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To: groanup
Your ideas of strangling money and credit are not sound money policy.

I keep my dog on a leash. I don't strangle him.

261 posted on 05/03/2008 12:17:23 PM PDT by AndyJackson
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To: AndyJackson
M1 hasn't changed in 38 months, net, while prices rose. How much should M1 have instead contracted in nominal terms since March of 2005, to count to you as "on a leash"?

"Oh, that's OK, it just shouldn't have expanded as much in the period 2002 to 2005". Fine, but answer the question. Should the Fed have deliberately reduced nominal money supply by large amounts in the period 2005 to 2008? If so, why? How much? In real terms, how draconian a deflation of narrow money do you advocate as supposely correct, for that specific time period? How much should M1 be forcefully reduced, over the next year? Again, why?

You won't find even Mises defending deliberate deflation, even after a previous unwarranted inflation. There was a big inflation in WW I, for example. He advocated stabilization afterward, but not deflation back to previous levels. You can't cure a past inflation with a current or future deflation - you just cause deflationary losses on top of any misallocations that have already occurred.

Your problem, you see, is that the Fed has already acted as you demand, but it hasn't had the effects you like. Instead of facing this patent fact and examining why, you stick with an ideologically given, pat policy recommendation, and flat ignore what the Fed has actually done. They haven't let M1 increase an inch for over 3 years. And you call them recklessly inflationary.

That's madness. You are driven to it because the alternative is to admit there are major elements of the financial system that are *not* Fed or government controlled, and you are ideologically invested in the proposition that it must all be "da gubmint's" fault.

The reality is, financial cycles are perfectly normal and endogeous, the Fed cannot outlaw them and should not try. It should act countercyclically, and it has this cycle. It was maybe 1% too low in the 2001 recession, worried about a stock market crash, major terrorist attack, and war. It was maybe a year late in raising rates later in the cycle. Both are fine professional performances, not perfect but the right policies, with minor informational lags.

263 posted on 05/03/2008 12:31:50 PM PDT by JasonC
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