The Written Peace:
Open Forum of July 26, 2005
Several Analysis types of posts have bogged me down terribly as I try to figure out how to break them up from mini-books into pieces that are readable in one sitting. The problem is that, as I work on one for too long, something else happens that garners my attention, and I must at least begin something on that issue, too.
Right now, as far as economic matters are concerned, it might seem that China's recent and much ballyhooed move from a fixed exchange rate to a "managed flexible" regime for the yuan is important. Actually, it's not. Moving from 8.28 yuan per dollar to 8.11 yuan per dollar is a complete yawner—or, perhaps more appropriately, a real yuaner. (Sorry.) It shows that the Chinese are still in the mode of dealing with their own, slowly building, internal currency overhang crisis by making superficial gestures to derail protectionist sentiments stirring up in the United States Congress. There is no doubt that the decoupling—attended as it was by less than skeptical reporting in the U.S. news media—will slow down the slap-them-tarriffs-on-imports train gathering steam on Capitol Hill; but the Chinese move doesn't get China out of the mess it's in from years of printing yuan and using them to buy American dollars to hold the exchange rate right on the peg.
It also doesn't help when the mainstream news media keeps up the harp about the robust growth of the Chinese economy. Yes, the Chinese economy is growing at a rather stunning pace. That's what happens as the fever of too much currency pumps through an economy. The Keynesians called it an "inflationary gap." The only way to stop it is for a country to clamp down on its money supply; but the longer that painful policy is put into place, the more painful it is when it's finally brought to bear.
Funny how that works.
But then again, the U.S. shouldn't be grinning too much. Recent trends in temporary and permanent open market operations results seem to indicate that our very own Federal Reserve—that bulward of inflation-fighting hawks—has gone back to printing money to cover the Bush Administration's and Congress's fiscal irresponsibilities. The operative word for now is "seems": there is no question that the Fed started the pumps at the end of June, and it kept them going through the first week of July. It also allowed the federal funds rate (the rate at which banks lend money to one another) to drift noticeably below its target during that same period. Whether or not the Fed has brought its actual open market operations back into resonance with its publicly declared desire to maintain a contractionary policy is a matter on which I am collecting data right now. If the Fed has, indeed, opened the money supply spiggots, as it was doing for the first four years of the Bush Administration, there is no doubt that the economy is going to look pretty darned healthy for a while, despite rising energy costs and an anemic job market.
The piper will, of course, be paid; but that's down the road. If the Fed can keep the expansionary monetary policy in place while the Bureau of Labor Statistics continues to report that there is no inflation in the economy, this era of wealth, prosperity, and generally joyous times could go on long enough to get Mr. Bush through his second term looking like an economics genius.
Maybe; maybe not.
Say what you have to say. This is an open thread, and anything is fair game here at the hotel this evening. We have plenty of snacks, and I just installed a snow-cone machine by the expresso maker for folks who need a cool-down from this heat wave we've been having. The dance floor is freshly waxed if anyone cares to try some break-dancing moves tonight, perhaps with an eye to re-enacting the slippery moves being done at the White House as the nooses of Plame scandal, the Roberts nomination fiasco-in-waiting, and a couple more barking dogs start to get more than just annoying.
The Dark Wraith will close the windows so the noisy mutts don't upset the cats at the piano bar.
Published 7/26/2005 10:54:00 PM
<< 54 Comments Total
Good evening, Dark Wraith.
It's finally cooled down, here. The rain came down for about two hours. Nice!
I guess if the govmnt's not worried about the bill down the road, why should we, huh?
Chaos seems imminent.
Sort of exciting, though, isn't it, Old White Lady?
At least chaos is preferable to the New World Order of the neo-cons.
The Dark Wraith still needs to finish building that bunker, however.
Here's a Boston housing report for you that I find kind of atypical (because condos are outselling single family homes).
(This was in yesterday's Boston Globe.)
- oddjob
Good evening, OddJob. Thank you for providing that link.
