Is it time to replace the Federal Reserve with a computer?

[Dari]

Originally posted by: nergee
How about a free market.....

An example of this is the 1% Fed Funds Rate in 2003-2004. I doubt the market on its own would have reduced interest rates to 1% or held them there for long if it did.
The Fed held rates rates too low too long. This created the biggest housing bubble in history. The Greenspan Fed at a very bad time, compounded the problem by endorsing derivatives and ARMs.

Banks would need someone to borrow money from. The federal funds rate is targeted but the discount rate is controlled by the Feds. If there was no Federal Reserve, politicians would fill such a role. Nobody wants that. We don't have philosopher-kings as leaders. Look at Bush...

 

[LegendKiller]

Originally posted by: Dari
Long-term rates may set housing costs but people determine whether or not to make housing purchases on short-term rates, Bernanke and Gertler (1995), so the Fed does have a huge impact on such investments.

If the market is flooded with capital, a truly fluid and independent Federal Reserve can have the Treasury mop them up while imposing a special tax on such inflows. By doing this, they will avoid raising rates which would attract more capital.

Creative financing only works when capital is cheap. By imposing a rigid system monetary policy, we can get rid of our obsession with debt.

The market is not at fault at all if they followed the rules laid before them. The fact is they exploited the rules and the Federal Reserve just wagged its fingers at them, while letting interest rates fall or rise slooowly.

Computers can impose a rigid order that humans are too afraid to do because of political pressure and to keep their jobs.

Boom-bust cycles can be less volatile if we want them to be, but only if we have the will to want a more sedate cycle.

Maybe that was true 13 years ago, before the massive infusion of securitization lead capital, increased tax arbitrage lead by the Clinton signing in 97, and the changing of subprime securitization issuance under Clinton. In the post tech-bust world, where worldwide capital was looking for pockets of quick profit, mortgages looked good, especially in the refi sector, which inevitably bled over to the purchase area as more capital flooded in to the market.

Borrowers are payment sensitive, as we have seen with the exotic mortgages, which is driven by long-term rates.

Creative financing works in all scenarios. The market will always be ahead of regulators in finding arbitrage possibilities.

The market only abused what latitude was given to them. That abuse was not the Fed's fault, as their independence also means they cannot influence things directly (the 3 factors mentioned before).

Computers are wrong because they are programmed using data that is rearward looking. Computers, to accurately model human behavior to create a correct economic model, would require the ability to understand human behavior and adjust the variables accordingly, within a split second.

There is not one computer model that can be created that will respond well to changing independent variables without human input. That input is subject to the same pre-conceived notions that regular human decision is subjected to.

Controlling boom/bust cycles is impossible. Humans will always be too irrational, both on the up and downside, to be able to model them appropriately. Herd mentality, irrational fear or greed, bear/bull mentality, plus the ever changing viewpoint depending on the feedback of thousands of variables per second, make it impossible to accurately predict humans.

We can't even predict the weather from day to day, you want to predict how an economy should respond to trillions of decisions per second spanning every global market?

ROFL. Good luck. When you finally build such a model and the world-power consuming computer needed, it'll output one single thing.

42.

 

[SleepWalkerX]

Originally posted by: Dari

Originally posted by: nergee
How about a free market.....

An example of this is the 1% Fed Funds Rate in 2003-2004. I doubt the market on its own would have reduced interest rates to 1% or held them there for long if it did.
The Fed held rates rates too low too long. This created the biggest housing bubble in history. The Greenspan Fed at a very bad time, compounded the problem by endorsing derivatives and ARMs.

Banks would need someone to borrow money from. The federal funds rate is targeted but the discount rate is controlled by the Feds. If there was no Federal Reserve, politicians would fill such a role. Nobody wants that. We don't have philosopher-kings as leaders. Look at Bush...

The banks would be the place you would borrow money from. What a few of us would like to try out is keeping politicians and government out of our money.

nergee is right on the money. The Fed can't possibly set interest rates better than the free market can. And Warren Buffet strongly advised against derivatives when Greenspan was hailing it. We see now who was right and who was wrong.

 

[Dari]

Originally posted by: LegendKiller

Originally posted by: Dari
Long-term rates may set housing costs but people determine whether or not to make housing purchases on short-term rates, Bernanke and Gertler (1995), so the Fed does have a huge impact on such investments.

