me: > > well, the power of the Fed -- and the bond market -- arose only with > > the fall of the Bretton Woods fixed exchange-rate system. Before that, > > the Fed was largely passive. Fiscal policy ruled the roost, though > > often for ill rather than for good.
Michael Perelman wrote: > Tom Dickens' research suggests otherwise. I haven't read all of Tom's stuff, but I thought most of it was about "what makes the Fed tick?" rather than about its power to steer the world (which was what I was talking about). These are two different questions. Tom shows, for example, that the FOMC serves the interests of bond markets and bankers. Thus, it refused to help fight the Great Depression of the 1930s until it was too late. That's right. But during the early 1930s, the Fed was also extremely limited in its power because the US was committed to the gold standard. Similarly, under the high Bretton Woods system, the US was committed to fixed exchange rates. In both cases, the Fed has to follow the "rules of the game" rather than steer the economy. To the extent that it did so, fiscal policy steered the economy. (Of course, fiscal policy followed goals such as "win the war in Vietnam!" rather than "steer the US economy." That's an important reason for the stagflation of the late 1960s and early 1970s.) During these times, these fixed exchange rate systems were seen as representing the long-term interests of bankers and bond markets, so there's no contradiction here. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante.