Apparently, from what was said in that article, condos are hot in the Boston area. That has to have something to do with the urbanized lifestyle in that particular area: condos offer the amenity of less sustained human investment in maintenance at the price of a far less than traditional title. I just checked around to see how condo sales are doing in other urbanizing areas, and there is some evidence that this rising interest in condos is being noticed, although I don't see as much direct trade-off with traditional housing as that article indicated was the case in Boston and surrounding regions.
I am suspicious of the realtor's claim that the builders are constructing to satisfy demand. I've seen too many examples of the opposite: builders and mortgage lenders getting on a fad for a particular type of housing or a particular type of financing vehicle that relates to the type of housing, then creating incentives to draw prospective purchasers toward that type of housing. It usually has to do with some tax or other cash flow-driven advantage to the builders and lenders, or it has to do with some re-alignment in long-term planning by municipal or regional authorities.
I cannot say that such is the case in Boston, but it seems kind of odd that condos are so hot, especially considering they've had a pretty bad name, especially among more financially sophisticated types who would be more prevalent in that area.
The Dark Wraith needs to keep an eye on this trend.
Go check on the median price of a two, or three bedroom single family home, and I think you'll soon realize why people are buying condos.....
- oddjob
(I was referring to those prices in the metro Boston area, of course. The housing market here is - well - you have to live here.
It's not as bad as San Fran., but it's in the next tier down. I have a townhouse because I bought at a time when the prices were a lot lower. I can't buy a single family home in most of metro Boston now.)
- oddjob
Geez, OddJob, have you ever thought of moving to some other Blue state like, say, Illinois or the northern part of California? Those prices in the Boston SMSA are beyond ridiculous.
You do realize, I trust, how incredibly much you could save by renting a trailer or a one-bedroom apartment in Peoria.
Then again, you'd be living in Peoria.
The Dark Wraith didn't say there wouldn't be some downsides to the relocation.
Then again, you'd be living in Peoria.
Indeed.....
- oddjob (a confirmed Northeastern WASP, when it comes down to it)
Kos has this posted. (Hat tip, Americablog.)
- oddjob
Good Morning.
Speaking of overheated condo markets – has anyone here heard about the 115 story, 2,000 feet high condominium complex that they are thinking of building in Chicago? If it gets off the drawing board and onto Lake Shore Drive it will be the tallest building in America.
Now that, my friends, is optimism.
Read about this new Tower of Babel, here.
Oh, Chicago is always going on about stuff like that, aren't they? I think Frank Lloyd Wright at one time had a proposal out there to create a mile-high skyscraper in Chicago or some such.
- oddjob
Good morning, Mr. Shakes. That whole Lakeshore Drive area is smoking these days. I've even had several real estate investment plans go across my desk: small-time investors trying to jump in to one thing or another, usually condo-related.
I look at the numbers, and I get that old-time, slightly less than happy feeling. The numbers all look right, but there is no way those returns on investment could be that good, at least not long enough for the small-money people to be able to get in on the big-money train. A quarter of a million flipping a million in two years? Yes, of course, but not for the wannabe types of the real estate world.
I look at the numbers, and I know very well that everything hinges on the present value of future expected cash flows, and that hinges, of course on the cash flow discount rate being used. In real estate, where the risks can be staggering, that required rate of return needs to be set way up there in the stratosphere. Besides, if I had the wherewithal, I could run hard-core sensitivity analysis, but since I'm being asked to do these quick-looks for free (we all know it's not like I'm being asked to do actual work), I find myself hard-pressed to commit the time to grinding out the spreadsheets and then staring at them to see what they're telling me.
I probably should. When I see a market this hot, I know very well it's going to turn into a flaming meteor some time very soon. It would be nice to know not so much when that fireball's going to hit paydirt, but rather what size the crater's going to be when it does hit.
The Dark Wraith keeps an eye on big chunks falling off tall condo buildings.
With the recent Supreme(idiot) Court decision regarding the taking of private property would would you rather own?
Only if title came with a robust perimeter defense system, Mr. Goat.
The Dark Wraith believes in extrajudicial means of ensuring property rights.
Good afternoon, Dark Wraith.
Some time back, I mentioned I had some property in the hills.
I thought you might get a kick out of seeing a picture of the house.