If the market is flooded with capital, a truly fluid and independent Federal Reserve can have the Treasury mop them up while imposing a special tax on such inflows. By doing this, they will avoid raising rates which would attract more capital.

Creative financing only works when capital is cheap. By imposing a rigid system monetary policy, we can get rid of our obsession with debt.

The market is not at fault at all if they followed the rules laid before them. The fact is they exploited the rules and the Federal Reserve just wagged its fingers at them, while letting interest rates fall or rise slooowly.

Computers can impose a rigid order that humans are too afraid to do because of political pressure and to keep their jobs.

Boom-bust cycles can be less volatile if we want them to be, but only if we have the will to want a more sedate cycle.

Maybe that was true 13 years ago, before the massive infusion of securitization lead capital, increased tax arbitrage lead by the Clinton signing in 97, and the changing of subprime securitization issuance under Clinton. In the post tech-bust world, where worldwide capital was looking for pockets of quick profit, mortgages looked good, especially in the refi sector, which inevitably bled over to the purchase area as more capital flooded in to the market.

Borrowers are payment sensitive, as we have seen with the exotic mortgages, which is driven by long-term rates.

Creative financing works in all scenarios. The market will always be ahead of regulators in finding arbitrage possibilities.

The market only abused what latitude was given to them. That abuse was not the Fed's fault, as their independence also means they cannot influence things directly (the 3 factors mentioned before).

Computers are wrong because they are programmed using data that is rearward looking. Computers, to accurately model human behavior to create a correct economic model, would require the ability to understand human behavior and adjust the variables accordingly, within a split second.

There is not one computer model that can be created that will respond well to changing independent variables without human input. That input is subject to the same pre-conceived notions that regular human decision is subjected to.

Controlling boom/bust cycles is impossible. Humans will always be too irrational, both on the up and downside, to be able to model them appropriately. Herd mentality, irrational fear or greed, bear/bull mentality, plus the ever changing viewpoint depending on the feedback of thousands of variables per second, make it impossible to accurately predict humans.

We can't even predict the weather from day to day, you want to predict how an economy should respond to trillions of decisions per second spanning every global market?

ROFL. Good luck. When you finally build such a model and the world-power consuming computer needed, it'll output one single thing.

42.

I think a stochastic process based upon the regression variables would be fantastic because we can set it up to receive all the necessary data and output a response in real-time, independent of the past. This is what stochastic math does (Monte Carlo, Brownian Motion, simulation, etc...). I think it's possible.

By the way, let's be honest here. To come to their own conclusions, the men and women in the Federal Reserve have thousands of economists using thousands of (super)computers running all types of statistical software to reach a conclusion, with confidence intervals to boot. If the human factor is there to infer about the future, the data can do the same. If they're there to for political reasons, they can be replaced because they are supposed to be independent. IMHO, the Feds shouldn't be worried about employment either, only stable prices.

I think it can work.

 

[Dari]

Originally posted by: SleepWalkerX

Originally posted by: Dari

Originally posted by: nergee
How about a free market.....

An example of this is the 1% Fed Funds Rate in 2003-2004. I doubt the market on its own would have reduced interest rates to 1% or held them there for long if it did.
The Fed held rates rates too low too long. This created the biggest housing bubble in history. The Greenspan Fed at a very bad time, compounded the problem by endorsing derivatives and ARMs.

Banks would need someone to borrow money from. The federal funds rate is targeted but the discount rate is controlled by the Feds. If there was no Federal Reserve, politicians would fill such a role. Nobody wants that. We don't have philosopher-kings as leaders. Look at Bush...

The banks would be the place you would borrow money from. What a few of us would like to try out is keeping politicians and government out of our money.

nergee is right on the money. The Fed can't possibly set interest rates better than the free market can. And Warren Buffet strongly advised against derivatives when Greenspan was hailing it. We see now who was right and who was wrong.

So if there is a crisis, you prefer the market to decide whether or not banks go under? That would mean fewer banks. That means less competition. What about regulation? What about reserve ratios? We've all seen that banks can refuse to lend to each other during a crisis, this can only exacerbate the problem. People in the financial sector are too jittery to let them decide the fate of such a basic institution.

 

[Slew Foot]

Im going to program my computer to take a dump for me!

