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To: ExitPurgamentum
Just the opposite: there is a belief that manipulation of money supply smooths out cyclicity. Fiscal and monetary policy may be able to smooth out some of the cyclicity, but they can also make booms and busts worse by overstimulating the economy.

Corrections are no different than than drinking. If you get drunk, you can put off the hangover by continuing to drink. But the more you drink, the worse the hangover will be. Recessions serve to clear out the excesses of the boom. Greenspan delayed the onset of the recession by pumping the economy full of money and credit. Now we as individuals and the government are up to our eyeballs in debt. The economy will contract as individuals and government have to curtail spending in order to service their debt.

44 posted on 10/08/2005 4:09:54 PM PDT by foobeca
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To: foobeca
Corrections are no different than than drinking. If you get drunk, you can put off the hangover by continuing to drink. But the more you drink, the worse the hangover will be.

The analogy is absolutely inappropriate. I am referring to a simple fact that a dynamical system evolves differently in time when it is controlled and uncontrolled. A falling aircraft may be also viewed as clearing "excesses" of altitude, but changing the position of the throttle allows it to regain altitude, save the life of the passengers and ultimately land safely.

Greenspan delayed the onset of the recession by pumping the economy full of money and credit.

Again, it's like saying that by using fuel an aircraft that took off from the the East coast has delayed landing by six hours: it would've eventually come down to earth anyway. True, but that would be to miss the point of the flight.

Similarly, with the economy: it is controlled by changing the money supply. Since 1982, we had a continuous boom, which did not happen before in American history, and in 2001 had a mild recession. Although cyclicity cannot be eliminated completely --- just like small ups and downs during the flight of an airplane --- Fed certainly helped to smooth the ride.

66 posted on 10/08/2005 6:48:02 PM PDT by ExitPurgamentum
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