My House
I wonder if Greenspan knows he is featured on Michigan a billboard? Billboard requests divine intervention to fix economy
Afternoon, Dark Wraith.
I was wondering: what actually happens when the Fed "prints money"? I've never been quite sure whether this term is merely a synonym for an increase in the money supply via loose monetary policy - the the lowering of interest rates and the like, or if it refers to something more unconventional. I'd really appreciate it if could put me straight on this.
Mr. Shakes leaves a can of spam for the teacher.
(Something tells me this explanation might be a long one! Won't he have to define "money" first?)
- oddjob
Good afternoon, Mr. Shakes. The Federal Reserve is the exclusive agent of the United States Treasury in the printing of money. If you look at one dollar bills, the front will bear a letter seal indicating from which of the twelve district banks the note originated. For example, "A" is Boston, "B" is New York, etc.
The Fed constructs a money supply by printing a certain level of each of the various denominations of these paper debt instruments. It takes full responsibility for honoring them in terms of one another, but not in terms of anything else like gold or silver. This means these instruments are fiat money: they represent value in store, in account, and in exchange by sovereign decree only. The Federal Reserve is indemnified for these issues of paper by the full faith and credit of the United States government.
To alter the money supply, it is insufficient to print the notes; they must have a vector into the banking system, which then serves as the conduit through which the money passes into the economy at large. The primary means by which this occurs is through open market operations, wherein the agency of the Federal Reserve called the "Open Market Desk," acting on directions from the Federal Open Market Committee (comprising the seven Governors of the Federal Reserve Board and five of the Presidents of Federal Reserve District Banks), executes a pattern of liquidity injections and drainages from the banking system by trading dollars and short-term Treasury instruments with member banks.
Let's do an simplified example of how it works if the Fed wants to inject money into the banking system. Mr. Shakes is an open market desk representative, and he calls one of the banks in his portfolio. Mr. Goat is the representative of the member bank.
Mr. Shakes: Good morning, Mr. Goat. I'd like to buy some of your Treasury bills. I'll pay you 96.25 a piece, and I'll buy a million bucks worth.
[Here, we note that Treasury bills are one-year debt instruments of the federal government. They are quoted at a tenth of par value, which is a thousand dollars. At the end of the life of one of these instruments, it pays the bearer one thousand dollars. That means, if the quote is 96.25, the price is $962.50, and the bearer will get $1,000.00 in a year, which means he earned $1,000—962.50=$37.50 in interest. Hence the bearer/purchaser earns a "yield" on the instrument of $37.50÷$962.50=3.896%. Notice that, if the price of this instrument rises to, say, $972.25, the yield becomes $27.75÷$972.25=2.854%. This shows that lock-step relationship between the price of a security and its yield: they go in opposite directions!]
Mr. Goat: Gee, I don't know about that. I got a little confused there with that parenthetical, explanatory passage right after you started speaking, but it seems to me that I'd like to hold on to my T-bills right now.
Mr. Shakes: You drive a hard bargain, there, Mr. Goat. I'll tell you what: suppose I offer you 97.22½ for those babies of yours.
Mr. Goat: Well, that's more like it. SOLD!
Mr. Shakes: Great. I'll transfer the money to your federal funds account this afternoon, and you can transfer those T-bills at the same time.
Mr. Goat: Sounds good to me. See you at the Dollar Bill Tavern tonight.
[click]
Okay, now, Mr. Shakes, look at what just happened. The most obvious part was that Mr. Goat's bank now has more money in its account at the Federal Reserve. These accounts, taken together across all banks, are the federal funds market, and that means the banking system now has more cash-money greenback type dough it can lend out to borrowers. But that also means the supply of money in the federal funds market has expanded, which means the interest rate at which banks can lend money to each other in the federal funds market must be lower, now that there's more money to spread around. That inter-bank lending rate is called the federal funds rate. The Federal Reserve Board sets a target for this rate, but it controls it only through the injections into and drainages from the federal funds market via the open market operations. It cannot "set" this rate; it can only manipulate it. The so-called discount rate is another matter: this is the rate at which the Federal Reserve, itself, would lend money to a bank. The Fed can set this rate at whatever it wants. (The discount rate really has no practical use; banks don't go to the discount window at the Fed to borrow money, so the discount rate is a symbolic signal the Federal Reserve Board sets to tell markets what it thinks the interest rate environment should look like.)