 

[Linux23]

Originally posted by: nergee
I don't know, you don't know, and the Fed does not know what to do. This is a key reason why the Fed should be abolished......

Wait, so we have a blind bus driver?:shocked:

 

[Siddhartha]

"The computer did that lay off thing and now everybody is out of work"

The movie Idiocracy

 

[LegendKiller]

Originally posted by: Dari

I think a stochastic process based upon the regression variables would be fantastic because we can set it up to receive all the necessary data and output a response in real-time, independent of the past. This is what stochastic math does (Monte Carlo, Brownian Motion, simulation, etc...). I think it's possible.

By the way, let's be honest here. To come to their own conclusions, the men and women in the Federal Reserve have thousands of economists using thousands of (super)computers running all types of statistical software to reach a conclusion, with confidence intervals to boot. If the human factor is there to infer about the future, the data can do the same. If they're there to for political reasons, they can be replaced because they are supposed to be independent. IMHO, the Feds shouldn't be worried about employment either, only stable prices.

I think it can work.

Again, if they could build a computer model to guess where things were going to go, on a global scale, then it would have been invented by the market already. Predictive models fail because they cannot predict human behavior, since humans are not rational, nor can they include all information, thus they are inefficient, irrational, and prone to extreme positive or negative viewpoints.

I do know that the Fed does have statistical models running. However, when it comes to the decisions, it uses the most powerful thinking machines available, humans, because computers can't possibly replace them.

There is nothing wrong with the Fed's role in worrying about employment.

You think it can work because you don't know the reality behind predictive modeling and the fallacies they encounter where finance meets humans.

I do because I work in the industry and work with models constantly.

 

[piasabird]

It is not like any one person or army of people can actually forecast what the economy is going to do. It is just a best guess. You are kidding yourself if you think otherwise. I could argue that lowering the interest rate just causes more and more people and companies to over-extend their credit, so what we need to do is tighten the money supply and bring back the interest rates to more common sense levels, and start calling in some of the credit cards. It is not logical that we can control the economy solely by lowering the interest rates. At best it is a quick fix. It could cause massive bank failures if a lot of people are over-extended on credit and a real economic crisis comes real fast. The only one thing that is guaranteed is that eventually there will be times of financial unrest that people will have to overcome. Banks can fail like dominoes real fast and before you know it no one has any credit or money.

Imagine what it would be like if Bank of America went belly-up over-night.

 

[Dari]

Originally posted by: LegendKiller

Originally posted by: Dari

I think a stochastic process based upon the regression variables would be fantastic because we can set it up to receive all the necessary data and output a response in real-time, independent of the past. This is what stochastic math does (Monte Carlo, Brownian Motion, simulation, etc...). I think it's possible.

By the way, let's be honest here. To come to their own conclusions, the men and women in the Federal Reserve have thousands of economists using thousands of (super)computers running all types of statistical software to reach a conclusion, with confidence intervals to boot. If the human factor is there to infer about the future, the data can do the same. If they're there to for political reasons, they can be replaced because they are supposed to be independent. IMHO, the Feds shouldn't be worried about employment either, only stable prices.

I think it can work.

Again, if they could build a computer model to guess where things were going to go, on a global scale, then it would have been invented by the market already. Predictive models fail because they cannot predict human behavior, since humans are not rational, nor can they include all information, thus they are inefficient, irrational, and prone to extreme positive or negative viewpoints.

I do know that the Fed does have statistical models running. However, when it comes to the decisions, it uses the most powerful thinking machines available, humans, because computers can't possibly replace them.

There is nothing wrong with the Fed's role in worrying about employment.

You think it can work because you don't know the reality behind predictive modeling and the fallacies they encounter where finance meets humans.

I do because I work in the industry and work with models constantly.

The Feds should be more worried about stable prices than employment figures. Employment should be under the aegis of elected governments, not unelected technocrats.

And you go on and on about the fallacy of computer models but admit that they are frequently used. In today's world, they are an essential tool. And any judgement can be quantized. Why? Because judgement is based on history and history can be quantized depending on what you want your response variable to be. You yourself admitted that some of the tools that are causing the markets headache today are useful when applied correctly. Well, all those tools are nothing more than algorithms.

