This is the Cato Daily Podcast for Tuesday, December 14, 2010.

I'm Caleb Brown.

Monetary policy and fiscal policy can interfere with price signals,

and it's those price signals that help us make all manner of choices in the economy.

And once an asset bubble gets going, it takes more and more central bank pressure to get it to stop.

Jerry Odriskill is a senior fellow in the Cato Institute, he discussed asset bubbles in monetary policy at the Cato Institute's monetary conference in November.

The Fed conducts monetary policy by purchasing assets in order to affect interest rates.

It could do so in other ways.

It could famously do so, as Chairman Mananki says, by dropping currency from helicopters,

but that's not what it does. Now when the Fed engages in open market

purchases of securities, it changes the path of interest rates and the intral temporal

allocation of resources.

Now in principle, and I'm going to get right into what Professor Reinhart just said, but

let me just get my point across.

In principle, interest rates affect allocation

across all markets. In a two-period model, the interest rate is just a, there's the

interest rate, and it's a relative price between present and future consumption.

In a world of many interest rates, we're talking about a whole array of relative prices

for each time period that can in principle be affected by monetary policy.

And if I have to say so throughout the discussion, when I say an interest rate, I mean a real interest

rate unless I say differently.

So in the parlance of economists, money is non-neutral and in many

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