PeakTrader.com

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http://www.blogger.com/comment.g?blogID=28997633&postID=5709224805967899647

http://www.blogger.com/comment.g?blogID=28997633&postID=7938450130149183949

http://www.blogger.com/comment.g?blogID=28997633&postID=8612595812175138190

I stated before:

When the Fed targets prices, output fluctuates little. When the Fed targets output, prices fluctuate a lot, which leads to instability. I suspect, if the Fed targeted the money supply, that would also lead to instability, because of shifts in the foreign exchange market or changes in the velocity of money in the short-run. However, the money supply determines prices in the long-run.

Asset prices are residuals of monetary policy. So, price stability (of goods & services) is the Fed's best choice, although it also attempts to keep inflation expectations low, i.e. a cautious stance. U.S. monetary policy can't get much better.

Also, I may add, it's not important whether the Fed Funds Rate is 10% or 0%, the money supply is high or low, or how many booms and busts take place in asset markets. What's important is maintaining sustainable
growth, which is optimal growth.

However, many shocks take place, e.g. Y2K (when the money supply spiked higher and then lower around 2000), 9-11, an oil shock (or commodities in general, e.g. gold, copper, and steel), minor technology shocks in the '80s and '90s, and the quick and massive "Creative-Destruction" process in the early '00s, where resources were freed-up in Information Age firms, along with Agricultural and Industrial Revolution firms, and shifted into emerging industries, resulting in more or better output per input in older industries.

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PeakTrader said...

Houses built in the U.S. homebuilding boom, from 1995-06, don't require much maintenance or repairs (unless they were abandoned).

Also, people buy houses based on monthly payments, not price, unless it's an investment, and they won't pay more than they're worth (in real value, not nominal value) relative to renting.

I know several people who bought new or almost new houses and regardless of the substantial declines in price, the monthly payments are the same, while their incomes increased (unless they're unemployed) and they're still very nice houses.

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