Posted on 04/18/2006 10:22:45 PM PDT by Ernest_at_the_Beach
The US Federal Reserve has hinted that its policy of raising interest rates could be approaching an end. Minutes from the Federal Open Market Committee (FOMC) revealed that most members believed "the end of the tightening process" was near.
The Fed Reserve raised rates in March for the 15th time in a row to 4.75%, the highest level since April 2001. The eagerly awaited FOMC minutes were the first covering a meeting held by new Fed Reserve chairman Ben Bernanke. The prospect of an end to interest rate rises helped push the Dow Jones index up by almost 2% to 11,262.04 in late US trade. Inflation risks
Mr Bernanke took over from his veteran predecessor Alan Greenspan in January, and analysts have been keen to see in which direction he plans to take the Fed Reserve. Under Mr Greenspan, the Fed Reserve pursued a policy of gradual interest increases with the aim of cooling inflationary pressures. But according to minutes from the March's FOMC meeting "most members thought that the end of the tightening process was likely to be near, and some expressed concerns about the dangers of tightening too much, given the lags in the effects of policy". However, members "also recognised that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance".
Analysts still expect the Fed Reserve to increase the cost of borrowing by a further quarter percentage point in the near future. But many believe any rise to 5% would mark - at least for the time being - an end to the current policy. "I think it's important to recognise that inflation is where the Fed wants to be," said Dana Johnson, chief economist at US financial services company Comerica. "They don't want to overshoot. I think they will pause real soon."
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BUT! If, indeed, monetary inflation is, in the classic dichotomy, "neutral", it cannot therefore be "inherently immoral". Hyperinflation is the result of trying to appease a population or destroy an economy long after the problem was first detected.
In re real prices - inputs and outputs remain constant REGARDLESS of what goes on with nominal. As Friedman and Phelps pointed out -- it evens itself out. Some management is required to stabilize inflation and unemployment; but overreaction to perceived or antipcated or expected inflation is what causes the inflation/unemployment pendulum to swing into large arcs.
But that you can sell your house at all and prices are noticeably higher than 5 years ago, you can give credit directly to Newt Gingrich for creating the capital gains tax exemption for homeowners. It freed up $1T in real estate and created the boom we saw this past decade.
Monetary inflation is always immoral.
Why can't I do for myself some "monetary policy"?
The Fed, and all central banks for that matter, are legalized counterfeiters. If M3 increases 10%, prices are not going to increase 10% all across the board. Whoever gets the newly printed money first benefits from it. It doesn't matter if if it's 3% or 10% per year, inflation redistributes wealth.
The dollar and all currencies should be backed by gold.
Inflation cannot occur in a truly free market economy.
Yes. I just don't trust hedonics (or however it's spelled), and the inflation I've seen has been amazing since 2000. To be fair, some things were insanely cheap, still are, thanks to China's #1 export: deflation. Commodities though have been saying something for the past few years (which China imports)...
I beg to differ with you.
Inflation cannot occur in a truly free market economy
Not true. It would be re-invented.
Have you read Ayn Rand's book Atlas Shrugged? The theory goes that in a truly free market, live is rugged, but all mankind roams free. Not true. People will band together to form a community. Once that community grows, rules and a central government get formed. And so on. I learned a great deal about the reality of free-market economics from pals who escaped to the commune lifestyles many years ago.
They became, over time, what they alleged they had left.
The Fed, and all central banks for that matter, are legalized counterfeiters
That certainly is a bold and assertive statement. If we all agreed to trade in elephants, assuredly that would make our government and its people "counterfeiters" as well. Fiat monies are created for very good reasons. Primitive cultures used shells or beads as currency. That's counterfeit, too.
What you are referring to the, is a real good for a real good.
Pretty rough to transport 500 oranges from your backyard in exchange for a ship.
Moving away from the gold standard was problematic.
And yes, I do agree with you that inflation is a "hidden" tax. Cut out social spending, and there will be no hidden tax. Get rid of a government and there will be tax. But will there be a civilization? No.
Just read today that builders will have to build 40,000 new homes a year to keep up with the demand in Northern Virginia for the next 5 years....something never done before.
Thats interesting news. Most the fastest growing markets are decreasing the sales of new homes. If the demand is still there, its probably a good place to invest still.
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