Re: Fed cuts rates 0.50 bps

From: Jeff Bone (
Date: Thu Apr 19 2001 - 11:21:20 PDT

> In response to another point, the Fed's job *is* to engineer short-term
> fluctuations in the money supply. response to inflationary pressure. Inflation of the money supply is *not*
the same as increases in the velocity of money, though it can be tough to tell the
two apart. And incredibly high consumer confidence, leading to greater
proportional consumption, is not the same as inflation, either. IMO, Greenspan

> So trying to yank the NASDAQ down with
> money-lending rate changes is

...NOT the job of the Fed, though Greenspan took it on. His *primary* motivation
for raising rates last year --- in the absence of significant and generally
agreed-upon inflationary markers, was to shake a bunch of dumb investment out of
the public market. I'm sorry, but that shouldn't be his call.

> If we string some months together like that, that's a
> recession, but we're not there yet

The problem is you can only really identify a recession that way post-facto. IMO,
there are significant markers; some things, like new housing starts, are a kind of
canary in our economic coal mine. New housing starts are *dramatically* down from
Jan 2000 [1] though they've crept up a bit over the last few months, but they're on
a slight decline now. The problem with things like that is that the full economic
impact can take 12 months or more to ripple through the economy.

The most significant marker is perhaps the behavior of the capital markets. (And
btw, there's a general impact there, not just high-growth plays.) Just take a look
at VentureWire; in the past 365 days, their index (representing private equity
investment activity) [2] has dropped from over 1700 to 776 today. This is a
particularly nasty marker, and the effects of this will take a very long time
indeed to ripple through the economy. It means less jobs, less b2b activity, lower
velocity of money, lower technical change, stagnating value networks, etc. Less
spending on the business side of the economy means dramatically different things
for the consumer side.


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