Dan M <[EMAIL PROTECTED]>
> That wasteful government spending is the source of inflation. If this were > true, then the inflation curve would track the government spending curb. Which it does, at least better than it tracks money supply. If you look at the time series for inflation, money supply, and government spending since 1970, inflation tracks spending more closely than money supply. You will need to take an average to remove some noise (I suggest 5 year average), but the difference is obvious if you graph it. I'm amazed you haven't done this already. It even holds for countries other than the US. > That there is no data supporting monetary policy has an effect on the > economy. I did not make this statement. In fact, I said that during banking panics that the Fed can play an important role (by increasing the money supply to meet the sudden demand for money). > That monetary policy of lowering interest rates to banks is one and the same > as the federal government running a deficit. > The money the Fed lends to > banks expands the money in the economy, but it does not count as an asset > that governments can spend. As far as I can tell, your much vaunted physicist-method of statistical proof is to eyeball some tabular data, give a few poorly understood anecdotes, and then claim that all the economists and your brother-in-law agree, so your statement must be correct. QED. Evidently you are not familiar with economists such as Thomas Sargent or John Muth. You might want to look them up (or marry one of their sisters). As long as you are talking about magnitudes of causes, surely you can tell us which measure of monetary base the Fed is able to directly control? No doubt you know the size of total bank reserves, over which the Fed controls the interest rate? How does that compare to GDP? And I'm sure you can state a mechanism as to how bank reserves (you know, of course, that the reserve requirements apply only to checking deposits, not money market accounts, savings accounts or CD's) control the amount of bank lending? Then show us how total outstanding credit and loans have been a constant multiple of bank reserves? Or even that bank reserves and loans have been going in the same direction? Have you looked at the autocorrelation of the FF rate with T-bill yields? Which one leads the other? Do you think the Fed is setting T-bill yields, or simply following T-bill yields as set by the market? No doubt you can show us how the FF rate is more influential than corporate bonds, mortgage rates, and long-term bond rates on the economy? (or that the FF rate controls those other rates) No doubt you are aware that money and government bonds are easily interchangeable. Interchanging them, in fact, is how the Fed modulates the money supply. Cutting interest rates means that the Fed replaces treasury bonds with currency ("federal reserve note") and bank reserves. The Fed controls the mix, but not the total amount of government liabilities. It is when the total amount of government liabilities grows faster than productivity that inflation becomes a big problem. You like to talk about large causes. This is rather obvious: if fiscal policy creates more government liabilities (money supply + treasury bonds) than the economy can handle, the price of those liabilities will fall, interest rates will rise, and inflation will occur. The Fed cannot control total government liabilities, that is the job of Congress. Luckily, foreigners have been snapping up US Treasuries like mad this decade, so inflation has been tame. If that changes soon, though, look out above! (That is one reason why many economists thought FNM and FRE had to be bailed out, since a lot of their debt was held by foreigners, and we don't want to piss off our creditors) _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l