Comments on: Three cheers for the Fed - “I see no recession” http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/ Conservative Party Member of Parliament for Wokingham Sat, 11 Oct 2008 19:25:40 +0000 http://wordpress.org/?v=2.6.2 By: Tony Makara http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/#comment-16683 Tony Makara Wed, 23 Jan 2008 21:34:36 +0000 http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/#comment-16683 I still feel it a dangerous policy for the Fed to make such sweeping cuts with the dollar already being so weak. This is a classic inflationary formula and very worrying that there is talk of a further cut next week. America is going to have stagflation because the question of liquidity is one of trust and trust cannot be mechanically generated by cutting interest rates. On a somewhat related matter the Chinese today seem ready to control their overheating economy with a prices and incomes policy as this comment today makes clear: "the central government decided to launch a number of temporary interventionist measures to control prices, and implement a more aggressive monetary policy to curb inflation in 2008." I still feel it a dangerous policy for the Fed to make such sweeping cuts with the dollar already being so weak. This is a classic inflationary formula and very worrying that there is talk of a further cut next week. America is going to have stagflation because the question of liquidity is one of trust and trust cannot be mechanically generated by cutting interest rates.

On a somewhat related matter the Chinese today seem ready to control their overheating economy with a prices and incomes policy as this comment today makes clear:

“the central government decided to launch a number of temporary interventionist measures to control prices, and implement a more aggressive monetary policy to curb inflation in 2008.”

]]> By: newmania http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/#comment-16678 newmania Wed, 23 Jan 2008 13:08:15 +0000 http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/#comment-16678 Our public debt is proportionally worse than the US according to Irwin Selzer but theirs is still unhealthy. The idea that reducing taxes increases tax yield is not proven it seems to me although one can see that it must do in some sense. The tax on business should of course be put back as it was but as to whether a further decisive re-allignment of the balance can be achieved right now ...not sure Still about time we had some choppy waters , tends to clean out the political closet a bit Our public debt is proportionally worse than the US according to Irwin Selzer but theirs is still unhealthy. The idea that reducing taxes increases tax yield is not proven it seems to me although one can see that it must do in some sense. The tax on business should of course be put back as it was but as to whether a further decisive re-allignment of the balance can be achieved right now …not sure

Still about time we had some choppy waters , tends to clean out the political closet a bit

]]> By: Neil Craig http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/#comment-16675 Neil Craig Wed, 23 Jan 2008 12:56:41 +0000 http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/#comment-16675 The problem is that monetary policy can smooth out the business cycle but only microeconomic policy (planning regulations, health & safety bureaucracy, corporation tax & business rates, x-prizes, regulations limiting new technology like GM & the amount of GNP spent by non-productive parts of government) can, in the end, alter the underlying trend. For these reasons our underlying trend is that growth is half the world average. The problem is that monetary policy can smooth out the business cycle but only microeconomic policy (planning regulations, health & safety bureaucracy, corporation tax & business rates, x-prizes, regulations limiting new technology like GM & the amount of GNP spent by non-productive parts of government) can, in the end, alter the underlying trend. For these reasons our underlying trend is that growth is half the world average.

]]> By: APL http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/#comment-16674 APL Wed, 23 Jan 2008 10:42:11 +0000 http://www.johnredwoodsdiary.com/2008/01/23/three-cheers-for-the-fed-i-see-no-recession/#comment-16674 JR: "The US authorities have made it clear to the markets that they are going to stop a recession if it is in their power to do so. They have made aggressive moves in reducing interest rates." The problem with this is that by cutting rates the US have indicated they are prepared to sacrifice the US$. When that reality filters through to the holders of US assets like the Chineese government and even the European Union, there will be a scramble to exit those assets which will probably make the US$ value drop faster. Given that the US$ will no longer be as desirable as it once was, who will buy all the US government bonds, purchase of which have propped up the US governments domestic spending this last decade? Who in their right mind would buy a depreciating asset on the way down? The US government have a dilemma, prop up the US economy and destroy the US$, or prop up the US$ and destroy the US economy. Our glorious leader, Brown who was so proud of his sale of the British Gold reserves will find that just as we need the 40% of value of the gold we exchanged for US$ they will be worthless. What a financial and intellectual genius that man is. Two books on courage and absolutly no backbone! JR: “The US authorities have made it clear to the markets that they are going to stop a recession if it is in their power to do so. They have made aggressive moves in reducing interest rates.”

The problem with this is that by cutting rates the US have indicated they are prepared to sacrifice the US$. When that reality filters through to the holders of US assets like the Chineese government and even the European Union, there will be a scramble to exit those assets which will probably make the US$ value drop faster.

Given that the US$ will no longer be as desirable as it once was, who will buy all the US government bonds, purchase of which have propped up the US governments domestic spending this last decade? Who in their right mind would buy a depreciating asset on the way down?

The US government have a dilemma, prop up the US economy and destroy the US$, or prop up the US$ and destroy the US economy.

Our glorious leader, Brown who was so proud of his sale of the British Gold reserves will find that just as we need the 40% of value of the gold we exchanged for US$ they will be worthless.

What a financial and intellectual genius that man is.
Two books on courage and absolutly no backbone!

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