Dan M <[EMAIL PROTECTED]>
> That wasteful government spending is the source of inflation. If this were
> true, then the inflation curve would track the government spending curb.
Which it does, at least better than it tracks money supply. If you look at the
time series for inflation, money supply, and government spending since
1970, inflation tracks spending more closely than money supply. You will
need to take an average to remove some noise (I suggest 5 year average),
but the difference is obvious if you graph it. I'm amazed you haven't done
this already. It even holds for countries other than the US.
> That there is no data supporting monetary policy has an effect on the
> economy.
I did not make this statement. In fact, I said that during banking panics that
the Fed can play an important role (by increasing the money supply to
meet the sudden demand for money).
> That monetary policy of lowering interest rates to banks is one and the same
> as the federal government running a deficit.
> The money the Fed lends to
> banks expands the money in the economy, but it does not count as an asset
> that governments can spend.
As far as I can tell, your much vaunted physicist-method of statistical
proof is to eyeball some tabular data, give a few poorly understood
anecdotes, and then claim that all the economists and your brother-in-law
agree, so your statement must be correct. QED.
Evidently you are not familiar with economists such as Thomas Sargent
or John Muth. You might want to look them up (or marry one of their sisters).
As long as you are talking about magnitudes of causes, surely
you can tell us which measure of monetary base the Fed is able
to directly control? No doubt you know the size of total bank reserves,
over which the Fed controls the interest rate? How does that compare
to GDP? And I'm sure you can state a mechanism as to
how bank reserves (you know, of course, that the reserve requirements
apply only to checking deposits, not money market accounts, savings
accounts or CD's) control the amount of bank lending? Then show
us how total outstanding credit and loans have been a constant multiple
of bank reserves? Or even that bank reserves and loans have been
going in the same direction? Have you looked at the autocorrelation of
the FF rate with T-bill yields? Which one leads the other? Do you think
the Fed is setting T-bill yields, or simply following T-bill yields as
set by the market? No doubt you can show us how the FF rate is
more influential than corporate bonds, mortgage rates, and long-term
bond rates on the economy? (or that the FF rate controls those
other rates)
No doubt you are aware that money and government bonds are easily
interchangeable. Interchanging them, in fact, is how the Fed modulates
the money supply. Cutting interest rates means that the Fed replaces
treasury bonds with currency ("federal reserve note") and bank reserves.
The Fed controls the mix, but not the total amount of government liabilities.
It is when the total amount of government liabilities grows faster than
productivity that inflation becomes a big problem. You like to talk about
large causes. This is rather obvious: if fiscal policy creates more
government liabilities (money supply + treasury bonds) than the economy
can handle, the price of those liabilities will fall, interest rates will rise,
and
inflation will occur. The Fed cannot control total government liabilities, that
is the job of Congress. Luckily, foreigners have been snapping up
US Treasuries like mad this decade, so inflation has been tame. If that
changes soon, though, look out above! (That is one reason why many
economists thought FNM and FRE had to be bailed out, since a lot of
their debt was held by foreigners, and we don't want to piss off our
creditors)
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