But one more thing happened in the scenario, above. Did you notice that, as you were bidding up the price of T-bills, that meant the yield was falling? You, as a representative of the Federal Reserve, were creating more demand for T-bills; and when the demand for anything increases, its price increases. But with debt instruments, price going up means yield is going down. So, not only are your open market operations driving down the federal funds rate, they are also driving down the cost of debt for the United States government.
Well, there you have it: the money supply being expanded is also the way interest rates are pushed down by the central bank.
There's another part to the story having to do with a cool thing called the "money multiplier," but I needn't go into that here since all that does is magnify the effect of what I just laid out above.
That's the answer—albeit a little more exhaustive—to your question, Mr. Shakes.
The Dark Wraith will now leave the room quietly so as not to awaken anybody.
Good afternoon, OddJob.
Sure enough, while I was writing that post, you put one up speculating that it was going to be a long one.
The Dark Wraith snorts at such prognostications.
[It wasn't the longest one I've ever written, y'know.]
Good afternoon, Old White Lady.
I do see potential in that house. I've lived in worse.
At least the sun comes in nicely.
The Dark Wraith would have to put up some curtains, though, for the sake of modesty.
Good afternoon, Mr. Goat.
I wonder if we could start some sort of billboard fund to put up giant signs across the country asking for divine intervention in various matters. Think about it:
LORD! Take a minute and smite Alan Greenspan. PLEASE!
HEY, JESUS! Could you put some boils on every neo-con's ass? Dude, you're the best.
YO, MARY! Do me a favor and render Robert Novak impotent! Thanks! I owe you one. (By the way, nice bod. Joseph chose well, know what I mean?)
The Dark Wraith nows runs for cover from the lightning bolts aiming to smite his sorry ass.
No, not as long as I was thinking, and very easy to follow, too.
- oddjob
Good afternoon, OddJob.
If you understood that sweep I did above, you have an understanding of about a half of how monetary policy is carried out in this country. The rest is actually not too difficult to understand, once you've got this part clear in your mind. I'm actually going to recap what I just did in an Analysis that will be coming up in the next few weeks.
No matter how much I've tried to make it otherwise, that's going to be a l-o-o-o-n-g article.
The Dark Wraith smokes the blog.
I just want to say that I am completely fed up with Our Government and our Democratic Leaders' failure to take any action or speak out on the serious issues we face.
I see a bad moon rising.
When do we take to the streets and rebel? Do we need to start our own insurgency here? (Sorry Dark Wraith, I hope the FBI doesn't break into your server for my last remarks.)
Scadapaly
DW wrote:
"I've seen too many examples of the opposite: builders and mortgage lenders getting on a fad for a particular type of housing or a particular type of financing vehicle that relates to the type of housing, then creating incentives to draw prospective purchasers toward that type of housing".
Was this "attitude" part of the S&L debacle of the 80s? I seem to recall an article from long ago stating that during that time, hundreds(more?) of office buildings were built all over the country and when they were finished, no one wanted to rent space.
A new book is out by Ravi Batra:
"Greenspan's Fraud: How Two Decades of His Policies Have Undermined the Global Economy"
Here are the opening comments of Thom Hartmann's "Independent Thinker" Book of the Month Review:
"What do you do when you want to screw only the working people of your nation with the largest tax increase in history and hand those trillions of dollars to your wealthy campaign contributors, yet not have anybody realize you've done it? If you're Ronald Reagan, you call in Alan Greenspan.
"Through the 'golden years of the American middle class' - the 1940s through 1982 - the top income tax rate for the hyper-rich had been between 90 and 70 percent. Ronald Reagan wanted to cut that rate dramatically, to help out his political patrons. He did this with a massive tax cut in the summer of 1981.
"The only problem was that when Reagan took his meat axe to our taxcode, he produced mind-boggling budget deficits. Voodoo economics didn't work out as planned, and even after borrowing so much money that this year we'll pay over $100 billion just in interest on the money Reagan borrowed to make the economy look good in the 1980s, Reagan couldn't come up with the revenues he needed to run the government".
