From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Wed Nov 24 2004 - 04:13:16 EST
At 11:04 AM -0500 11/23/04, Allin Cottrell wrote: >On Mon, 22 Nov 2004, Rakesh Bhandari wrote: > >>1. The data reveal that the Fed's rate hikes often cannot be >>explained by an attempt to stabilize CPI inflation at a small >>positive rate. In fact there are times that rates should have been >>reduced rather than raised if Greenspan were really aiming at the >>price level rising at a small positive rate. > >I'm not sure how the data could be said to "reveal" that. OK indicates that. But neither does very moderate inflation reveal that Greenspan is inflation targeting in the first instance though moderate inflation may be the effect of what he is in fact doing. > >Over the last decade, year-on-year CPI inflation has averaged 2.45 >percent, with a maximum of 3.36% and a minimum of 1.55% (and with >half of the observations lying between 2.19% and 2.82%). This is an >extraordinarily consistent "small positive rate". You seem to be >saying that a different policy on the part of the Fed would have >resulted in greater stability of the time-path of the CPI. That >seems very implausible. > >Allin Again, I don't think this proves the case; it could be the consequence of targeting Baker's composite commodity in the interest of maintaining the confidence of the foreign investors in the dollar as the international reserve currency. Though after 1996 Greenspan seemed interested in neither inflation nor gold targeting. He attempted to moderate asset inflation. This led to global (esp commodity) deflation, far more severe than what was picked up by a national measure such as the CPI. Reuven Brenner criticizes Greenspan for such a departure from gold targeting as Brenner blamed Greenspan for the rate hikes after the subsiding of the Asia financial panic which rate hikes led to a decline in the dollar price of the gold (and according to Brenner, a serious exacerbation of the NASDAQ correction). Except for these two exceptions (for which Greenspan later compensated) Brenner thinks it's obvious that Greenspan has been gold targeting (as does this author http://www.capmag.com/article.asp?ID=2929 --not fancy econometrics, but a revealing graph prepared by a capitalist kook). Of course Goldspan has to do this in secret as he is not allowed by law to run monetary policy in accordance with a loose modified gold standard. In terms of the discussion here in general, I am wondering why there is not more severe criticism of the populist and demagogic idea that Greenspan autonomously determines the quantity of money in circulation in pursuit of whatever price level he wants. This seems to me to combine double fallacies-- the exogeneity of the quantity of money and the neutrality of money. All this gives too much autonomy to the state, as Paul Bullock has worried in a related context. Is Greenspan free to determine liquidity and the price level as he wishes? As I asked in one of my first posts, what is the post Keynesian theory of the constraints under which Greenspan operates in maintaining the dollar as the international reserve currency and nearest susbsitute for world money? Or are structural-like Marxist arguments no longer of interest? Rakesh
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