For the last six months of 07 I had a contrary view of what the fed should do. Most wanted lower rates and that is what they got. They justified this by claiming they needed to insert liquidity into the market to offset sub prime credit problems.
Now we have the old stagflation of the seventies. Underlying high inflation and slow economic growth. The rationale that caused the fed to lower rates instead of raising them has been proven wrong. The liquidity these banks needed is coming to the market in the form of foreign--Asian and Arab---capital. These guys have lots of inventory of dollars and need to invest them just like the Japanese did in the eighties. (Remember when all the politicians were crying about Japanese investment in US real estate? I remember once piece about would Japan own all of Hawaii.)
The Fed needs to end this inflationary spiral now. I thought for sure they would moved rates higher by now as it has been apparent in the gold markets that inflation has been with us for 2 years. (I have been averaging into UUP for six month.) Between Congress and Bush’s stupid interference in the markets of commodities (ethanol mandates) and the Fed’s obsession with holding off a recession we have gotten in a position we are essentially in a recession and inflation is still with us.
I think this can be a very short lived recession if the FED acts now to raise rates and thus strike a blow against higher commodities prices and further dollar depreciation.
Too bad there is no political party or force that will stop the government from doing those STUPID ethanol mandates. There is no telling how much higher food will do and how much higher our taxes will go to fund the inevitable increases in government benefit programs like Social Security as those on fixed incomes get squeezed by higher food cost.
Rates aren’t the problem. Heck, they may be one of the only things helping right now. What we needed was a drastic cut several quarters ago, that would have made a large impact instead of dragging along. This next cut is going to be bigger, but some of the damage has been done.
The problem was stupid people on both sides of the board giving away way too many mortgages and overselling housing. The system was too easy to game and too many dirty players playing, and individuals not being responsible enough. Keep in mind that rates have been low since CLINTON, and we have had a fairly good economy since Carter. Don’t treat this recession as something that needs to be micromanaged - let it ride and we’ll come out fine on the end.
Rates aren’t the problem. Heck, they may be one of the only things helping right now. What we needed was a drastic cut several quarters ago, that would have made a large impact instead of dragging along. This next cut is going to be bigger, but some of the damage has been done.
The problem was stupid people on both sides of the board giving away way too many mortgages and overselling housing. The system was too easy to game and too many dirty players playing, and individuals not being responsible enough. Keep in mind that rates have been low since CLINTON, and we have had a fairly good economy since Carter. Don’t treat this recession as something that needs to be micromanaged - let it ride and we’ll come out fine on the end.
I think we are saying the same thing except I think we should address the inflation. They need to forget about trying to avoid a recession and let it happen. In the meantime they have to stop this inflation and raising rates is about all they can do. Congress could help by moving the budget closer to balanced and to overturn the ethanol mandates.
No, lower rates encourage a freer market. Balancing the budget MAY help, but the tax system needs straightening out (we need another 1986-style across-the-board reform) and more than just ethanol mandates need to be kicked out.
No, lower rates encourage a freer market. Balancing the budget MAY help, but the tax system needs straightening out (we need another 1986-style across-the-board reform) and more than just ethanol mandates need to be kicked out.
Bush’s cheap dollar policy has ran up prices. The price of oil is roughly the same now as 3 years ago priced in gold, about 1.5 times what it was 3 years ago in Euros and 3 times what it was 3 years ago priced in dollar. This price increases for Americans have nothing to do with the supply of oil but with the supply of money. An interest increase should, but may not, help the value of the dollar and thus take the heat off the commodities.
The ethanol mandate, a non monetary event, has added over 30% to the price of grains and all other foods since the energy bill was proposed with it’s huge mandate. This follows the farm bill mandate this year and the mandate put in place in 2006 that pushed up grains. It is in it’s effect on the economy a huge tax.
I agree that taxes should be cut and spending should be cut dramatically. Social Security must be privatized at least for new workers and other entitlements must be reduced. Did you read that Moody’s says they will have to lower the rating on US debt for the first time in history in 10 years if these obligations are not properly handled?