Finally, considering that the Federal Reserve isn't perfect in their judgement, I fail to understand why you would have a bias in favor of them as opposed to computer. Do you second guess your computer when it outputs a solution to your calculations? No you don't so why be weary if it gives you a number based on all the data you've given it? The truth is, the men and women at the Federal Reserve outsource all their quantitative processing to computers. These processes produce qualitative estimates and predictions. The humans then add their own input, which is short term politicising.

Provided the given model has been stress tested and is constantly updated on a daily basis, I would trust a computer more than a technocrat who has to worry about his job, employment, and reputation.

 

[LegendKiller]

Originally posted by: Dari
The Feds should be more worried about stable prices than employment figures. Employment should be under the aegis of elected governments, not unelected technocrats.

And you go on and on about the fallacy of computer models but admit that they are frequently used. In today's world, they are an essential tool. And any judgement can be quantized. Why? Because judgement is based on history and history can be quantized depending on what you want your response variable to be. You yourself admitted that some of the tools that are causing the markets headache today are useful when applied correctly. Well, all those tools are nothing more than algorithms.

Finally, considering that the Federal Reserve isn't perfect in their judgement, I fail to understand why you would have a bias in favor of them as opposed to computer. Do you second guess your computer when it outputs a solution to your calculations? No you don't so why be weary if it gives you a number based on all the data you've given it? The truth is, the men and women at the Federal Reserve outsource all their quantitative processing to computers. These processes produce qualitative estimates and predictions. The humans then add their own input, which is short term politicising.

Provided the given model has been stress tested and is constantly updated on a daily basis, I would trust a computer more than a technocrat who has to worry about his job, employment, and reputation.

The Fed's role in ensuring solid growth is not a major problem, they provide liquidity when needed and contract it when it isn't. The indication of this is price instability. However, even with the recent issues, price instability hasn't been huge. It wasn't until recently that they had to choose liquidity over potential price instability and chose liquidity in the face of a massive economic disruption.

I do frequently use them. I use monte carlo simulations that determine cashflow losses on billions of dollars worth of securities. However, the fallacy in all of these are the static nature of the input variables. By the time I run them, they are already old. When one inputs economic data you get additional problems, in that economic data changes with the winds, consumer mentality is often at odds with itself and can turn on an atom.

I say that models can be useful, but when it comes down to a "gut" check, they aren't perfect. For example, if a model tells me that a 'A' bond will not sustain losses, except out to 5 standard deviations, but then changing economic times and my down gut says that that's not enough, considering everything about a seller/servicer, I may require protection 7 or 8 standard deviations out. A model didn't tell me that, I used my own intuition based upon all new information. Models and computers cannot hope to hold a candle to the human brain.

I second guess models all of the time, as does any smart person. If models were so infallable, then why are stock analysts constantly wrong? I have built extensive DCF and DAE models including econometrics which turn out wildly different results than reality. I'm not talking about simple things, I am talking about spreadsheets with dozens of tabs, each with their own inputs into GDP, interest rates, employment, consumer sentiment, latest default data on consumer loans, CPI (headline and not).

All of those are run using the latest statistical methods with significant scenario analysis. I created such a thorough model for analyzing companies during my MBA that my securities analysis professor uses it currently. It took about 6 hours to run 200 scenarios.

Even then, it was wrong most of the time. Why? Because within that 6 hour period the whole world changed, sometimes significantly.

The Fed is imperfect in judgement, because nothing is perfect when it deals with predicting human behavior, because human behavior CANNOT BE PREDICTED! When it comes down to it, computers will never be any better and will likely be much worse, than humans, at predicting human movements.

Your "politicising" is nothing more than opinionating, you're attempting to categorize any opinion as a partisan decision, but saying that a human programmed computer will be independent. How then, will it be independent if the decisions it makes depend on programming?

Are you then, seeking a truly independently minded AI which is capable of it's own decisions, outside human programming and hueristics?

At this point, it's impossible.

 

[Dari]

Originally posted by: LegendKiller

Originally posted by: Dari
The Feds should be more worried about stable prices than employment figures. Employment should be under the aegis of elected governments, not unelected technocrats.

And you go on and on about the fallacy of computer models but admit that they are frequently used. In today's world, they are an essential tool. And any judgement can be quantized. Why? Because judgement is based on history and history can be quantized depending on what you want your response variable to be. You yourself admitted that some of the tools that are causing the markets headache today are useful when applied correctly. Well, all those tools are nothing more than algorithms.

