The Federal Reserve: Love it or Hate it

[DcifrThs]

fair: here's my response xposted. last one of cross postings,

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Well if there is a definite trend towards more frequent and "aggressive" interventions from central banks, that must be symptomatic of something. (BTW I am not sure this is the Austrian arguement, it just seems like the correct line of inquiry in response to your graphs).

If that trend is definate is it not unreasonable to hypothesis that there is an upper limit to the "aggressiveness" of the FED, and that if its interventions are trending upwards on the "aggression index?" then we must be approaching the upper limit where intervention becomes impotent and boooom or should I say bust.

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right, but if there were ever a time for that massive catastrophe, 1979 was the time. inflation expectations were about as bad as could ever possibly be. the fed abandoned its methodology of fighting inflation by targeting the fed funds rate (like it does now) and instead decided to absolutely do whatever necessary via monetarist intervention in order to quell inflation.

this massive reduction in the money supply led to huge spikes in short term interest rates. i'm sure some austrians then must have been having this same argument.

further, jumping to more recently, the fed hasn't had to do anything since the fed funds rate reached 5.25% until this immeidate injection of liquidity by global banks.

i'd content that if i could cosntruct a good indicator of "aggressiveness of fed intervention" that it would follow some sort of cycle that is in some way related to teh business cycle. this follows from the austrian concept that the fed causes busines cycles, so their interventions
must either lag or preceed the cycle's indicator itself.

this is a good line of inquiry imo. good job!

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Dont see how we can prove this before the fact, but can only lend credence to the hypothesise that fed interventions project and magnify problems forward in time requiring more and more frequent and aggressive interventions in the future.

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the only issue here is that the aggressiveness reached a massive peak not likely to be mimicked (sp?) for a looong time.

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That there must be a sustainable limit to this process would seem a fair conjecture.

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right, but it seems we've tested this system pretty severely.

let's keep going down this road though since maybe it'll help solidify in my head a good way to construct the indicator and try to test this out.

thanks,
Barron

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