Demand is not being created out supply. Demand is being created out of
thin air due to explosition of fictitious capital on Wall Street. This
demand pushes up capacity utilization, though this is being achieved
without much pressure on wages or unit labor costs at all! Still this
excess demand threatens to outrun supply and exert inflationary pressure.
Greenspan is trying to moderate that.
[mbs] This is the Fed line. Problem for defenders of such a line is, there is no evidence of inflation, not even the moderate kind. Primitive keynesianism explains this pretty well -- there is still slack in the economy. People who have been officially written out of the labor market and put in some malign cultural bag . . . turns out these people are willing to work.
Now keynesian types have never met an interest rate reduction they didn't like. But is it possible that lower interest rates=>greater fictitious capital=>excess demand=>inflation=>flight from dollar=>collapse of international economic system without a stable reserve currency and US economic insolvency leading to retraction of US global military presence and US protectionism which then gives rise to new militarisms abroad and beggar thy neighbor trade policies.
I think catastrope following piercing of the bubble beckons without and with interest rate reductions. As Joan Robinson noted, Marx may not have been so wrong to downplay the importance of monetary policy. Yours, Rakesh
I would wager w/you but I'd feel bad if I won.