>This is a misleading presentation of Federal Reserve policy. the
>federal reserve sets an interest rate target and then conducts open
>market operations to achieve it. as a result, the yield on government
>bonds tends to circulate around that target interest rate (of course,
>extended out by the yield curve). I hear the text but I never got the message. How a Central Bank may set a interest rate?
Please try a empirically based outline without referring to speculation about "moving"
"supply and demand curves for money". In 2010 Friedman and Kuttner gave a survey of
literature an empirical evidence and favored the "announcement effect" instead of the
old textbook story about a "liquidity effect".
(BenjaminM. Friedman/Kenneth N. Kuttner: Implementation of Monetary Policy:
How Do Central BanksSet Interest Rates? http://www.nber.org/papers/w16165.pdf)
That was not new and - to me - not really convincing. More interesting I found the analysis by
Daniel L. Thornton: The Relationship between the Federal Funds Rate and the Fed's Federal Funds Rate Target: Is it Open Market or Open Mouth Operations? Working Paper 1999-022B der Federal Reserve Bank of St. Louis,
DanielL. Thornton: The Unusual Behavior of the Federal Funds Rate andTreasury Yields: A Conundrum or an Instance of Goodhart's Law?Working Paper 2007-039, Federal Reserve Bank of St. Louis, revisedAugust 2010
The conclusion im my terms: it is the investment behaviour of proprietors driving the central bank, not the other way round. Credit is about property, not about trust.
My application to the Euro-German-debt-and-money-trouble, made last summer, was
published in "lunapark21" :
The German dominance is not a result ofa treacherous conspiracy, but result of market competition. The decisions of private proprietors, theircomparison of yields and their decisions to invest are guiding the European CentralBank too. For the ECB is still valid, what Gudrun Narr-Lindner wrote many years ago aboutthe main model: "The Bundesbank is something like a constitutional monarchy:The King governs, but he does not rule. Ruling are in large scale the banks, able tostop or circumvent actions of the Bundesbank and influencing massively the politicsof the Bundesbank as a bank." Not at least the Central Bank interest rate decisions areresult of what themarket accepts as the return of a safe investment.
(...)
The foundation of the german influence is an accumulation regime,that guarantees a worldwide competitive industrial production via an efficientexploitation of a qualified working class. The development of the unit labor cost is – asthe mainstream press is putting it – moderate: The German unification and social cuts(Hartz IV) guarantees, that this goes on. And after such victories on the economic homefront german capital is focused on a – peaceful – conquest of foreign markets.There they show, what imperialism is: the highest stage of free competition. Or to putit into the moralist terminology of the new civil society: the right of the strongest.
(The Main Enemy is at Home. New german imperialism and the crisisin Euroland, http://planwirtschaft.wordpress.com/english-texts/)
Now, a year later, the situation has not changed yet. Changing it takes more than speculation on the Euro-Crisis and hope on the protest in the periphery of Euroland.
>From Berlin
Sebastian
-- "We try a little more sophisticated radicalism. Not this coarse-grained either-or." Rosa Luxemburg -- Sebastian Gerhardt Am Treptower Park 24 Berlin, 12435 Tel. 030/530 27 695 mob. 0176/24 04 28 95 www.hausderdemokratie.de www.lunapark21.net http://planwirtschaft.wordpress.com/