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> when they finally realise their monetary policy is only making the inevitable worse How come you realise it and those in charge of the policy are ignorant o

> when they finally realise their monetary policy is only making the inevitable worse How come you realise it and those in charge of the policy are ignorant of the fact ?

meric 11y ago
The Federal Reserve is very well aware[2], cyclical movements in the economy promotes the creative destruction required to grow the economy in the long run. At the same time, it's mandate given by the Congress is to minimise cyclical movements in the economy, through maintaining price stability, maximising employment, and moderating long-term interest rates. Regular periods of price volatility, temporary, massive fall in employment, and sharp interest rate volatility are required for releasing ineffectively used capital and labor in the economy, to be hoovered up by stronger businesses. But the Federal Reserve's mission isn't to promote creative destruction for long term economic growth. It's mission is to maintain economic stability, even if it is anaemia to long term economic growth. In fact, it's mandate doesn't even mention economic growth or productivity. Why do politicians create a Federal Reserve to do this, and to let it keep this mandate for the past hundred years? Why does President Obama want Federal Reserve to maintain economic stability, even as it corrodes American economy, month by month, year by year? It's election year, and President Obama wants to convince the world the American economy is doing great. Reject pessimism, cynicism and know that progress is possible. Progress is not inevitable, it requires struggle, discipline and faith.[1] [1] http://www.theguardian.com/us-news/2016/apr/23/barack-obama-london-visit-young-people-key-to-changing-the-world http://www.theguardian.com/us-news/2016/apr/23/barack-obama-... [2] https://www.chicagofed.org/publications/economic-perspectives/2004/2qtr-2004-part-4 https://www.chicagofed.org/publications/economic-perspective... Because a firm’s failure frees the labor and capital it employed for use at a more profitable entrant, this process may be described as creative destruction. Although there are costs associated with creative destruction, such as the lost labor of temporarily unemployed workers, it benefits an economy in the long run by moving productive resources into more profitable uses. http://www.federalreserve.gov/pubs/feds/2006/200623/200623pap.pdf http://www.federalreserve.gov/pubs/feds/2006/200623/200623pa... Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization https://www.federalreserve.gov/faqs/money_12848.htm https://www.federalreserve.gov/faqs/money_12848.htm The Congress established the statutory objectives for monetary policy--maximum employment, stable prices, and moderate long-term interest rates--in the Federal Reserve Act. The Federal Open Market Committee (FOMC) is firmly committed to fulfilling this statutory mandate.
- SixSigma 11y ago
  "never assume bad intentions when assuming stupidity is enough" You were originally implying stupidity but now it is bad intentions. I don't disagree with your analysis beyond that
  - meric 11y ago
    Hmm, yeah, I'm contradicting myself there. The papers are produced by individuals within the Federal Reserve, so I know there are individuals in the organisation who is aware, but the way the Federal Reserve acts and the public statements it makes, as group it looks like it isn't aware. Maybe it's kind of like how a PR person working in the cigarette industry thinks smoking is horrible to people's health, but hangs his or her morals at the door when he or she arrives at work.
- pjc50 11y ago
  temporary, massive fall in employment, and sharp interest rate volatility are required for releasing ineffectively used capital and labor in the economy, to be hoovered up by stronger businesses This argument really needs more economics to back it up, because the trouble with the "creative destruction" line of reasoning is that you get the destruction first and the creation is far from guaranteed. A big fall in employment is something that has real human consequences in misery, ill-health, and even death. Likewise a capital collapse tends not so much to release capital as destroy it - both in terms of capital values and actual physical capital of abandoned buildings. Detroit's vast areas of abandoned real estate aren't capital that's freed, they're capital that's destroyed one burnt-out building at a time. Stability is vastly underrated. There are plenty of less stable economies and they do less well. Stability enables planning. Also, your interest rates/capital investment argument is the wrong way up. The normal understanding of how interest rates affect inflation is that high rates reduce inflation by reducing investment ( e.g. http://www.bankofengland.co.uk/monetarypolicy/Pages/how.aspx http://www.bankofengland.co.uk/monetarypolicy/Pages/how.aspx ). Raising rates makes it less attractive to make physical investments and more attractive to just leave the money in bonds. Conventionally to encourage more investment we need lower interest rates.
Wildgoose 11y ago
To be fair, they may well be very well aware, but can't decide when to finally pull the plug. There are other issues right now such as the UK Referendum on leaving the EU proto-state Customs Union, plus the forthcoming US Presidential Elections. Nobody wants to deal with the fallout anyway, but at a febrile time politically it would be even worse. Hence keep putting it off.

