Monetary Policy

I was looking for a Counterpoint to a verbal debate I had yesterday about fiscal and monetary policy, and this Piece gave me exactly what I wanted. It should be carefully studied for what it says, and the graphs reviewed. Then I can stipulate that I disagree with the entire field of Thought. Comparison with the 1930s Depression is always the great Bugaboo of the economics profession, even though every economist has agreed that the Great Depression was an aberration which was instigated by a whole series of adverse economic factors which are nonexistent today. Inventories are not overly large, Employment is not keyed to massive unitary Employers, Banks are not tied to limited Subscription markets for liquidity, Trade barriers are not massive, and Consumer Credit is widely extended. It is hard to conjure an economic pattern today, which could even come close to imaging the economic structure of the 1930s, without sharp reversal of modern day economic practice. A Depression may still be possible in this Time, but it would be built upon totally unrelated circumstances.

The Argument I had yesterday concerned basic monetary policy. Simply put: I have never believed in the secular power of Monetary Policy. I have been a longtime advocate of setting the Fed funds rate and Discount rates at 4.25%, and keeping it there throughout Time; a Concept which disagrees sharply with most Economists and the Open Market Committee of the Fed. They hold a belief that manipulation of monetary rates possesses a power to alter the Purchase patterns of Consumers. This may be understood as effective by comparison of Consumer Expenditures in the United States versus other advanced economic nations, but the Argument is still missing for the high economic value of this excessive Consumption. We burn more Energy resources, fill more Landfills, and automate more Production facilities–all at greater Production Costs, and yet; can never seem to fulfill Full Production criteria for exploitation of Unit resources.

I believe that Stability of financial institutions is the greatest Key to economic success. I chose a set rate for the Fed funds to insure that stability. I pick 4.25% because it is a traditional approximate 70% of the real Return on Stocks and Bond issues, the lesser rate of Return determined by the greater guarantee of safety from Bank Deposits. Stability is extended throughout the financial structure: in the value of Currency, the demand for collateralization, the existence of Repayment guarantees, and the uniform spread of funds to investment potential. The rate of 4.25% also serves as a vital suppression of Inflation, which under such circumstances, entails a curtailment of Investment return. Students of Economics should understand that extreme Consumption is not a Sign of economic health, or is a lack of Savings generated by a failure to pay sufficient Return on those Savings. lgl