Greenspan is an eeeeeejjit!

[mrmarket]

Why the Fed insists on continuing to ruin the stock market with their incessant rate increases is beyond me. They say they want to stem the inflation that is independent of the increase in energy prices?

I got news for you. Energy costs are pervasive through all commodities. An increase in energy costs will automatically drive up prices in food, clothing, building materials, etc. The Fed is applying the brakes to an economy whose brakes are already being applied!

The Fed should raise rates when inflation is a function of increased wages which are seeking out scarce goods. We don't have the low unemployment nor do we have the low productivity that will propogate this phenomenon.

The other thing that pisses me off is that the Fed is raising rates without being patient to see what the effect has been. The lag effect of each rate increase is several months. It's like trying to stop an ocean tanker. It takes several miles before it even begins to slow down. Eventually they will end up overcompensating for a condition that doesn't even exist in the first place.

Come to your senses, Greenie!

comments?

[jiesen]

those bastards!

[B.J]

Why the Fed insists on continuing to ruin the stock market with their incessant rate increases is beyond me. They say they want to stem the inflation that is independent of the increase in energy prices?

I got news for you. Energy costs are pervasive through all commodities. An increase in energy costs will automatically drive up prices in food, clothing, building materials, etc. The Fed is applying the brakes to an economy whose brakes are already being applied!

The Fed should raise rates when inflation is a function of increased wages which are seeking out scarce goods. We don't have the low unemployment nor do we have the low productivity that will propogate this phenomenon.

The other thing that pisses me off is that the Fed is raising rates without being patient to see what the effect has been. The lag effect of each rate increase is several months. It's like trying to stop an ocean tanker. It takes several miles before it even begins to slow down. Eventually they will end up overcompensating for a condition that doesn't even exist in the first place.

Come to your senses, Greenie!

comments?

Spot on, $$MM$$. He did the same in 2000 as oil prices were on the upswing.

[mooddude]

Obviously, they are fighting inflation. Influencing the market in either direction is not their goal. The market is only an indicator of how the economy is doing. You can't steer the stock market into the ascending mode and expect the economy to improve, it should be done the other way around. As the economy got a jumpstart, it seems reasonable to increase the interest rate back and have this tool available for the worse times.

[mrmarket]

Obviously, they are fighting inflation. Influencing the market in either direction is not their goal. The market is only an indicator of how the economy is doing. You can't steer the stock market into the ascending mode and expect the economy to improve, it should be done the other way around. As the economy got a jumpstart, it seems reasonable to increase the interest rate back and have this tool available for the worse times.

Maybe you missed my point. Fighting inflation is fine if the inflation is caused by red hot levels of wage increases combined with scarce goods. However the inflation we see today is the result of the tentacles of high energy prices permeating through all goods and services.

The Fed is firing bullets at a target that does not need this kind of submission.

[mooddude]

I think you touched upon more than one point in your post. To address your thought regarding the cause of inflation, I think today's inflation is more of the result of low interest rates and other policies directed to injecting the monetary mass into the economy. If Fed doesn't reduce that mass then inflation will increase.

Now, what can they do about energy prices to keep consumer prices from going up? Nothing. They cannot supply oil, coal, gas out of nowhere to meet higher demand on it. The demand is clearly higher than the supply. What I think they do on that front is that they are increasing strategic oil reserve and now and then breaking the news of higher stockpiles than expected, which softens the blow.

