Monetary Policy Is Not Boring

I thought for sure that you would come back from Forbes and write something about his flat tax. Speaking of that, you should. That could be an interesting discussion.

I, for one, find monetary policy boring. I am, however, glad that there exist people who find it fascinating and are willing to do the hard work for me. I’ll just read stuff, if you don’t mind.

I think it is quite irrational to be blanketly against lowering the interest rate. Sometimes it makes sense to raise the rate, and sometimes it makes sense to lower it. What is the alternative?

You always raise the interest rate. It goes up and up and never ever goes down. That seems unwise.

You keep it the same, and never adjust it up or down to be flexible and respond to market conditions. Again, unwise.

I’ve heard a lot of people who seem to be against lowering the interest rate on some sort of principle, but they seem like the people who are against raising taxes on principle. Sometimes it makes sense to raise taxes, just like sometimes it makes sense to lower them. You cannot reasonably adopt a philosophy that only advocates raising or lowering taxes without end. There has to be some flexibility and some sort of awareness of the economic realities of the country at the time.

David, yes. An interest rate can lower or raise. The problem you are having results from the idea that the decision should come about from some sort of decider. The interest rate is a product of the free market. Of course, not in the montary policy we have today. The interst rate represents time preference.

here’s a decent article that talks about the subject
http://www.lewrockwell.com/north/north87.html

and, of course, as Chris points out, lower interest rates means an increase in the money supply. otherwise known as, inflation.
Thomas Paine on Paper Money
http://mises.org/story/2942

oops, didn’t proofread. anyway, the interst rate is being manipulated. this is the problem. it is not set through actors within the market but rather set by deciders in the FED bureaucracy.

Jesse your argument sounds very anti-keynsian. Almost every government manipuates interest rates and money supply as tools in it monetary policy, certainly every developed country, as part of counter cyclical policy. Also the decision to manipulate rates and supply is made by committee, one that is made up by a large part by private sector bankers whose decisions reflect market driven perceptions. The important thing is to have a fiscal policy that is in tune with the monetary policy which is why bill is so lauded with his economic management by the likes of forbes. Just out of curiosity are you at all a libertarian or a Ron Paul supporter jesse?

“Just out of curiosity are you at all a libertarian or a Ron Paul supporter jesse?”

What would lead you to that conclusion, Alejandro?

“The important thing is to have a fiscal policy that is in tune with the monetary policy…”

Very valid point. Taxes and government spending (fiscal) needs to have a relationship with interest rates, reserve requirements, open market operations (monetary) in order to have any effectiveness. If there is not relationship, one action will or may cancel out the other action.

I think that lack of relationship is a big part of the current economic problems we are seeing.

What led me to that question was that his position seems very anti fed which fits with libertarian principles and their war on the fed with liberty dollars and their current champion is ron paul. Most reps and dems belive in managing monetary policy even if only slightly the only idealogy in us politics today that takes such a stark line as jesse of zero manipulation is libertarianism or ron pauls railing against the fed. I just wanted to see if my guess was right. I agree that the canceling out of economic policy with divergent monetary policy and fiscal policy is a big reason why we are in our current situation. That along with a lack of regulation in the financial sector that lead to massive over-speculation.

well alejandro…you’re close. lol.
voted for badnarik in 04
http://www.youtube.com/watch?v=f9yUaChj5zw (5 min)
as far as the LP is concerned they are having divisions as well.
it’s hard to identify with any party. currently i am registered republican and i am attending the GOP state convention as a delegate for ron paul. i doubt i will be going to nationals because i am young and unknown in the party. but i still have a voice and vote to give for the time being.

decent interview. good exposure
http://www.youtube.com/watch?v=znQe9nUKzvQ

“a lack of regulation in the financial sector that lead to massive over-speculation.”

Monetary Policy and the State of the Economy
http://www.lewrockwell.com/paul/paul436.html

no way. it was false wealth being created. monetary policy is the real issue here.
it is true that actors within the market took risks. but before the risk was taken there was false wealth created. and of course, whats happening? those actors within the market that took the risks are……being bailed out!!
so it’s a triple whammy. bad policy creates malinvestment and inflation, which then brings about a crisis and a demand for a resolution, which bails out big business with more inflation, which helps who?

