Re: Japan and global demand

[David Gleicher <104201.2301@xxxxxxxxxxxxxx>]

William Hummel writes:
>I agree the Fed could have done much better in curbing the
speculative excesses.  In particular it should have raised margin
requirements and set stricter rules on bank lending for purely
speculative financial games. <

It is not the proper role of the Fed to intervene to prop up stock prices,
nor are the latter directly related either to employment or inflation which
are the Fed's proper concerns.

Regarding Greenspan, has it occurred to anyone that interest rate policy by
the Fed has had very little noticeable effect on the economy one way or
another over the past decade (at least).  Empirical studies suggest a weak
connection, if any, between interest rates and private planned investment,
and theoretically the connection is equally tenuous so this should not be
surprising.  Thoughout much of the nineties Greenspan raised interest rates
(to curb a non-existent problem of inflation) and yet the economy grew at
historically high rates and the unemployment rate plunged.  Now he is
trying to lower rates, but the economy seems to be slowing down.
Monetarism is dead, and the foolish notiion that monetary policy should
lead short-term growth policies should be allowed to die along with it.


As to politics, a cynic might say that the Fed is much like the Supreme
Court in the US.  It has been granted a kind of privileged status, but
indeed both institutions are filled with Republican hacks, like Greenspan,
When the economy was expanding under the Democrats, Greenspan tried to slow
it down.  Since the Republicans took office, as he did in the last years of
the previous Bush administration, Greenspan has
tried to prevent a slow down.  The explanation of his actions is not that
difficult to find, is it?

DG