[skiracer]

Excellent topic and discussion. I have to agree with MM about the point that the natural increase in energy costs driven by the natural effects of supply and demand will over time drive the cost of goods up and also reduce the amount of goods produced and reaching the marketplace. Lower units produced plus even a static balance of demand will cause the price of goods to naturally go up. Basic economic forces at work in their natural element of supply and demand.
Taking into consideration that the controlling forces behind the production of oil an energy related products are manipulating the produced amounts for their own benefit if we were to leave everything alone to rise and ebb with the tide of supply and demand those controlling forces would eventually have to produce more and get more to the market as the demand an use lessened due to rising costs.
This in effect would reduce the cost of energy an it's related products and as more of the products came to the marketplace the price could fall naturally and the amount of goods would increase and prices for them would fall as the amount of goods increased.
One of our problems is that our government has allowed Greenspan the power to do what he thinks is best for our economy. As MM said the increases he places now are 6 months or more behind what is actually going on at the present and when they do start to take effect they could be out of sync with what is necessary at that time.
The kneejerk reactions to what the Fed does is really only significant in respect to that day and the short term before it gets lost in the sauce and forgotten that they raised the rates a 1/4% two or three months ago.
When the cost of energy gets prohibitive to producing products and industry has to cut back their production because of that fact alone it effects every facet of our economy. Rising energy and commodity prices will naturally lead to rising interest rates over the short term and longer term eventually if they continue to go higher. Higher rates have a direct effect on mortgage lending and any increase in those rates will effect homebuilding and then the domino effect starts an every facet of the economy begins to feel it in a negative way.
I don't have the answer in total but I do have my own feelings about manipulating the interest rates to control inflation. I say let the natural effect take place an run it's course until the producers of the goods start to feel the pinch the same way the blue collar guys do when they see that they are making less money because people are buying less of their products. When it gets to the point of being unconfortable then the required accomodations will be taken to deal with the energy producers and suppliers to bring things back to a more even keel.
Messing with the natural flow of economics and trying to control the economy through the manipulation of interest rates just doesn't work and messes things up worse than leaving them to take their natural course of rising and falling according to supply and demand.

[B.J]

Anyone think it will be different after Greenspan's time is up? It seems like a large amount of the governors are at least as hawkish as he is.

[dmk112]

Greenspan IS the reason the market is not a bull. Inflation...blah blah blah... It seems that it wasn't too long that he was fighting deflation...

[kve]

To add to what Mooddude said:

Inflation is not caused by higher oil prices -- that is pure supply and demand (with speculation thrown in too). Inflation is caused by an excessive money supply. Simply put, If money supply was static, as the price of oil goes up and up, prices for those items dependant on oil will also go up, but prices in other items would have to go down since less money would be available to buy those things (people would do without until the prices came down). However, since the FED keeps printing money (budget and trade deficits) everything will go up. This excessive money supply issue is what drives the "Gold Bugs".

In theory, a stable money supply is better since it requires discipline to fix supply/demand issues. We have to, as a country, reduce oil dependancy (somehow) and get back to manufacturing stuff here. I am trying to buy "American-made" things now -- and it is really tough!

I am new to the "economic theory" stuff, so this is my opinion/interpretation of what "Inflation" is. It is hard to grasp that Inflation really has nothing to do with prices rising, but really is a measure of Money supply.

Kevin

[skiracer]

There really is no simple answer. The money supply issue is certainly part of the whole along with the basic tenants of supply and demand. Government tampering with the cost of money and the supply an amount of it never effects our immediate situation because it takes to long for it to have an affect an when it does most times it's out of line with what had to be done when it was needed.
I subscribe to a news agency called Stratfor.com. They issue daily briefings on the economic and geo-political situations globally an are the most unbiased and to the point of any that I have come across. They also highly advocate leaving the whole process to it's natural state. China's govt. has been tampering with their economy and money for years now and the end result it that they are on the verge of bankruptcy and insolvency and near economic collaspe because of govt. tampering an interference, corruption, and the state of their federal banking systems operations.

[mrmarket]

He did it again...this guy is killing me!

[New-born baby]

That's the good news; now for the bad . . . .

He did it again...this guy is killing me!

Today's was the [comparatively] good news: he raised rates.

Now for the bad: he's going to do it again!

The lower rates primary effect was to stimulate China's economy because their yaun is artifically tied to the USD at 8.277 per USD. That made their economy red hot, oil prices rise, commodities hot. Now he's raising rates, and that most likely will cause a global recession.

What's he trying to do: move Hillary into the White House? You know he helped Bill . . . .