Greenspan on 60 Minutes - I call BS

[AWoodside]

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He doesnt say he didnt recognize that it COULD happen. He says he didnt realize the EXTENT to which it happened. It isn't suprising that he wasnt focused on it then, since it was in only in late 2005 and early 2006 that subprime originations took off, and at the time he was busy handing off the job to BB.

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Somehow this doesn't make me feel like the value of my dollars are any more secure.

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Why? There was an overreaction to a minor issue that will work its way through the system. Those kinds of shocks will always happen...not all of them can be anticipated. What is more important is the reaction to those shocks and keeping them from getting out of hand and having long lasting repercussions.

The market has absorbed subprime at this point, and has withstood a terrible jobs report, that, at least to a great extent, was a reaction to subprime. Is recesssion in the near future possible? Of course, bull markets do come to an end, or they wouldnt be any bull and bear markets. On the whole though, fundamentals are still strong.

If anything the whole situation should make you feel MORE confident.

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It seems like your saying that the market has absorbed the sub-prime debacle in spite of the actions of the fed, which I mostly agree with. Although, you could arguing that it was the fed's response that allowed the market to react effectively... I'm not sure. In any case, it's not really salient to the point I'm making. The reason I said that I wasn't any more comfortable is that, however you slice it, our monetary policy is governed by a very small number of very powerful men. There are some factors that push their behavior in the right direction sure, but the fact remains that we rely on a small group to be not only benevolent, but competent to boot in order to keep our economy on track. Even if you could convincingly argue that this system is +EV I don't think we have a big enough bankroll to handle the variance.

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No, I was not arguing "in spite of". While I don't think Fed action was quick enough or decisive enough, it appears so far to have helped.

Benevolence is a non-issue raised be conspiracy nuts and irrelevant. Competence is obviously not guaranteed. 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. The Fed has come a long way, even if by trial and error and learning from that empirical data, and I see no reason to think that it wont continue to improve.

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If you have time could you explain to me why benevolence is a non-issue? I've been a science nerd my whole life and have only recently gotten interested in politics/economics so I don't really have very deep knowledge of specific issues. You mentioned that you're not fond of purely a priori reasoning, so I'm sure this will ring hollow to you, but it seems like any time you give an enormous amount of power and influence to a small group of people you have to worry about benevolence. Do you have a problem with this general statement, or does it not apply to the fed?

Also, I assume you don't believe in the Austrian-school type arguments about the fed that paint them as responsible for the boom/bust business cycle? Like I said, I'm new to this, but those arguments have by far been the most convincing of any I've read yet. If the Austrian school is correct however, your statement that the fed has gotten better at reducing the business-cycle variance would really just mean that they're learning how to not f**k up quite as badly as they used to.

[Borodog]

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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?

[hmkpoker]

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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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My friend told me that the expected value (or "EV") of a six sided die was 3.5. What a dork! I told him "yeah, there isn't even a '3.5' side anywhere on that die." Then I rolled a six...that isn't even CLOSE to 3.5! So much for theory. When are these losers going to pay attention to, you know, empiricism?



OH YEAH!!!!!!!!!!!!!

[Copernicus]

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He doesnt say he didnt recognize that it COULD happen. He says he didnt realize the EXTENT to which it happened. It isn't suprising that he wasnt focused on it then, since it was in only in late 2005 and early 2006 that subprime originations took off, and at the time he was busy handing off the job to BB.

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Somehow this doesn't make me feel like the value of my dollars are any more secure.

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Why? There was an overreaction to a minor issue that will work its way through the system. Those kinds of shocks will always happen...not all of them can be anticipated. What is more important is the reaction to those shocks and keeping them from getting out of hand and having long lasting repercussions.

The market has absorbed subprime at this point, and has withstood a terrible jobs report, that, at least to a great extent, was a reaction to subprime. Is recesssion in the near future possible? Of course, bull markets do come to an end, or they wouldnt be any bull and bear markets. On the whole though, fundamentals are still strong.

