In this issue
April 9, 2014

Jonathan Tobin: Why Did Kerry Lie About Israeli Blame?

Samuel G. Freedman: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Jessica Ivins: A resolution 70 years later for a father's unsettling legacy of ashes from Dachau

Kim Giles: Asking for help is not weakness

Kathy Kristof and Barbara Hoch Marcus: 7 Great Growth Israeli Stocks

Matthew Mientka: How Beans, Peas, And Chickpeas Cleanse Bad Cholesterol and Lowers Risk of Heart Disease

Sabrina Bachai: 5 At-Home Treatments For Headaches

The Kosher Gourmet by Daniel Neman Have yourself a matzo ball: The secrets bubby never told you and recipes she could have never imagined

April 8, 2014

Lori Nawyn: At Your Wit's End and Back: Finding Peace

Susan B. Garland and Rachel L. Sheedy: Strategies Married Couples Can Use to Boost Benefits

David Muhlbaum: Smart Tax Deductions Non-Itemizers Can Claim

Jill Weisenberger, M.S., R.D.N., C.D.E : Before You Lose Your Mental Edge

Dana Dovey: Coffee Drinkers Rejoice! Your Cup Of Joe Can Prevent Death From Liver Disease

Chris Weller: Electric 'Thinking Cap' Puts Your Brain Power Into High Gear

The Kosher Gourmet by Marlene Parrish A gift of hazelnuts keeps giving --- for a variety of nutty recipes: Entree, side, soup, dessert

April 4, 2014

Rabbi David Gutterman: The Word for Nothing Means Everything

Charles Krauthammer: Kerry's folly, Chapter 3

Amy Peterson: A life of love: How to build lasting relationships with your children

John Ericson: Older Women: Save Your Heart, Prevent Stroke Don't Drink Diet

John Ericson: Why 50 million Americans will still have spring allergies after taking meds

Cameron Huddleston: Best and Worst Buys of April 2014

Stacy Rapacon: Great Mutual Funds for Young Investors

Sarah Boesveld: Teacher keeps promise to mail thousands of former students letters written by their past selves

The Kosher Gourmet by Sharon Thompson Anyone can make a salad, you say. But can they make a great salad? (SECRETS, TESTED TECHNIQUES + 4 RECIPES, INCLUDING DRESSINGS)

April 2, 2014

Paul Greenberg: Death and joy in the spring

Dan Barry: Should South Carolina Jews be forced to maintain this chimney built by Germans serving the Nazis?

Mayra Bitsko: Save me! An alien took over my child's personality

Frank Clayton: Get happy: 20 scientifically proven happiness activities

Susan Scutti: It's Genetic! Obesity and the 'Carb Breakdown' Gene

Lecia Bushak: Why Hand Sanitizer May Actually Harm Your Health

Stacy Rapacon: Great Funds You Can Own for $500 or Less

Cameron Huddleston: 7 Ways to Save on Home Decor

The Kosher Gourmet by Steve Petusevsky Exploring ingredients as edible-stuffed containers (TWO RECIPES + TIPS & TECHINQUES)

Jewish World Review August 22, 2007 / 8 Elul, 5767

Fed should stick to price stability and let markets sort the rest of it out for themselves

By Robert Robb

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http://www.JewishWorldReview.com | Alan Greenspan always insisted that, under his leadership, the Fed never targeted stock values. However, it's hard to interpret some of his actions any other way.

New Fed chairman Ben Bernanke was thought to be of even sterner stuff in keeping the Fed to its most important role of maintaining general price stability. However, it's hard to interpret the Fed's most recent moves as anything other than targeting stock values.

In 1996, Greenspan famously referred to "irrational exuberance" in stock values. The market took a cautionary stumble after his public scolding, but only momentarily. Stock values soon started climbing rapidly again.

In less than a year beginning in mid-1999, the Fed raised the federal fund rate from 4.75 percent to 6.5 percent. This was supposedly to ward off inflationary pressures from the so-called "wealth effect," the claimed tendency of people to spend more because the value of their assets — real estate and stocks — had increased.

At no time just before or during this period did the Fed's preferred inflation measure rise above 2 percent. Despite his protests to the contrary, Greenspan was pretty clearly trying to wring what he regarded as irrational exuberance out of asset values.

Greenspan seemed to believe that there was value in the public perception that there was someone in charge of the U.S. economy, namely him. In contrast, Bernanke appeared committed to a more transparent, modest role. Then the subprime mortgage market began to drain.

While some of the details of the subprime mortgage market difficulties are complex, the overall economic problem is easy to state and understand.

There has been an overinvestment in housing. That overinvestment has to work itself out of the economy.

This won't be an easy or smooth process. Markets always overreact. That's part of their self-correcting mechanism, as overreaction by some begets opportunity for others.

Lenders have overreacted to the problems in the subprime mortgage market, becoming generally skittish rather than selectively so. A lot of the economy runs on short-term debt, which has become hard to come by.

This is not really a liquidity problem. There's still plenty of capital around. It's just reluctant to deploy. Hence much of it is being parked in safe treasuries, whose yields have sharply decreased.

This is not a situation the Fed can or should do much about. Money isn't going to stay parked in short-term, low-yielding treasuries for long. Over time, and probably not over much time, lenders will sort through the new risk profiles and reengage.

In fact, the steps taken so far by the Fed don't really address the actual credit crunch much at all. It has increased the market marginally for mortgage-backed securities by making them preferred collateral for its open market purchases and borrowing from it. Overall, however, its actions have been designed to increase the availability of short-term capital, when the supply isn't really the issue.

In its most dramatic move, last Friday the Fed decreased the interest rate it charges banks to borrow from it, increased the period for repayment, and encouraged banks to so borrow. Banks, however, have indicated that they don't really need the money.

Nevertheless, the Fed was seen as doing something, and that appears to have staunched a broad sell-off of stocks. Given that the Fed's moves made little sense with respect to what was occurring in the credit markets, and have had little effect there, it's hard to resist the conclusion that they were, in reality, actually intended to calm the equity markets.

The stock market, however, can be a tough beast to placate, as Bernanke is about to learn.

Economic fundamentals are still pretty good. Investment capital is plentiful, economic output continues to expand, profitability is healthy, wage growth has improved, consumer spending seems steady.

Inflationary pressures remain slightly worrisome, however. Bernanke seems to have been maneuvering to give himself room to keep the more important federal funds rate where it currently is.

Moreover, there is no reason to believe that a rate cut would alleviate the current credit crunch. Reducing the return on lending is hardly the way to get lenders to be less reluctant to lend.

Nevertheless, the stock market, which generally prefers easy money, clearly expects a rate cut, and failure to produce one probably would trigger another sell off.

That's why the Fed should stick to price stability and let markets sort the rest of it out for themselves.

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JWR contributor Robert Robb is a columnist for The Arizona Republic. Comment by clicking here.

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