Wednesday, January 04, 2006

Insecurity at the FED

The Fed Committee records much uncertainity about the current course, simply stating that economic data must be more closely watched. This brings to the fore discussion about the ability and power of Monetarist policy. This Author has long been an advocate of the thought that the scope of Monetarist policy is limited: Countercyclical economic effect forestalls artificial lowering of Interest rates, and implementation of excessive Rates does not combat Inflation as much as retard economic growth.

False low Interest Rates engender a plurge of inefficient Investment because of the easy opportunity to expand low-Shelf Products, which do not have an expanded Market; the Whole effort propelling excess accumulation of Capital equipment and Warehousing capacity. Marginal industries, who rely upon very low per Product profit are adversely injured by expanded Interest Rates because these Firms depend upon borrowed Flow capital more than higher Profit industries. This Theory would indicate the Fed has only a limited range of Rate management in which to influence the Economy. lgl

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