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re: Debunking wild conspiricies
Posted on 5/22/14 at 7:19 am to foshizzle
Posted on 5/22/14 at 7:19 am to foshizzle
It's true that spending generates more and more activitity (multiplier effect).
But perhaps there is an optimal level of spending, which can only be determined through market activity, and not by a central bank. Some wealth needs to be saved for investment. Some wealth may even need to be hoarded to mitigate risk.
Perhaps, if the central bankers overestimated the optimal level of spending, the result would be a few years of prosperity followed by a major crash and lower growth in the long run.
Perhaps...
But perhaps there is an optimal level of spending, which can only be determined through market activity, and not by a central bank. Some wealth needs to be saved for investment. Some wealth may even need to be hoarded to mitigate risk.
Perhaps, if the central bankers overestimated the optimal level of spending, the result would be a few years of prosperity followed by a major crash and lower growth in the long run.
Perhaps...
This post was edited on 5/22/14 at 7:22 am
2
Posted on 5/22/14 at 8:37 am to The Sultan of Swine
quote:
But perhaps there is an optimal level of spending, which can only be determined through market activity, and not by a central bank. Some wealth needs to be saved for investment. Some wealth may even need to be hoarded to mitigate risk.
Central banks don't determine spending levels. They can only operate in markets by buying securities. And yes, there are optimal levels of spending, saving, investing, etc.. However I think you may be overestimating how much the Fed can actually do.
quote:
Perhaps, if the central bankers overestimated the optimal level of spending, the result would be a few years of prosperity followed by a major crash and lower growth in the long run.
You have these backwards, if the Fed overestimates economic activity then they will tighten monetary policy sooner than they should. If they underestimate economic activity/leverage/etc. then they will keep policy loose. Again, they don't control spending, they just operate in the markets.
Posted on 5/22/14 at 5:49 pm to The Sultan of Swine
quote:
perhaps there is an optimal level of spending, which can only be determined through market activity, and not by a central bank
There have been times in US history where we didn't have a central bank. Those times tended to have much more dramatic and frequent booms and busts than we do today.
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