Hartman's complete review can be found at
http://www.buzzflash.com/hartmann/05/07/har05007.html
What I have always found intriguing about "money" is that while those of us on the receiving end of everything tend to think of it as something concrete (& it is indeed so at our end), at the end of the day it gets created out of wish to have more at the end of a leasing contract than what was had in the beginning.
Thus, in a very real way, the processes involved take little more than a very basic human emotion and turn it into something concrete.
(This is how I see it, anyway. I'm sure there's a much more technically and mathematically accurate way of describing the process which makes what I just said seem like a lot of simplistic bunk, but if you strip all that away, I can't see how I'm in error.)
- oddjob
- oddjob
Good morning, OddJob.
If the truth were to be told, your description is pretty much right on the money.
(Hee, hee... sorry.)
My class lectures on money seem to be enjoyed by students because I talk about its evolution, bringing in historical and even pre-historical examples and showing how the concept of money has co-developed with civilizations and the compexities thereof. Because, as you know, I have a background in Medieval history, I particularly like the part where I get to explain the development of what we might think are modern features of banking systems that actually showed up in the Middle Ages. There's also a fun part where I talk about how the Holy Roman Catholic Church was involved in distortions of the emerging monetary structures and the role European Jews played in ensuring liquidity and expansion of the money supplies and what happened when the Church became so intrusive that disintermediation began to severely disrupt economic growth because of its doctrinally based interest rate controls and interference with what the money markets had established as a trading system in capital.
Perhaps I'll figure out a way to put some of this into one of my Analysis articles one of these days.
The Dark Wraith sees a whole lot of time before this blog has said all it needs to say.
A good story teller is the difference between history being something alive, understandable, and worth knowing about and history being a dull, dreary collection of dates and events.
I would imagine econ. is likewise.
Good teachers are rare, and not paid anything like their true worth!
- oddjob
Today's Non Sequitur (dopey, yet good at the same time).
- oddjob
So Oddjob, when are you going to wonder over to the Message boards? You're missing some of the Wraith's Ye Olde Curiosity Shop favs, including a 28,000 year old soapstone thingy and puking smilies.
OddJob, that cartoon was so good that I have printed and posted it in the faculty lounge.
The Dark Wraith should be somewhat troubled by how funny he thought it was.
I will go over if I can do so anonymously (ie., without registering with an email address). If that's not possible I will content myself with commenting here.
- oddjob
Oh, very pleased you find it so amusing! I found the play on words dopey (I have little tolerance for puns & many related forms of humor), but I found the illustration very amusing nonetheless!
- oddjob
Read and commented about the thingy on Blondsense.
- oddjob
Oddjob,
I for one enjoy your commentary, and I'm sure there's an easy way around that issue. Maybe the Wraith has an extra throw away address you can use.
hehehe.....thx for the laughs, all.
What I have always found intriguing about "money" is that while those of us on the receiving end of everything tend to think of it as something concrete (& it is indeed so at our end)...
Gee, I wish the money I received were more concrete....it behaves rather like a Wraith and seems rather insubstantial in my house. Like, here's a paycheck, then next thing you know it has vanished into the ether, leaving one with a handfui of change, and a few gas fumes in your vehicle.
...a few gas fumes in your vehicle.
Always, always lock your vehicle, and if you must give him a ride, make him ride in the back of the truck. Those steps will limit the fumes.
Mr. Goat, there has never—and I repeat, NEVER—been an issue as long as there was no open flame nearby. Even then, the kids get a kick out of the afterburner effect, especially when someone remembers to bring the marshmellows.
The Dark Wraith launches into another dimension.
Good afternoon, Dark Wraith.
Thank you very much for taking the time to pen that explanation for us - I am looking forward to reading your Analysis on the topic.
I think I understand you quite clearly, and from what you say it sounds as though each dollar in circulation acts almost like a share in Uncle Sam, Inc., and that the Fed is the board of directors, who can chose to buy back or sell these shares as they see fit. The parallels between the effects of the FOMC's market operations on the price of money, and effect that changes in the quantity of treasury stock a corporation holds has on its share price are quite striking. This makes perfect sense, of couse, since at the end of the day, what is a dollar if not a share in the goods and services produced by the U.S. economy?
