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Edited on Sun Aug-31-03 12:25 PM by JM
...I was just curious. It was always my understanding of the Fed that their role was to offset/assist fiscal policy with monetary policy.
I am not quite clear, however, as to which definition of money supply you refer to when you say it has doubled. There may very well be a good reason for the doubling. First, if you refer to the creation of dollars in the supply, assuming all else equal, that would be the responsibility of the Treasury. If you are referring instead to an increase in money in M2 or M3, there may be a valid reason for it outside of the Fed based on the "rash exuberance" (to use a Greenspan phrase" in the stock market and mutual funds. I am not sure how that would be the Fed's responsibility or fault.
As for the credit collapse you speak of, I agree with you it is due, but I disagree as to why. I don't think Greenspan has as much to do with the issue as credit issuers, eager to make more money, relying more on an Enronesque system of fictional accounting and risk. Greenspan and the Fed set rates according to the size of M2 and M3 and monetary velocity. Lenders simply add their profits to the top of the base rate and use whatever tools and methodologies (possibly including chickenbones) to determine risk.
As for why he made this speech, he may want to preemtively remove the idea that the Fed knows all. The Bush Administration could easily point to the Fed as either the solution or the problem, and if things continue to go south, blame the Fed for Jr's failures. By admitting it is not an exact science, he removes/reduces the ability of the Bush/Rove battleship to point its turret in their direction.
In my own opinion, right or wrong, I think the Fed succeeds when the Governors are on the same page with Treasury. When Rubin was in Treasury, he understood how the capital markets worked. Appointing lackey CEOs in Treasury has been laughable and we see the result. O'Neill was bad enough, but Snow's claim to fame was not his financial knowledge, rather the fact he sold CSX to Carlyle group.
IMHO, Greenspan has had no choice but to be totally reactionary in the face of stupid Treasury fiscal policy made by do-nothing know-nothing MisAdministration officials.
Later, JM
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