Finally, considering that the Federal Reserve isn't perfect in their judgement, I fail to understand why you would have a bias in favor of them as opposed to computer. Do you second guess your computer when it outputs a solution to your calculations? No you don't so why be weary if it gives you a number based on all the data you've given it? The truth is, the men and women at the Federal Reserve outsource all their quantitative processing to computers. These processes produce qualitative estimates and predictions. The humans then add their own input, which is short term politicising.

Provided the given model has been stress tested and is constantly updated on a daily basis, I would trust a computer more than a technocrat who has to worry about his job, employment, and reputation.

The Fed's role in ensuring solid growth is not a major problem, they provide liquidity when needed and contract it when it isn't. The indication of this is price instability. However, even with the recent issues, price instability hasn't been huge. It wasn't until recently that they had to choose liquidity over potential price instability and chose liquidity in the face of a massive economic disruption.

I do frequently use them. I use monte carlo simulations that determine cashflow losses on billions of dollars worth of securities. However, the fallacy in all of these are the static nature of the input variables. By the time I run them, they are already old. When one inputs economic data you get additional problems, in that economic data changes with the winds, consumer mentality is often at odds with itself and can turn on an atom.

I say that models can be useful, but when it comes down to a "gut" check, they aren't perfect. For example, if a model tells me that a 'A' bond will not sustain losses, except out to 5 standard deviations, but then changing economic times and my down gut says that that's not enough, considering everything about a seller/servicer, I may require protection 7 or 8 standard deviations out. A model didn't tell me that, I used my own intuition based upon all new information. Models and computers cannot hope to hold a candle to the human brain.

I second guess models all of the time, as does any smart person. If models were so infallable, then why are stock analysts constantly wrong? I have built extensive DCF and DAE models including econometrics which turn out wildly different results than reality. I'm not talking about simple things, I am talking about spreadsheets with dozens of tabs, each with their own inputs into GDP, interest rates, employment, consumer sentiment, latest default data on consumer loans, CPI (headline and not).

All of those are run using the latest statistical methods with significant scenario analysis. I created such a thorough model for analyzing companies during my MBA that my securities analysis professor uses it currently. It took about 6 hours to run 200 scenarios.

Even then, it was wrong most of the time. Why? Because within that 6 hour period the whole world changed, sometimes significantly.

The Fed is imperfect in judgement, because nothing is perfect when it deals with predicting human behavior, because human behavior CANNOT BE PREDICTED! When it comes down to it, computers will never be any better and will likely be much worse, than humans, at predicting human movements.

Your "politicising" is nothing more than opinionating, you're attempting to categorize any opinion as a partisan decision, but saying that a human programmed computer will be independent. How then, will it be independent if the decisions it makes depend on programming?

Are you then, seeking a truly independently minded AI which is capable of it's own decisions, outside human programming and hueristics?

At this point, it's impossible.

All I want from the Federal Reserve is an extremely long view with one goal in mind: price stability. The computer doesn't have to predict what will happen in the future. That shouldn't be its job. Its only job would be to calculate the response variable i (interest rate) NOW given what it has. If the market changes, so will the interest rate. Right now, we have the Fed changing the interest rate as early as every three weeks (or earlier during emergencies). If they wanted to make i truly fluid, it could change every millisecond, which the Federal Funds rate does (to a longer extent).

Having a set interest rate and a competent band around it would equate the current and expected inflation, reducing worries and letting people focus on other parts of their financial lives. In the long run, this will reduce debt and make other "exciting" parts of the economy more mundane (as they should be).

BTW, I've seen some models go all the way out to 25 standard deviations, but, as you say, if it isn't updated, it can become obsolete. By constantly feeding a program data in real time, I think we can have a more reliable Federal Reserve.

 

[Modelworks]

Originally posted by: LegendKiller

Originally posted by: rchiu
While you are at it, let's replace the whole freaking government with computers. Everything is simply input variables and some output. No need to fight over budget, no more bipartisan bickering. Let's rule the world with multivariate regression analysis. It's the answer to every problem we have in life.