Anyway, forgive my babbling, and thank you once again for the explanation.
Hello everyone... I feel like I've been gone forever but as I've been trying to survive my job and what not it doesn't leave much energy to post. But Today has been a pretty good day so I wanted to post something that piqued my interest as something that a quality conspiracy theory could be built on.
I was reading a comments thread on AmericaBlog this morning and came across this link about a US Army War Game/Exercise about a Shipbased Nuke coming to the US and how they would react if it did. Here's the link so you can read it for yourself: US Military's Northern Command to conduct Nuclear Weapons War Game
Now it seems to me that nearly every time they do a spooky war game like the one they did on 9/11 that just happened to have the same parameters as the actual attack almost or that the Brits were havign an exercise similar to their attack on 7/7 that something bad and very similar to the game happens at that same time. This grand event appears to be scheduled for sometime in August. And being that today is July 29th it's only a few days from the start of that month.
I really hate being this paranoid about Bush and his band of Fascists but it seems to me that he could just as likely do it again to try and help his 1,000 Year Reich come to fruition. One more attack is all it would take to make this country into an openly totaliatarian dictatorship without even the appearance of any rights. I wish they would talk about the date of the exercise so I could be out of the country that day.
Anyhow, enough conspiracy theories for me today. If I'm talking crazy please let me know....
Have a great rest of the day...
-Gary A
I understand what you say and why, but in the interests of completeness I feel compelled to also mention that this excercise took place in early June, and hardly anyone even noticed.
- oddjob
Thanks OddJob, that's good to know. I'm glad there is still some sanity left in this world. It gives me a bit of hope :)
-Gary A
Things suck, but I don't think they're quite yet at the stage you're envisioning. I do worry about what would happen if there were another seriously successful terrorist incident on our soil.....
I'm not convinced most (or enough, anyway) Americans would hold to a democratic form of government if provoked in such a fashion.
- oddjob
gary....if you are not paranoid....you haven't been paying attention.....be wary my friends, be wary...
I was rather interested to note you talk about the growth of the money supply. Indeed, I long speculated that the only way that the U.S. government could run such a huge deficit was by basically printing money, albeit via the services of the Chinese and other Asian nations willing to buy these newly-printed dollars in exchange for goods and recycle them into U.S. government bonds (i.e. the current accounts deficit and the trade deficit go hand-in-hand, the current accounts deficit basically being financed via the trade deficit), but I never actually went off to see whether it was actually happening. But now I go here and note that it does, indeed, appear to be happening.
One thing to note about this new high tech version of seigniorage (revenue derived via printing money) is that the expected result -- hyperinflation -- is not happening. One reason is the gradual displacement of many local currencies by the dollar as the de facto local currency as the recipients of all these dollars spread their dollars around buying the natural resources needed to manufacture the goods they send to the United States. This basically means that the supply of goods and services denominated in dollars is growing almost as rapidly as the number of dollars being printed. Growth of the money supply is not itself bad, indeed is necessary in the face of an increase in goods and services if you are to avoid deflation and a 1929-style liquidity trap. But of course this cannot go on forever. Sooner or later, the dollar shall be the de-facto currency of everybody outside of the EU and a few other large/wealthy nations, and then no more national income will be derivable from printing dollars because then printing dollars will result in hyperinflation.
Indeed, looking at the exchange rate of the dollar vs. other major currencies, it appears that we are already starting to saturate the market for dollars. The result could make the collapse of the Wiemer Republic look like a day at the spa... but Mad King George and his administration are doing their best to pretend that if they just close their eyes and say "lalalala I can't see it!" then they can happily run an enormous current accounts deficit forever with no long-term consequences...
- Badtux the Economical Penguin
Not shabby at all for a penguin doing economics. Considerably better, in fact, than a neo-con doing economics.