> when they finally realise their monetary policy is only making the inevitable worse How come you realise it and those in charge of the policy are ignorant of the fact ?

meric 11y ago

The Federal Reserve is very well aware[2], cyclical movements in the economy promotes the creative destruction required to grow the economy in the long run. At the same time, it's mandate given by the Congress is to minimise cyclical movements in the economy, through maintaining price stability, maximising employment, and moderating long-term interest rates. Regular periods of price volatility, temporary, massive fall in employment, and sharp interest rate volatility are required for releasing ineffectively used capital and labor in the economy, to be hoovered up by stronger businesses. But the Federal Reserve's mission isn't to promote creative destruction for long term economic growth. It's mission is to maintain economic stability, even if it is anaemia to long term economic growth. In fact, it's mandate doesn't even mention economic growth or productivity. Why do politicians create a Federal Reserve to do this, and to let it keep this mandate for the past hundred years? Why does President Obama want Federal Reserve to maintain economic stability, even as it corrodes American economy, month by month, year by year? It's election year, and President Obama wants to convince the world the American economy is doing great. Reject pessimism, cynicism and know that progress is possible. Progress is not inevitable, it requires struggle, discipline and faith.[1] [1] http://www.theguardian.com/us-news/2016/apr/23/barack-obama-london-visit-young-people-key-to-changing-the-world http://www.theguardian.com/us-news/2016/apr/23/barack-obama-... [2] https://www.chicagofed.org/publications/economic-perspectives/2004/2qtr-2004-part-4 https://www.chicagofed.org/publications/economic-perspective... Because a firm’s failure frees the labor and capital it employed for use at a more profitable entrant, this process may be described as creative destruction. Although there are costs associated with creative destruction, such as the lost labor of temporarily unemployed workers, it benefits an economy in the long run by moving productive resources into more profitable uses. http://www.federalreserve.gov/pubs/feds/2006/200623/200623pap.pdf http://www.federalreserve.gov/pubs/feds/2006/200623/200623pa... Explaining Cyclical Movements in Employment: Creative Destruction or Changes in Utilization https://www.federalreserve.gov/faqs/money_12848.htm https://www.federalreserve.gov/faqs/money_12848.htm The Congress established the statutory objectives for monetary policy--maximum employment, stable prices, and moderate long-term interest rates--in the Federal Reserve Act. The Federal Open Market Committee (FOMC) is firmly committed to fulfilling this statutory mandate.

SixSigma 11y ago
"never assume bad intentions when assuming stupidity is enough" You were originally implying stupidity but now it is bad intentions. I don't disagree with your analysis beyond that
- meric 11y ago
  Hmm, yeah, I'm contradicting myself there. The papers are produced by individuals within the Federal Reserve, so I know there are individuals in the organisation who is aware, but the way the Federal Reserve acts and the public statements it makes, as group it looks like it isn't aware. Maybe it's kind of like how a PR person working in the cigarette industry thinks smoking is horrible to people's health, but hangs his or her morals at the door when he or she arrives at work.
pjc50 11y ago
temporary, massive fall in employment, and sharp interest rate volatility are required for releasing ineffectively used capital and labor in the economy, to be hoovered up by stronger businesses This argument really needs more economics to back it up, because the trouble with the "creative destruction" line of reasoning is that you get the destruction first and the creation is far from guaranteed. A big fall in employment is something that has real human consequences in misery, ill-health, and even death. Likewise a capital collapse tends not so much to release capital as destroy it - both in terms of capital values and actual physical capital of abandoned buildings. Detroit's vast areas of abandoned real estate aren't capital that's freed, they're capital that's destroyed one burnt-out building at a time. Stability is vastly underrated. There are plenty of less stable economies and they do less well. Stability enables planning. Also, your interest rates/capital investment argument is the wrong way up. The normal understanding of how interest rates affect inflation is that high rates reduce inflation by reducing investment ( e.g. http://www.bankofengland.co.uk/monetarypolicy/Pages/how.aspx http://www.bankofengland.co.uk/monetarypolicy/Pages/how.aspx ). Raising rates makes it less attractive to make physical investments and more attractive to just leave the money in bonds. Conventionally to encourage more investment we need lower interest rates.

Wildgoose 11y ago

To be fair, they may well be very well aware, but can't decide when to finally pull the plug. There are other issues right now such as the UK Referendum on leaving the EU proto-state Customs Union, plus the forthcoming US Presidential Elections. Nobody wants to deal with the fallout anyway, but at a febrile time politically it would be even worse. Hence keep putting it off.