Re: Re: Re: Re: Re: Re: Re: Re: U.S. Monetary Policy

[Edwin Dickens]

Jim Devine wrote:
> 
> is this a lot or a little? Tom, I must admit I find your comments on this
> issue to be a bit obscure.
> 

Sorry. I prefer to think that it's the issues that are obscure, but maybe
it's just me.  $220 billion is a lot.  For example, as an alternative to
loanable funds theory or liquidity preference theory, it can be argued that
interest rates are determined by convention.  A couple of months ago,
conventional opinion in Wall Street was that rates were on the way up. 
Sentiment shifted because of a $1 billion purchase of long bonds by the
Treasury.  Now there is uncertainty--the worst state imaginable in
financial markets.  Key players at the Fed still insist that a higher
Federal funds rate spills over into higher long term rates, e.g., the
30-year mortgage rate is up from a year ago.  But it is down from a couple
of months ago!  Ditto for corporate bond rates.  This kind of disconnect
between Fed signals and market movements is unsustainable.  Either a new
consensus forecast for interest rates will form or the Fed will begin to
lose its sacred "credibility."

Edwin (Tom) Dickens