You’re acting like a weak dollar is a bad thing - it isn’t necessarily. More American goods will be shipped out - we are looking at exportingmore than we have in years. It’s simply a function of the way currency works. Yes, the dollar buys less, but that’s inflation, which is natural (though a little overboard right now). Gasoline is more or less still affordable, and hopefully this will press us to find better energy sources. It will somewhat balance out, but we won’t see $10/barrell of oil ever again. Get used to it. You’re asking for a micromanaging of the economy (which is what would happen if we raised rates again) on one hand and looking to free it up on the other with the ethanol. The lower the rates are, the more the economy will determine value. It’ll straigten itself out to a decent norm in a few years as long as the government doesn’t get involved much more than it already is.
You’re acting like a weak dollar is a bad thing - it isn’t necessarily. More American goods will be shipped out - we are looking at exportingmore than we have in years. It’s simply a function of the way currency works. Yes, the dollar buys less, but that’s inflation, which is natural (though a little overboard right now). Gasoline is more or less still affordable, and hopefully this will press us to find better energy sources. It will somewhat balance out, but we won’t see $10/barrell of oil ever again. Get used to it. You’re asking for a micromanaging of the economy (which is what would happen if we raised rates again) on one hand and looking to free it up on the other with the ethanol. The lower the rates are, the more the economy will determine value. It’ll straigten itself out to a decent norm in a few years as long as the government doesn’t get involved much more than it already is.
I understand the weak dollar benefits to exporters. I also understand inflation is not a natural thing but a function of monetary policy.
Micromanaging was what Greenspan was doing when he cut the rate 13 times in a row trying to keep the stock market up.
I would rather the fed not manipulate the economy and the markets are demanding higher returns on dollar based investments and I contend the fed has lowered the discount rate between banks to a level that would not be available to the banks under current market conditions. Since the Fed will manipulate, IMHO, they need to raise rates now.
Volker did it in 1981. Gold (all commodities fell like a rock--oil to $20) lost $320 per once in a little over a year.
The other thing the Fed could do is to sell excess T-bills it has bought from the Treasury thus taking those dollars out of circulation.
I was listening today to all the ideas Bush and Congress has to stoke the economy. None listed rolling back the ethanol mandate. (to give you an idea how big a tax that is consider we have not reduce our usuage of oil since we started this push toward ethanol--more proof that it takes as much or more energy to produce ethanol than it provides--the mandate is 39 billion gallons annually. Since it is not saving us anything that is the equvialent of 39 billion gallons of gas or 39 billion X $3=$117 billion annually in fuel cost that produces not a single extra good or service.)
The Treasury needs to tighten money creation and Bush should insist Congress balance the budget. All of those things are of course pipe dreams.
You’re acting like a weak dollar is a bad thing - it isn’t necessarily. More American goods will be shipped out - we are looking at exportingmore than we have in years. It’s simply a function of the way currency works. Yes, the dollar buys less, but that’s inflation, which is natural (though a little overboard right now). Gasoline is more or less still affordable, and hopefully this will press us to find better energy sources. It will somewhat balance out, but we won’t see $10/barrell of oil ever again. Get used to it. You’re asking for a micromanaging of the economy (which is what would happen if we raised rates again) on one hand and looking to free it up on the other with the ethanol. The lower the rates are, the more the economy will determine value. It’ll straigten itself out to a decent norm in a few years as long as the government doesn’t get involved much more than it already is.
Boog:
Try dealing with a weak dollar on a daily basis then tell me how it is not a “bad thing”. When I enter the Euro-zone it is PAINFUL to think every Euro spent is 1.5 dollars (Do you remember the days when the dollar was stronger than the Euro; it wasn’t that long ago)
To be fully honest with you I could care less about exports.
I agree, raise interest rates. Make it more expensive and difficult to borrow money (Am I wrong or wasn’t it poor lending practices that got us into this mess in the first place?)