Why don't we just replace all human decisions with computers, since Dari thinks that human decisions can be determined by regressions. Easy way of being lazy and taking the predictability from the world, eh?

I vote we just flip a coin for any important decisions !

 

[rchiu]

Originally posted by: Dari

The Feds should be more worried about stable prices than employment figures. Employment should be under the aegis of elected governments, not unelected technocrats.

And you go on and on about the fallacy of computer models but admit that they are frequently used. In today's world, they are an essential tool. And any judgement can be quantized. Why? Because judgement is based on history and history can be quantized depending on what you want your response variable to be. You yourself admitted that some of the tools that are causing the markets headache today are useful when applied correctly. Well, all those tools are nothing more than algorithms.

Finally, considering that the Federal Reserve isn't perfect in their judgement, I fail to understand why you would have a bias in favor of them as opposed to computer. Do you second guess your computer when it outputs a solution to your calculations? No you don't so why be weary if it gives you a number based on all the data you've given it? The truth is, the men and women at the Federal Reserve outsource all their quantitative processing to computers. These processes produce qualitative estimates and predictions. The humans then add their own input, which is short term politicising.

Provided the given model has been stress tested and is constantly updated on a daily basis, I would trust a computer more than a technocrat who has to worry about his job, employment, and reputation.

Do you even know what you are talking about? Have you ever worked with regression analysis with financial models? Do you know how complex and how much deviations you will get as the number of input grows? Regression is not even precise and there will always be deviation, alpha and beta and other errors. It still require human judgment when you do regression analysis, it is just a statistical analysis tool, and you still have to interpret the result.

Even for simple thing like one single stock, it is tough to run regression analysis for it. Or I should say it's tough to get meaningful result (you can run regression analysis for everything, but the result could be junk) because there is so many input, and you don't know precisely which input should be used, and the error will be huge. And you want to build a model as complex as US economy? Only a person who have never used regression analysis in the real world would propose such ridiculous idea.

 

[HomerJS]

Colossus or Guardian

 

[BansheeX]

Originally posted by: LegendKiller

Originally posted by: nergee
I don't know, you don't know, and the Fed does not know what to do. This is a key reason why the Fed should be abolished......

Replaced by what? Politicians who *REALLY* don't know? Seems to me that a relatively independent Fed has done more to prevent bigger problems than the govt.

Replaced by the marketplace, duh. The market determined interest rates prior to 1913 when we didn't have a federal reserve. No politicians necessary, just millions of people transacting with one another for mutual benefit. That kind of power dispersal will force minor corrections to occur when they are needed rather than allowing a stupid human under political pressure or personal motive to manipulate the rate and incentivize bubble-creating risk. It will also force government to tax (ask) its people for funding rather than turning to inflation.

 

[Brigandier]

Originally posted by: BansheeX
No politicians necessary, just millions of people transacting with one another for mutual benefit.

Your Objectivist world will never work! No one works for their own benefit, they don't know what it is!

 

[LegendKiller]

Originally posted by: BansheeX

Originally posted by: LegendKiller

Originally posted by: nergee
I don't know, you don't know, and the Fed does not know what to do. This is a key reason why the Fed should be abolished......

Replaced by what? Politicians who *REALLY* don't know? Seems to me that a relatively independent Fed has done more to prevent bigger problems than the govt.

Replaced by the marketplace, duh. The market determined interest rates prior to 1913 when we didn't have a federal reserve. No politicians necessary, just millions of people transacting with one another for mutual benefit. That kind of power dispersal will force minor corrections to occur when they are needed rather than allowing a stupid human under political pressure or personal motive to manipulate the rate and incentivize bubble-creating risk. It will also force government to tax (ask) its people for funding rather than turning to inflation.

ahhh yes, the same "marketplace" that's now determing the price of oil that is far out of bounds of reality? What about the same one which determined the price of tulip bulbs? Tech stocks? Houses?

Get out of your libertopian candyland sparky. Mutual benefit? Nobody gives a shit about anybody else in the financial markets, they are out to make their own buck. ROFL, you are really a dreamer. get a fricking clue.

The market which determined rates prior to 1913 was a joke. It was more prone to boom/bust cycles and higher volatility than current markets. Our system was the laughing stock of the world, as we were a net borrower and inefficient.