If anything the whole situation should make you feel MORE confident.

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It seems like your saying that the market has absorbed the sub-prime debacle in spite of the actions of the fed, which I mostly agree with. Although, you could arguing that it was the fed's response that allowed the market to react effectively... I'm not sure. In any case, it's not really salient to the point I'm making. The reason I said that I wasn't any more comfortable is that, however you slice it, our monetary policy is governed by a very small number of very powerful men. There are some factors that push their behavior in the right direction sure, but the fact remains that we rely on a small group to be not only benevolent, but competent to boot in order to keep our economy on track. Even if you could convincingly argue that this system is +EV I don't think we have a big enough bankroll to handle the variance.

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No, I was not arguing "in spite of". While I don't think Fed action was quick enough or decisive enough, it appears so far to have helped.

Benevolence is a non-issue raised be conspiracy nuts and irrelevant. Competence is obviously not guaranteed. 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. The Fed has come a long way, even if by trial and error and learning from that empirical data, and I see no reason to think that it wont continue to improve.

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If you have time could you explain to me why benevolence is a non-issue? I've been a science nerd my whole life and have only recently gotten interested in politics/economics so I don't really have very deep knowledge of specific issues. You mentioned that you're not fond of purely a priori reasoning, so I'm sure this will ring hollow to you, but it seems like any time you give an enormous amount of power and influence to a small group of people you have to worry about benevolence. Do you have a problem with this general statement, or does it not apply to the fed?

Also, I assume you don't believe in the Austrian-school type arguments about the fed that paint them as responsible for the boom/bust business cycle? Like I said, I'm new to this, but those arguments have by far been the most convincing of any I've read yet. If the Austrian school is correct however, your statement that the fed has gotten better at reducing the business-cycle variance would really just mean that they're learning how to not f**k up quite as badly as they used to.

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Benevolence is a non-issue because their self-interest is totally aligned with the economic success of the US.

There is a fine line between "not f*cking up so badly" and "learning by trial and error". [img]/images/graemlins/smile.gif[/img] There is no question that serious missteps have been made by the Fed in the past. However, once you got the circus clowns Carter and Ford out of office, and the Fed was allowed to do the grunt work in managing the economy, there has been a remarkable track record of success.

Back to the middle question, no, I find the Austrian position that business cycles are caused by the Fed specious at best. Business cycles are driven by 2 things- the most important being the opportunities to invest capital in projects that show promise of profit. Since so much of economic growth is tied to technology, and technology itself doesnt move forward smoothly, it is natural for the opportunities for technology investment to ebb and flow. The second factor is consumer behavior. Traditional economics narrows that down to savings vs consumption, which is influenced by consumer confidence and time preference. In turn confidence and time preference are largely dependent on controlling the incidence and depth of recessions that cause loss and confidence , and inflation and interest rates that drive spending decisions.

The Feds role in that is to attempt to keep inflation tamed, and to manage the money supply to avoid prolonged recessions that would otherwise be self-perpuating because of the inherent feedback loops.

Search for Dcifrths posts on the Fed. He does an excellent job of describing the Feds role in "dampening shocks" to the economy. They are a couple of months old, before the subprime crisis hit, and reading them in the context of the Feds reaction to the subprime crisis is quite interesting.

[Felz]

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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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How is dropping two sentences empirical evidence, I like your scientific methods. Linking to mises.org who obviously are totally unbiased and objective regarding the issues they tackle and dropping statements out of nowhere.

There's CB systems in the world that have a reputation of being fairly successful over the past decades - I know it sounds absurd, I know.

[JayTee]

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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?

[adios]

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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?

[JayTee]

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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.

[/ QUOTE ]

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

[/ QUOTE ]

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?

[Orlando Salazar]

Taxation has alot to do with the business cycle.

[Zygote]

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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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read..

http://www.mises.org/story/2673