Re: Conflict of Interest

["ÁÎ×Ó¹â Henry C.K.Liu ¹ù¤l¥ú" <hliu@xxxxxxxxxxxxxx>]

"William F. Hummel" wrote:

> I think you are attributing "creative destructionism" to
> Greenspan current policies, whereas it is basically a result of
> the political environment, quite apart from monetary policy.

Greenspan Before the White House Conference on the New Economy, Washington, D.C.  April
5, 2000:

In the economy overall, one result of the more-rapid pace of information technology
innovation has been a visible acceleration of the process of "creative destruction," a
shifting of capital from failing technologies into those technologies at the cutting
edge. The process of capital reallocation across the economy has been assisted by a
significant unbundling of risks in capital markets made possible
 by the development of innovative financial products, many of which themselves owe their
viability to advances in information technology.

[SNIP]

In the end, I do not believe we can go far wrong if we maintain a consistent, vigilant,
noninflationary monetary policy focused on achieving maximum sustainable economic growth,
a fiscal policy that produces substantial saving to accommodate investment in productive
capital, a trade policy that fosters international competition through broadened market
access, and an education policy that ensures that all Americans can acquire the skills
needed to participate in what may
 well be the most productive economy ever.
http://www.federalreserve.gov/boarddocs/speeches/2000/20000405.htm

The above is a formula for global disaster.

As to the Fed Board membership, the Federal Reserve Act mandates that a President, when
selecting governors, "shall have due regard to a fair representation of the financial,
agricultural, industrial and commercial interests and geographical division of the
country."  But there are no farmers, small business owners, manufacturers, labor leaders.
  The revolving door between the Fed and Wall Street is not unlike that of the Pentagon
and the defense industry.  A non economist like G. William Miller would rely on the Fed
bureaucracy for technical advice.  A Volker/Greenspan type would dictate to staff
economists.

> Fed has no real voice in such issues as anti-trust policy that
> allows firms to merge at an increasing rate and lay off workers.
> This trend to laissez-faire capitalism is largely the legacy of
> the Reagan/Bush years that filled so much of government with
> conservative bureaucrats and court appointees, not to mention the
> policies of the Republican-controlled Congress.

This is mere Democrat rhetoric.  Clinto/Blair progressives have continued the
Reagan/Thatcher economic policies, stock, lock and barrow.  The world would have to pay
the penalty in the coming decade.

> >> As for what the populist monetary policy
> >> would be, I can only guess.  Certainly we have an expanding money
> >> supply today, not constrained by a gold base.  Federal bank notes
> >> have replaced private bank notes.  And our monetary system is
> >> inflationary as the historical record shows.  So what is it that
> >> you are advocating, Henry?
> >>
> >Historically, Fed monetary policy has been inflationary, but not since Volker.  I am
> >advocating a return to traditional Fed policy which historically has large
> >components of popularism, whih you f=do not seem to recognize.  You seem to be
> >arguing with your own refusal to receive communication, by pretentiously asking for
> >the meaning of US popularism and Greenspan's meaning of Schumpetrean creative
> >destruction.  Are you going to ask what is life next?
>
> I trust you are not advocating a return to the inflationary
> policies of Arthur Burns.

Burns was not a populists by any stretch of the imagination.  He abolished the full
transcript of the FOMC meetings after the Freedom of Information Act.
Under a policy announced on January 19, 2000, the FOMC issues, shortly after each of its
meetings, a statement that includes its assessment of the risks in the foreseeable future
to the attainment
 of its long-run goals of price stability and sustainable economic growth, but no
transcripts are now recorded.  Nevertheless, the Fed continues to enjoy a level of
secrecy that is the envy of the CIA.  Henry Ford was reported to have said:  "It is well
enough that the people of the nation do not understand our banking and monetary system
for, if they did, I believe there would be a revolution before tomorrow morning."

Burns was a conservative economist from Columbia appointed by Nixon in 1969.  He was
known as the "Number One inflation fighter." I met him several times in meetings because
at that time I was teaching at the School of Architecture at Columbia.  Burns was not
well liked at the Fed by his colleagues nor by members of his profession.  Many accused
him of being intellectually dishonest.  The Burns era was the most political in Fed
history, with Burns' economic pump priming insuring Nixon's second term, engineering a
money growth of a monthly average of 11% three months before the election from an monthly
average of 3.2% in the last quarter of 1971.  The economy paid for the election boom with
runaway inflation and Burns tightened with a vengeance and produced a long and painful
recession. The Fed has yet to recover from the bad smell of 1972.
Burns' sordid catering to Carter in hope of a reappointment was a contributing factor to
the Carter inflation and Carter defeat was in no small measure caused by his appointment
of Volcker. Some said it was the most self-destructive move by Carter.

> It's true that Greenspan has been more
> of an inflation hawk than some of the earlier Fed chiefs.  Yet
> the amount of money sloshing around today has led to one of the
> worst asset price bubbles we've had this century.  Surely you
> don't think credit availability is lacking at present.
>

No, credit availability is not lacking generally.  It is the allocation of credit that is
undemocratic.  And Greenspan repeatedly told congress that regulation on derivatives is
not necessary.  Unlike William McChesney Martin, who described his job as taking the
punch bowl when the part gets going, Greenspan take the punch bowl and gives it to the
already drunk.

> You are correct that I don't know what you mean by "popularism".

I repeat, it is not WHAT I MEAN, popularism is a historical movement that is well
documented.  I have submitted several posts in recent days on the subject, starting with
my piece on Eccles.

> I try to avoid the use of such vague terms since no two people
> ever really agree on precisely what they mean.

There you go again.

> All I am asking is that you be specific in your proposal on Fed policy changes.
> Do you have a target inflation rate, for example?

This is precisely the wrong type of question.  The is no golden mean target inflation
rate for sustaining economic growth.  Greenspan's Humphrey Hawkins testimonies are full
of that kind of pronouncement.  Greenspan focuses on one single tool, the Fed Funds
target rate.  He did not even want to touch bank reserve requirement. And he focuses on
one single data - pending inflation.  He allows an overvalued dollar exchange rate as
national policy as being in America' national interest.  Under current conditions of
globalization, a high dollar requires high Us interest rates which forces other central
banks to raise rates at a time when lower rates are necessary to avoid stalling anemic
recoveries in Euroland, Japan, and Asia. You yourself acknowledge that monetary policy is
complex, yet you ask for a simplistic measure.  I was criticizing the current Fed for its
institutional bias, and you challenge me with a narrow question.

> And what measures should the Fed take to control the asset price bubble?

Redirect credit allocation from speculation social infrastructure investment.  Since the
dollar is a global currency, the Fed is by default the world's central bank.  It should
push vigorously for a new global finance architecture and stop being fixated on US
inflation fears.

Henry C.K. Liu