Monday, September 03, 2007

Experts, Productivity, and Fed Policy--same thing!

Chris Dillow does not understand the true role of Experts. The later Group knows they get hired at high Salary only if they reiterate that the activity of their Employers are correct. Suggestion of a Recession implies some criticism of Employer performance; at least, until such time as the Employers agree with the Supposition. Bosses possess a terrible tendency to react negatively to reflective criticism of their policy. The relevant value of Experts remain high-priced PR, sought to promote increased Sales and Vindication of slipshod financial business practices.

PGL at Angry Bear has an important Point in this Post, but bypasses a more important item upon review by myself. The emphasis upon Productivity may be what is wrong with the American economy; proper humiliation granted to the economic concept that higher Productivity pays for higher Wages. The higher Wages, though, promotes a ‘Plunger’ mentality where higher Risks are taken. This Drive to higher Wages and Profits causes abandonment of sound Business principles, leading to artificial Inflation rates, and eventual bubble formations. These Practices percolate Downwards to the activity of both Workers and Consumers. The Business and Financial leadership undoubtedly wish that the Mortgage Crisis would evaporate, but would still deny that they were the totally responsible Parties for its creation.

David Artig presents an excellent Post on Standford professor John Taylor’s evaluation of Fed performance. It should be studied by all Readers concerned with Fed policy. I should go on Record as stating I do not agree with the entire Concept of Fed policy. I do not believe that any Group can anticipate the direction of the Economy sufficiently to affect its direction by regulating its financing. I think the Fed’s funds rate should be set at 4.25%, and left there for all of Eternity. The basic argument behind this position states high Inflation will naturally restrict issuance of Operating Funds to Business because of lack of financial institutional Profits, while the rate is sufficiently low as to regenerate Business possibilities without bubble formation. The trouble in the current Case lies in the fact that a huge bubble has already been developed by lax policies previously implemented by the Fed concerning financial instruments. The Fed need force foreclosure proceedings before they lower current rates, else they are left with incredible pressures to inflate the Money Supply. My advocation for Fed policy is to force financial institutions to declare the Market value of their issued financial instruments, and reduce them, before a permanent Fed policy change can be introduced. lgl

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