“Take a look at this recent NYT chart of the Federal funds target rate since 2000, managed by The Federal Reserve Bank (The Fed). In hindsight, don’t these volatile manipulations of rates by government central (money) planners at The Fed…

…visually show us that The Fed really doesn’t know what it’s doing? How so? The Fed had rates at over 6% in 2000/2001 and when we experienced the Dot Com (NASDAQ/Tech) bust, they rapidly dropped interest rates to 1% by 2003 and kept them there for several years. Many economists, including at least one Nobel Laureate, blame these low Fed rates (a negative real interest rate, when inflation was taken into account) for instigating the U.S. housing bubble. The Fed then rapidly raised rates to 5% by 2007. Whether this contributed to the the U.S. housing bubble bursting is the subject of debate. At any rate, once the housing bubble burst and the financial crisis was upon us, the Fed abruptly lowered rates down to 0.00% to 0.025% by 2009, and left them there until December, 2015. The Fed has now raised them to 0.25% to 0.50%. Many economists, financial experts, libertarian and conservative politicians, and myself, believe The Fed has taken us on a financial and economic roller coaster ride, that has fostered asset bubbles and busts and financial and economic instability. This one simple historical Fed funds chart sure makes a strong case, doesn’t it? Think about it. What if in hindsight they had just kept the fed funds rate at say 2% to 3%, or so, during this entire period? My guess is we would have had fewer asset bubbles and busts and more financial stability. And over the entire period, its hard to say, maybe greater economic activity and employment (likely not worse). The Fed constantly trys to smooth economic cycles and its conflicting dual mandate (price stability and full employment) isn’t working. (Even highly-respected, former Fed Chairman Paul Volcker says the dual mandate is not possible or appropriate.) It’s time that the Fed focused solely on price stability and let the economy have normal business cycles, which are a necessary economic event and important to prudent lending/credit cycles. If the Fed can’t stop its manipulation of financial and economic activity, then maybe its time to eliminate these highly-fallible central government planners and let the free markets determine money and rates? At a minimum, it’s time for Congress to annually Audit the Fed, especially its monetary policies and practices. P.S. The only reason that Fed minutes are not made public until five years have elapsed, is professional embarrassment for sitting Fed officials. That’s not a good public policy reason.”, Mike Perry, former Chairman and CEO, IndyMac Bank

fedfunds

 

Posted on December 23, 2015, in Postings. Bookmark the permalink. 1 Comment.

  1. Amen, Mike!

    Mark Nelson 3256 Sitio Tortuga Carlsbad, CA 92009 760.473.7558 mnelson.doit@gmail.com

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