Here’s a classic for the true libertarian or “non-archist”
Wall Street, Banks, and American Foreign Policy
http://www.lewrockwell.com/rothbard/rothbard66.html

the quasi-private organization that the US and other nations in the world borrow money from, with interest, was sold as a way to create “stability” in the market but also brings about massive malinvestment through artificial wealth creation. so in the end the big businesses get bailed out even though they took huge risks because bad policy creates incentives to borrow. and then government gets to have more power to top it off. meanwhile the free market gets squashed and blamed and the people get inflation, huge lobbying groups and lots of special interest because all the money and power is in dc. sounds like a plan to me.

Peter Schiff (Ron Paul team)
http://www.youtube.com/watch?v=bTPowq4XPd8
http://www.youtube.com/watch?v=LfascZSTU4o

so while we can talk about race, gender, he said/she said, etc. the middle east issue rages and spreads because we can’t leave (allegedly), and the fed lowers interest rates (inflates credit/money supply) to dig their wall street friends and themselves out of a hole they dug (not to mention the central banks of the world).but you can’t win on that kind of platform, right?

either way, it needs to be talked about and im glad that ron paul ran, because if he didn’t when would this have talked about in so much depth? he’s definitely a leader and has the record to prove it. isn’t that what we want from a politician?

besides, it leads to a larger issue as well.
war.
how else could we pay for war? taxes?!! try selling that to the people.
how much do we need bush? 85 billion? ok, no problem. $3-5 trillion and hundreds of thousands of lives later!!
this isn’t bush’s war. this has been going on for a long time. again, the issue is about policy.
that’s why paul gets up on stage and talks about the overthrow of the shah in iran in 1953, the backing of the mujahadeen to fight the soviets, etc. because it is relevant history directly tied to policy, not who is president or which party is in power.

so when talking about the current economic problems we have to take in all the pertinent data. yes, actors within the market didn’t help and have self interest, but so does washington dc.

and as far as i am concerned, the facts show that policy is at the heart of these issues. not who is in power, or lack of regulations. following the consitution would help a lot. whether or not you agree with the document is besides the point. if you just take a moment to look at the document and read it, then match it up with what the US gov’t does, it doesn’t balance out. and hasn’t for a long time. but it’s getting worse. so what are we all going to do about it? anything? is the supreme law of the land worth anything anymore? what about the bill of rights? can you blame the native american nations for seceeding?

have you seen War made Easy?
http://www.youtube.com/watch?v=r1ziIgsFJDg

‘disclaimer: i’ve written too much and would love to write more. im just posting and hope i didn’t misrepresent, mispeak or miss anything. i will wait for a response. cuz you are right chris, monetary policy is not boring. and i am waiting to hear some common sense that can counter some of these arguments. namely that the fed is a disastrous organization and the consitution is being over run by special interest and ignorance. and since everyone engages themselves in the economy and has to manage their own home, economics should really be easy to understand, not some intricate, secretive, elaborate plan that only elite businessmen, bankers, and politicians can understand and control. leave the economy to the people. let government do its best to protect people’s rights.

there’s my two cents for the moment. how much do you think my two cents is worth now? accounting for inflation, it’s roughly 80 cents i think! how come that doesn’t make me feel any better? oh that’s right, value is subjective! geez i get it now!!

sorry for ranting. lol. it’s late. my plan for the future is to keep a posting brief, if possible, and post the rest at my blog. lol.

oh yeah, one more thing. first link at lewrockwell.com today is the recommended reading list from Paul’s manifesto.
A Reading List for a Free and Prosperous America
http://www.lewrockwell.com/paul/reading-list4.html

i’ve only read a few. and reviews on a number of others.
books are a great investment but they get expensive after a while. and one only has so much time. looking forward to opening a book store here in town.
having trouble finding the store collection at mises.org. it’s like five grand. i think that’ll be a nice way to start out. i really want to challenge the greens that are in abundance here in maine.

if we can get the green’s to begin adopting free market principles….just think of the potential. efficient sustainability, an abundance of alternative fuels, and without use of taxes and subsidies :D

here is bob murphy being interviewed by scott horton.

murphy gives simple explanations for some of the current issues
scott is a good interviewer too….
http://www.scotthortonshow.com/2008/03/18/antiwar-radio-bob-murphy-2/