Watching the Fed
(This letter was originally addressed to Andreas P. Mahos in the public affairs office of the Federal Reserve System.)Dear Editor:Thank you very much for your letter of May 2. I was pleased to see that the Federal Reserve marching orders are: “To promote effectively the goals of maximum employment, stable prices and moderate long range interest rates.” This further reinforces my previous letter that these goals are simply not being followed by the Federal Reserve System. By raising rates in itself creates inflation, which destabilizes prices.The definition of moderate long-term interest rates is an interesting question. What’s the Fed’s definition of moderate interest rates?I am starting a campaign and creating an organization call the Federal Reserve System Watchdog Committee. I have already spoken to a number of prominent economists who are in direct disagreement with the policies that are currently being pursued as they are contrary to the directions of Congress. I’ve even gotten support from prominent economists that want the Federal Reserve Board to stop raising interest rates as it is price fixing.You’ll hear more about this as time goes on, but I would hope the Federal Reserve Board in all good conscience could correct their errors. They should set interest rates and take a long vacation at a “moderate rate.” If you want my definition of a moderate rate, it’s a rate that is approximately two points over inflation averaged over the last five years.By the Fed’s meddling with interest rates they’re causing a great deal of anguish in the capital markets and much fear among American citizens as to whether they’re going to pull off another Volker stunt. In case you are wondering what that means, Chairman Volker was given a simple assignment and that was to bring down inflation rates that were artificially created by an Arab oil boycott. Instead of doing this in a measured period such as five or eight years, he slammed our economy with a 21 percent prime rate, 12 percent unemployment and great social disruption.However, I doubt that Chairman Greenspan has learned anything from those horrible experiences in the late 1970s and early 1980s, unless you have some information to the contrary. This will be a center point of the watchdog committee, and that is the chairman’s misuse of Congress’ mandate.I would appreciate, before I get too far into this and spend too much of my hard-earned money on the watchdog committee, to have a response and thoughts directly from the chairman.Richard C. GoodwinSnowmass Village
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