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43 sats \ 24 replies \ @kepford 21 Aug 2024 \ on: Donald Trump Does Not Know the "Correct" Interest Rate econ
Dr. Paul :)
Why can’t the federal funds rate be tied to the 30 day treasury yield?
The Fed should be concerned with the quantity of money. The focus on interest rates is misguided.
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Don't ask me.
The Fed claims they have a dual mandate. Full employment and stable prices.
Interest rates are simply the lever they use. Not the point.
Sounds like communism to me ;)
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The dual mandate is fabricated. The primary and only goal is price stability.
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So one thing to consider here is that price stability and employment levels are tied. Put another way, employment compensation is very tied to prices. They don't overtly say they are trying to keep wages down but they are. Just as they don't say they are trying to incite a recession but they are. Or at least a mild one.
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Good call about employee compensation which is not the same as 'full employment'.
Full employment is about getting the unemployment rate under 3 percent. The benchmark in 1997 was 5 percent.
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They say full employment for marketing reasons but its more about the cost of employment. If the econ gets to hot certain skilled workers start getting paid a lot more and that drives up prices. I've enjoyed being on the receiving end of that a few times.
Honestly, I am impressed with the Fed in many ways. But even with the smartest people in the world you can't really replicate the free market hive mind that sets market prices.
Its like having an AI that has access to all the data in the world and has sensors everywhere. There are so many feedback loops we can't even account for them all. The invisible hand is really underselling the pricing system.
And this applies to money or the cost of money as well as other goods.
But I better stop or I will get something wrong and Dr @Undisciplined will have to correct me.
I think those goals are real actually. If your think about it, it makes sense. They don't want unemployment to hi or the plebs get restless. If prices rise to high to fast you have the same problem.
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From 1979 to 1983, unemployment, interest rate and inflation were in double digits. Ergo, high unemployment is caused by high interest rates.
Then in the 1990s, the Fed response to a 'smaller deficit' or a 'surplus' was lower interest rates (and a crazy stock market, irrational exuberance).
Another sign of fragility
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What's your point? That they suck at it? That it changed? That you don't buy it? That's all right.
The whole thing is fabricated. That's what "fiat" means.
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Exactly
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