Tuesday, December 30, 2008

So this is how things work

My latest post on the Blog at Mises.org:

So this is how things work

Jim Fedako

According to HowStuffWorks, this is how things work:

The Fed watches economic indicators closely to determine in which the direction the economy is going. By forecasting increases in inflation or slow-downs in the economy, the Fed knows whether to increase or decrease the supply of money.

Influencing inflation takes a long time and has to be looked at as a long-term goal. Influencing employment and output, however, can be done more quickly and therefore is a short-term goal. Finding the balance between the two is key. The lags in the effects that monetary policy has on the economy are significant. This is why the Fed has to make forecasts of inflation prior to it actually happening -- one, two or even three years in advance. If the Fed waited until inflation were apparent, then it would be extremely difficult to catch up and get it back under control. We'll talk about the economic indicators shortly.

They are forecasting three years in advance? And finding the balance? Hmmm.

Well, that's my bromide for the night. I'll sleep well knowing it's all under control. Reminds me of standard line from TV cop shows: Alright, move on. Nothing to see here. Please disperse.


Anonymous said...

Psycho or Sage?


Jim Fedako said...

Maybe both.

Anonymous said...

How's this for a ticket: Ron Paul/Peter Schiff. Or nominate Schiff to head Treasury.

Laffer and those other fools thought Schiff was a loon. Who's laughing now?

Zinzindor said...

In this case, the tag line should be spelled "Please *disburse*.

Steve Scott said...

Nostradamus works for the Fed.