I was contrasting a period in the past -- e. g. the 1960's, when
when the Fed was able to absolute stop the availibility of funds
to the banks, because they put a ceiling on the rates banks could
pay to depositors. Thus the banks would turn away borrowers.
The actual process at a bank was to turn away new
borrowers (they tried to take care of customers who had a
"relationship" with the bank) -- and even exisitng borrowers found
the bank would only -- when a loan came due for renewal -- banks
would lend only a fraction of the previous amount. Thus people
who were willing to pay more could not get a loan.
That set of conditions no longer exists -- the Fed no longer
has the control over total liquidity that it did in the past.
And in my view that means that the Fed really can't choke off a
boom by raising interest rates because borrowers are willing to pay
higher and higher rates if they believe they'll make money at even the
higher rates.
This is not to say that I believe that the US economy is in a boom
on the contrary, I think this weak recovery has about run its course.
And I think it is fading not because of the Fed's tightening over the
past year but because consumersd don't have the income to keep it going.
One last remark. We keep reading about the high level of
capacity utilization, how 85% is histyorically high, and cannot be
sustained. But if you look back at the end of the '60s, you'll see that
capacity utilization rates were above 90% for three consecutive years.
Ok, I'm not going to answer people who take that last thought
and rebut it with the assertion that that high utilization caused the
inflation that ensued. Life is too short for that one.
But I do think that a high pressure economy --like the end of the '60s
-- is clearly better for working people,