Here's the problem: the spreading of the U.S. currency isn't going to go on much longer at all. It will be stopped by the euro and its broad acceptance into a market basket of currencies that will be used as an indexing system for international transactions. There will always be countries that hold onto the dollar as what essentially constitutes the "standard" for their currencies, but that cluster of countries will get smaller and smaller as time goes on, and it will largely comprise the more marginal of sovereign states, which means the dollar will be functioning as the currency of denomination in a lower-value asset base, primarily the one used by our set of de facto colonies.
Most notable in this regard, the media was panting over China's silly "unpegging" of the yuan from the dollar, but what the press seemed to have missed was the part about how the Chinese said that they are going to start "not pegging" to a market basket of currencies instead of "not pegging" only to the dollar.
Now, that, my good penguin interlocateur, is significant.
The Dark Wraith will leave it at that for the time being.
Does anyone else feel different today? I do...We officailly live in a dictatorship.
Bush appointed Bolton to the UN.
Good Afternoon Dark Wraith,
When do we take to the streets and rebel?
People from all around the United States are already making plans to join United for Peace and Justice for three major days of action against the war in Washington, D.C., from September 24-26.
I still have not decided wether I want to be beaten, tear-gassed, rubber-bulletted, and all that, on my last vacation days of this year!!
Your dilemma, captured well by your statement, "I still have not decided wether I want to be beaten, tear-gassed, rubber-bulletted," reflects a deep schism in us all: do we live lives of quiet desperation, or do we go for the Number 10?
By that, I refer to the Cajun cuisine restaurant at which I once ate long ago. The customer could have his food spicy on a scale of zero to 10. Without hesitation, I said, "Ten, please," only casually noticing that the small man who was taking my order had, with that statement by me, transformed with a slight, barely perceptible grin into a small and menacing demon who would return about fifteen minutes later with a delicious-looking bowl of seafood and rice.
As I put the first, huge spoonful into my mouth, I thought to myself, "This is what life is all about."
I recall little about how I came to find myself in the men's room, leaning over the sink, again wondering—as had been the case too many other times in my life—why I hadn't gone to one of the stalls where I could get more swirly action to clear the flesh that was sloughing from my mouth and upper body cavity. Instead, there I was at the sink, hallucinating about seeing my skull emerging from my mouth to find respite from the torment that had become the interior of my body.
Yes, SB Gypsy, always go for the Number 10 that life offers you.
The Dark Wraith has given his sound advice.
Good Morning Dark Wraith,
Well, there you have it: the money supply being expanded is also the way interest rates are pushed down by the central bank.
But Greenspan has been very openly trying to raise the interest rates. (hear my brain frying)
~
OK, I get that printing extra money is the definition of inflation, but...if China has the potential to grow their economy exponentially, and the lack of money is holding them back, would they still experience inflation? Or would it just be accomodating the expansion of their economy? Could they successfully expand their economy by stopping the presses at just the right time (not that any politician would really do that if there was money to be made by keeping the printing presses rolling...)
Good afternoon, SB Gypsy.
You hit the policy difficulty right on the head: the central bank must expand the money supply at more or less exactly the growth rate of real output in the economy. If the central bank overshoots, output starts to expand more rapidly—not because of fundamentals, but instead because of the overhang of dollars that can't be absorbed by all of the factors of production, primarily because wages and salaries are "sticky" in the short run. This accelerating real growth rate gives the central bank the impression that it must increase the money supply even more aggressively. Eventually, the telltale signs will start to show up: output begins to ease back, factor prices start to rise, and finally, prices at the consumer level begin to move upward. But that part happens in a longer run scenario, particularly once the wage and salary pressures start to mount and businesses start cutting each others' throats by pushing up wages to get the labor they need to keep output growing.
So, in the short run, the central bank sees real output expansion, and it reacts by providing the liquidity the expansion requires. If it fails to do this, the output starts to contract, and it appears that it was the central bank's fault for not providing the money needed to accommodate the growth. But the problem is that, if it was too much growth in the money supply to begin with, the central bank is actually chasing it's own echo up the side of a cliff.
I'm impressed, SB Gypsy. And you had not yet even read the Analysis I'm preparing on this subject.
The Dark Wraith is beginning to suspect that there are too many people learning too much about economics around here.