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Re: The Limits To Growth
David Lewis wrote:
>
> Max Jacobs wrote:
> [stuff deleted]
>
> > Now for your second assertion. The federal reserve does not control the
> > general employment level in this country, the market does.
> ^^^^^^^^^^^^^^^^^^^^^^^^
> I don't know what this means.
>
> As I understand the Federal Reserve, it only controls the employment
> cap. That is it raise interest rates when unemployment dips below about
> 5%. Why? This increases the cost of creating more jobs and thus prevent
> unemployment from going any lower.
No, actually it doesnt control that either. The fed only controls the
federal funds rate which is what it charges banks for money. The market
then sets interest rates accordingly. The only reason you are seeing a
causal relationship now between fed action and interest rate hikes is
because the market (at least wall street) trusts greenspans judgement.
If he were replaced with someone more insane, the market could ignore
what he wants and keep interest rates relatively steady. The market
doesnt want inflation either and if greenspan is scared, they get
scared. If it were someone else, im not so sure. The fed is really
just an inflationary advisor, they dont control much at all.
Max
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