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| quote: | Originally posted by arnoldjch
First of all your vocabulary is just a good reflection of your personality your parents probobably passed on those traits to you anyways getting back to topic.
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I was willing to be civil ... up until the point where you told me to "check my facts" when you were clearly talking out of your ass. I'll ask you once again, was the US economy doing well from 80-82 when the discount rate and the federal funds rate (and therefore interest rates) were through the roof, the economy was falling into a recession, and unemployment was approaching 10%?
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occrider Every six weeks the Federal Reserve’s Open Market Committee meets to decide monetary policy. Wall Street, Washington, and the press await their decision with anticipation. So do lenders and borrowers. Getting back to interest rates, When the Fed thinks that slow GDP growth, high or rising unemployment, or recession is the economy’s main problem, it usually cuts interest rates. This causes businesses and consumers to borrow and spend more, which increases the production of goods and services. When the Fed thinks that high or rising inflation is the economy’s main problem, it usually raises interest rates. This causes businesses and consumers to borrow and spend less, which reduces opportunities for businesses to raise prices. Often, the Fed tries to anticipate future problems, to head them off before they start.
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Did you just cut and paste everything in bold? If not, you write an awful lot like an introductory textbook and you capitalize words in wierd places. Your brief introduction to the FOMC is fine and dandy, hwoever, it doesn't address several of the points I made.
First, the Fed adjustment to the discount rate and federal funds rate lags economic performance. When the FOMC meets every 6-8 weeks how do they know how the economy is doing? Well they look at several economic indicators that are combiled by the BLS, BEA, and a variety of other government agencies. They look at data such as housing starts, unemployment rates, GDP, consumer price index, etc. Based upon what kind of trend they are seeing they then set future interest rates. But guess what? All of this data they are looking at is for the previous month. Therefore, they are adjusting interest rates based upon economic performance that has already happened ... in economics this is called a recognition lag. If you really wanted to get detailed then there's also implementation lag and time lag as well, but I'm not getting into it.
Second, the Fed adjusts the discount rate and the federal funds rate not simply to provide stimulus to the economy but also to to control price stability. As a matter of fact, I would say that price stability has been of greater importance to the fed under Volker and Greenspan than any other factor:
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The FOMC’s mandate is to foster stable growth, full employment, and a climate of low inflation. And our experience in this country and in other major economies around the world in recent decades has taught us that price stability—defined as low and stable inflation—should be a central bank’s primary focus because inflation is most directly affected by monetary policy actions.
Beginning with Fed Chairman Paul Volcker’s bold policy actions in the late 1970s to break the back of high inflation and continuing through Chairman Greenspan’s 17-year tenure, the Fed has been effective in helping to create conditions that have kept inflation low and relatively steady. During that time, the U.S. economy has enjoyed strong economic growth and higher living standards. And I would submit that much of this success was built on the bedrock of low inflation, which I consider to be the state in which expected changes in the general price level do not effectively alter business or household decisions.
http://www.frbatlanta.org/invoke.cf...&method=display
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Thus you may have situations where interest rates are high and the economy is doing poorly like the early 80's in order to ward off inflation, or you may have a situation where the economy is doing very well and interest are low to ward off deflation. Which brings us back to my original statement:
"interest rates are hardly synonymous with a good or bad economy"
It also depends on inflation and how committed the fed is to price stability.
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Regarding my statement on the 80's that comment should be considered during reagan's admin. Indeed in the early 80's the economy was bad. we can make a parallel to what is today, issues what we are facing, big budget deficits etc. |
Reagan's administration was in office in the early 80's when the economy was in a recession.
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Retro ...
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