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Friday, August 11, 2006

Darda on the Fed.

Michael Darda had a Wall Street Journal op-ed yesterday, "How Inflation Gets Fed."

6 Comments:

Blogger David Wood said...

On the other hand, we have Alan Reynolds: http://www.townhall.com/columnists/AlanReynolds/2006/08/10/second-guessing_the_fed

11:25 AM  
Blogger Dick Fox said...

Has anyone seen Mike Darda make the case for how increasing interest rates will reduce liquidity? It seems in everything I have read by him he simply assumes this is true without any critical analysis.

1:23 PM  
Blogger Henry Meers said...

At one time on Kudlow's show, he made the observation that the Fed could shrink its balance sheet to deal with inflation. I have mentioned this before, and it would attack debasement directly. Darda hasn't mentioned it again, and I have e-mailed the show to ask him about it.

There are plenty questions we could ask about how the show is run, what NRO edits out, the WSJ's feelings about how to control inflation, gold etc. It may simply be that no one wants to hear that solution, although Kudlow keeps referring to the gold-standard prosperity along with no taxes before 1916.

5:08 PM  
Blogger Dick Fox said...

Henry,

Do you believe Darda is playing to the cameras or does he actually believe what he is saying?

5:06 AM  
Anonymous Jimi said...

Don Luskin makes the same case as Darda:

http://smartmoney.com/aheadofthecurve/index.cfm?story=20060811

5:38 AM  
Anonymous Jimi said...

Here's Luskin's reply to the question, "How does increasing interest rates reduce liquidity?"

When the Fed moves the fed funds rate target above the overnight rate of interest that would occur naturally, to enforce that target against market forces it must engage in open market operations. Effectivelt, it sells bonds at below market prices to the banking system. This drains the banking system of cash, because banks pay cash for the Fed's bonds. DON LUSKIN

6:45 AM  

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