Call me a "socialist" or a "Fed apologist" all you want. One thing you can't claim is that I am not a realist. You're the fool living in the 1800's and one who wishes to banish us to economic decay to satiate your libertopian stupidity.

 

[ElFenix]

Originally posted by: LegendKiller Mutual benefit? Nobody gives a shit about anybody else in the financial markets, they are out to make their own buck. ROFL, you are really a dreamer. get a fricking clue.

no voluntary arms-length transactions would ever happen if each of the involved parties didn't believe it was for their own benefit, hence every transaction is mutually beneficial. no one voluntarily agrees to a transaction where they know they will get screwed on the deal.

 

[LegendKiller]

Originally posted by: ElFenix

Originally posted by: LegendKiller Mutual benefit? Nobody gives a shit about anybody else in the financial markets, they are out to make their own buck. ROFL, you are really a dreamer. get a fricking clue.

no voluntary arms-length transactions would ever happen if each of the involved parties didn't believe it was for their own benefit, hence every transaction is mutually beneficial. no one voluntarily agrees to a transaction where they know they will get screwed on the deal.

It all depends. In some cases transactions aren't to mutual benefit, especially in inefficiant markets.

 

[miketheidiot]

Originally posted by: Dari

Originally posted by: LegendKiller

Originally posted by: Dari

To promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates

Those are the goals of the Federal Reserve. They are contradictory, yes, but nobody says anything. In my opinion, the part about maximum employment should be the redoubt of the Treasury or elected government while the last two should be the goals of the Feds. That way, we can have the two groups promoting policies that may balance each other out. But for the Feds to worry about unemployment would make it a victim of short-term thinking, when it should really be thinking about prices. The European Central Bank is far more concerned about inflation than employment and it has done a much better job than the Feds in that department. But if we were to concentrate all the Feds resources on battling inflation and take away many of its current powers, leaving regulation to another government body, we could have multi-headed system that would complement and balance each other out. Since there would be no need for discretionary thinking, all this could be done via an algorithm using stochastic and regression processes to determine what the interest rate should be.

Inflation in Europe is about on par with the US, but unemployment is much higher. So your first premise is wrong.

Who programs the computer with what variables? I think you're missing the very first premise of building models, GIGO.

Unemployment is higher because of rigid European laws, not because of monetary policy.

As for the variables, you throw in as many variables as possible and do stepwise regression on the data with an alpha of 1% in and 5% out and see which variables are the most pertinent. This is all basic statistics that economists ignore because they like to focus on simple equations. Once you figure out the correlation between the variables you can setup a nice equation and do a simulation to see what happens. If the results are competent, then you have yourself a winner.

i can already tell that you have no clue what you are talking about.

 

[BansheeX]

Not to mention that Wall Street is ahead of the working man in the inflation line when unbacked liquidity trickles down from the banks, meaning that Wall Street's disproportionate benefit is very much a result of the federal reserve and Keynesian policy.

 

[miketheidiot]

Originally posted by: SleepWalkerX

Originally posted by: Dari

Originally posted by: nergee
How about a free market.....

An example of this is the 1% Fed Funds Rate in 2003-2004. I doubt the market on its own would have reduced interest rates to 1% or held them there for long if it did.
The Fed held rates rates too low too long. This created the biggest housing bubble in history. The Greenspan Fed at a very bad time, compounded the problem by endorsing derivatives and ARMs.

Banks would need someone to borrow money from. The federal funds rate is targeted but the discount rate is controlled by the Feds. If there was no Federal Reserve, politicians would fill such a role. Nobody wants that. We don't have philosopher-kings as leaders. Look at Bush...

The banks would be the place you would borrow money from. What a few of us would like to try out is keeping politicians and government out of our money.

nergee is right on the money. The Fed can't possibly set interest rates better than the free market can. And Warren Buffet strongly advised against derivatives when Greenspan was hailing it. We see now who was right and who was wrong.

free market equilibrium =/= optimality.

 

[LegendKiller]

Originally posted by: BansheeX
Not to mention that Wall Street is ahead of the working man in the inflation line when unbacked liquidity trickles down from the banks, meaning that Wall Street's disproportionate benefit is very much a result of the federal reserve and Keynesian policy.

Because these people standing in the soup line after they all lose their jobs after the financial markets collapse from a lack of liquidity.

I guess you didn't read anything about 1929.