Link: Points on the Federal Reserve and the International Scene

Oct 7, 2007: 6:01 PM CST

David Merkel at the Aleph Blog recently posted two interesting and very informative articles at his site:

Nine Points on the International Scene

Ten Points on the Funky Federal Reserve

Both articles briefly address major informative facts/thoughts on the state of International Markets and interesting facts about the US Federal Reserve.

Here are some selected points for consideration:

(regarding the International Scene):

1) In an open economy, you can control your exchange rate or your interest rates, but not both.  The first time I learned that was late 1986, when the Dollar crashed, then the bond market crashed (May 1987), then the stock market crashed (October 1987).

5) What makes a currency attractive?  GDP growth and high real (inflation-adjusted) interest rates.  The US has neither of those now.

(regarding the Funky Fed):

10)  [Consider]Goodhart’s Law, which states that “any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes.”  My way of saying it is that trying to control a system changes the system.  The application here is that when the Fed tries to affect the shape of the yield curve by FOMC policy, it eventually stops working.

Read all the points on both articles for some weekend insight.

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