You’re acting like a weak dollar is a bad thing - it isn’t necessarily. More American goods will be shipped out - we are looking at exportingmore than we have in years. It’s simply a function of the way currency works. Yes, the dollar buys less, but that’s inflation, which is natural (though a little overboard right now). Gasoline is more or less still affordable, and hopefully this will press us to find better energy sources. It will somewhat balance out, but we won’t see $10/barrell of oil ever again. Get used to it. You’re asking for a micromanaging of the economy (which is what would happen if we raised rates again) on one hand and looking to free it up on the other with the ethanol. The lower the rates are, the more the economy will determine value. It’ll straigten itself out to a decent norm in a few years as long as the government doesn’t get involved much more than it already is.
Boog:
Try dealing with a weak dollar on a daily basis then tell me how it is not a “bad thing”. When I enter the Euro-zone it is PAINFUL to think every Euro spent is 1.5 dollars (Do you remember the days when the dollar was stronger than the Euro; it wasn’t that long ago)
To be fully honest with you I could care less about exports.
I agree, raise interest rates. Make it more expensive and difficult to borrow money (Am I wrong or wasn’t it poor lending practices that got us into this mess in the first place?)
Poor lending practices were the result of loose rules and dirty players, NOT low rates. Those of us who played smart in home-buying made out well. Low rates help, particularly a hurting middle class who can afford to pay bills.
I deal with debt on a daily basis. The weak dollar is hurting people, but we cannot necessarily equate “weak” with “bad.” There is plenty of good that goes on economically with weak currency that is helpful - American products become cheaper, and the debt you owe has its own interesting twist - yes, it’s a little harder to pay off at times but once everything adjusts, it can actually be easier to pay off in the long run because of other factors.
Tighten the belt and be fiscally responsible. If you do, you’ll be fine. Get used to a new norm, and adjust.
You’re acting like a weak dollar is a bad thing - it isn’t necessarily. More American goods will be shipped out - we are looking at exportingmore than we have in years. It’s simply a function of the way currency works. Yes, the dollar buys less, but that’s inflation, which is natural (though a little overboard right now). Gasoline is more or less still affordable, and hopefully this will press us to find better energy sources. It will somewhat balance out, but we won’t see $10/barrell of oil ever again. Get used to it. You’re asking for a micromanaging of the economy (which is what would happen if we raised rates again) on one hand and looking to free it up on the other with the ethanol. The lower the rates are, the more the economy will determine value. It’ll straigten itself out to a decent norm in a few years as long as the government doesn’t get involved much more than it already is.
Boog:
Try dealing with a weak dollar on a daily basis then tell me how it is not a “bad thing”. When I enter the Euro-zone it is PAINFUL to think every Euro spent is 1.5 dollars (Do you remember the days when the dollar was stronger than the Euro; it wasn’t that long ago)
To be fully honest with you I could care less about exports.
I agree, raise interest rates. Make it more expensive and difficult to borrow money (Am I wrong or wasn’t it poor lending practices that got us into this mess in the first place?)
Poor lending practices were the result of loose rules and dirty players, NOT low rates. Those of us who played smart in home-buying made out well. Low rates help, particularly a hurting middle class who can afford to pay bills.
I deal with debt on a daily basis. The weak dollar is hurting people, but we cannot necessarily equate “weak” with “bad.” There is plenty of good that goes on economically with weak currency that is helpful - American products become cheaper, and the debt you owe has its own interesting twist - yes, it’s a little harder to pay off at times but once everything adjusts, it can actually be easier to pay off in the long run because of other factors.
Tighten the belt and be fiscally responsible. If you do, you’ll be fine. Get used to a new norm, and adjust.
No weak is not necessarily bad if it is weak because of natural fluctuations in currency. But weak because the Fed and the Treasury and Congress have purposely pushed it down is bad. There are too many dollars in circulation now because of all this government deficit spending and all the loose credit policies as banks were essentially selling their cheap inventory for whoever would buy it.
I would be happy if the FED just said we are no longer setting a fixed discount rate on bank to bank lending and let the banks bid on fed funds.
