federal Reserve policy makers toward policies that limit the risk of deflation even though baseline forecasts from most conventional models would not project such an event."
One report said Greenspan was merely defending the Fed against recent criticism. Another drew a darker conclusion: "Greenspan is clearly telling us they are worried about deflation, even if the models do not show it."
What do you think? Are you sure that the Fed's aggressive -- yet "inhibited" -- monetary policy can stop deflation? If not, will the Fed be able to warn you in plenty of time?
posted on September 18, 2003 12:08:34 PM
If you were warned what would you do? Sell everything you own? That would increase supply, outstrip demand and drive pricing down. A self fulfilling prophecy.
Republican, the other white meat!
posted on September 18, 2003 12:22:38 PM
Selling everything is what Kennedy senior did shortly before the crash in 1929 - and he didn't lose a dime in the that deflationary recession.
However, by the time the FED is aware and makes public that the economy is sinking into deflation, everyone will already know it.
In any event, flight of capital and jobs to low wage and unregulated countries can only result in deflation.
--- 1. The economy is outgrowing the Fed's understanding of it: "Our knowledge base is barely able to keep pace with the ever-increasing complexity of our global economy."
--- 2. Economic changes are hard to predict: "Recent history has [shown] that the relationships… change over time in ways that are difficult to anticipate."
--- 3. Economic models are not reliable: "A prominent shortcoming of our structural models is that…economic responses are presumed fixed through time…and are generally assumed to be linear… These assumptions are never met in the real world.
--- 4. The meaning of the term "money" is increasingly unclear: In the past two decades…what constitutes as money has been obscured by…technologies that… have altered the empirical relationship between economic activity and what we define as money…
So without a clear definition for money, the Fed cannot control the money supply.
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if the fed does not understand what is money,then why the #*!@ is it inflating money supply for?/it has been doing this for last 50 years.
