Greenspan on 60 Minutes - I call BS

[JayTee]

Adios,

Thanks for the replies. To be clear, I'm not informed enough to have a real opinion on the matter. I was looking for clarification on the Austrian Business Cycle Theory, because it seems to be one point that is debated by non-Austrian economists. I was simply stating what I understood the ABC to claim.

[tolbiny]

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However, with regard to to inflation and the moderating the valleys of the business cycle the Fed has demonstrated a growing ability to reduce the variance you are so worried about. Economic theory that isnt supported by empirical data is worth just about the cost of the paper and ink it took to write it down.

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Every single business cycle in history has followed an inflation of the money supply. Not empirical enough for you?

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This is something I've been wondering about lately (maybe someone could link me to a thread, if there is already one on this topic). Why wouldn't investors adjust to the artificially low interest rates if they know from past evidence that they will come back up? If successful business people are good at predicting and dealing with market induced fluctuations why can't they do the same with government induced?

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What makes you believe investors don't adjust to artificially low interest rates? What makes you believe that business people aren't good at predicting and dealing with government induced fluctuations?

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First, I have no formal education in econ and have not studied it extensively on my own. I was working under the assumption that the business cycle is caused by people making bad investments based on an interest rate lowered by Fed caused inflation. The idea, as i have come to understand it, put forth by AC, is that these cycles wouldn't occur in an unregulated market. If investors do adjust, why does the cycle occur? Are there bad investors that cause these cycles?

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Businessmen have a lot on their plate, every time you add something complicated (like figuring out what the fed will do and what the impact will be, people make livings speculating on stuff like that) that is a lot less time and effort available for making other decisions. The times that the fed is making it harder for businessmen to make sound future decisions is the exact same time that investing in the future looks most attractive (because of the low interest rates).
On the other hand in an economy that has an interest rate tied to the savings rate the times that the rates are lowest coincide with the times that investment is safest. Its a happy coincidence.

[anatta]

Greenspan's book evidently tells it like it is:

http://www.dailykos.com/storyonly/2007/9/14/213112/337

[Copernicus]

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Greenspan's book evidently tells it like it is:

http://www.dailykos.com/storyonly/2007/9/14/213112/337

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Lol, a leftie hate sites spin of a leftie reporters spin of a book. I'll wait to read it.

[Zygote]

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yes. and i've said in many posts that the fed has a real tough spot rightnow. they have to manage the economy while not bailing out investors.


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They can't do one without the other.

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i've also stated that i don't thinkt he fed should lower rates more than 25bps at all rightnow. the real economy has only exhibited small signs of weakness (-4k jobs, weak retail sales) that could be argued to require a 25bp reduction.


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So you only support "small" bailouts versus massive ones?

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anything larger than that though is edging towards that bailout, which we clearly don't want if we were thinking in what is in our best interest (well, and by we i mean myself and presumably the rest of the economy)


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I dont know where you get a measure of edging towards a bailout at a 50bsp drop.

Further did/do you support the cash injections?

[Copernicus]

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yes. and i've said in many posts that the fed has a real tough spot rightnow. they have to manage the economy while not bailing out investors.


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They can't do one without the other. <font color="red">It depends on which "investors" you're talking about. Lowering the discount rate doesnt impact mortgages that have already adjusted and have defaulted or will default. The impact of a drop in the discount rate on future adjustments would only be a bailout if the size of the adjustment is larger than the economic conditions would otherwise justify. </font>

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i've also stated that i don't thinkt he fed should lower rates more than 25bps at all rightnow. the real economy has only exhibited small signs of weakness (-4k jobs, weak retail sales) that could be argued to require a 25bp reduction.


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So you only support "small" bailouts versus massive ones? <font color="red">I think his position would be better characterized as "collateral bailouts" vs. "intentional bailouts" than small vs large (in the sense of "collateral damage", not collateral as support for a loan) </font>

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anything larger than that though is edging towards that bailout, which we clearly don't want if we were thinking in what is in our best interest (well, and by we i mean myself and presumably the rest of the economy)


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I dont know where you get a measure of edging towards a bailout at a 50bsp drop. <font color="red">Obviously subjective opinion that 25 bp is what would be called for absent the subprime "debacle", while 50 bp goes beyond what would be called for. </font>

Further did/do you support the cash injections?

[/ QUOTE ] <font color="red">I believe he answered that affirmatively in a prior thread. Helping to restore liquidity in the markets is not a "bailout", it's prophylactic against further overreaction in the credit markets. </font>

[Zygote]

can you define bailout for me?

from what i can tell you're saying its not quarter to eight but actually seven forty five.

[anatta]

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Greenspan's book evidently tells it like it is:

http://www.dailykos.com/storyonly/2007/9/14/213112/337

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Lol, a leftie hate sites spin of a leftie reporters spin of a book. I'll wait to read it.

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hate site hate site hate site hate site liberal hate hate hate hate


Dude, that talking point expired last month with Bill O after the Kos convention. Seriously, I could go back and find the term "hate site" and "liberal hate" in a dozen of your post and other righties, just after Bill O made it his cause. Get with it, you guys have "moved on" (heh) to deporting citizens for free speech.

[DcifrThs]

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can you define bailout for me?

from what i can tell you're saying its not quarter to eight but actually seven forty five.

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to me there is a diference between a bailout (i.e. saving thos who made poor investments) vs. "managing the economy" which would be attempting to increase consumption.

a bailout would be a LARGE drop in the fed funds rate (i.e. one that is above that needed given the current/likely future path of the economy).

a .25 bp drop could arguably be justified right now:

- retail sales ex autos fell
- jobs contracted by 4k for the first time in 5 years
- consumer sentiment has been weak

but you don't want to engender future risky behavior in the same type of instances/securities that brought the turmoil we see nowadays.

a big drop (i guess i drew the line at about 50bps since that is larger than what i see to be necessary based on data now) could encourage further risky investments (i.e. pushing prices up on those securities that have fallen due to poor investments/loans etc.) and be a "bailout"

i don't think a small drop (25bps) would encourage that kind of behavior.

so i don't see this as 745 vs. 1/4 to 8

oh, i just realized i don't think i answered your question so:

a bailout imo would be a move that encourages a rise in prices of the securities that caused the mess we're in (and encourage further risky loans/investments). a small rate drop of the interbank loan rate wouldn't do that imo.

Barron

[DcifrThs]

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yes. and i've said in many posts that the fed has a real tough spot rightnow. they have to manage the economy while not bailing out investors.


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They can't do one without the other.

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yes they can imo. see my above post.

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i've also stated that i don't thinkt he fed should lower rates more than 25bps at all rightnow. the real economy has only exhibited small signs of weakness (-4k jobs, weak retail sales) that could be argued to require a 25bp reduction.


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So you only support "small" bailouts versus massive ones?

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i don't think a small drop is a bailout as i mentioned.

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anything larger than that though is edging towards that bailout, which we clearly don't want if we were thinking in what is in our best interest (well, and by we i mean myself and presumably the rest of the economy)


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I dont know where you get a measure of edging towards a bailout at a 50bsp drop.

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just a measure of what i think would be larger than necessary given current real economic conditions. i agree a purging of bad investments (mostly from mortgages and their realated securities etc.) is a great thing.

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Further did/do you support the cash injections?

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yes i did/do. i assume you didn't/don't.

Barron