Comments on: Arguing Against a Rate Cut http://www.nakedcapitalism.com/2007/10/blog-post.html Sun, 22 Nov 2009 06:06:33 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Jeremiah http://www.nakedcapitalism.com/2007/10/blog-post.html#comment-1308 Jeremiah Tue, 30 Oct 2007 17:11:00 +0000 http://www.nakedcapitalism.com/2007/10/arguing-against-a-rate-cut/#comment-1308 anonymous<br/><br/>you save too little = you consume / import too much<br/>so you drive up the price of goods and services because you absorb too much domestically. <br/>the market is then devaluing the currency, because this is the price the rest of the world requires to make up for the US's domestic dis-saving<br/>you need to KEEP RATES HIGH to encourage saving (public and private). this will improve the external balance and keep inflation from rising. the currency from depreciating.<br/>you will have a loss in output though, which obviously is taboo..<br/><br/>instead, you cut rates to keep it going. while fiscal policy is lose already.<br/>usually, recipee for a disaster.<br/><br/>but all of the above is 'old school'<br/>now its different.. im being told(sarcastic)<br/><br/>Jeremiah anonymous

you save too little = you consume / import too much
so you drive up the price of goods and services because you absorb too much domestically.
the market is then devaluing the currency, because this is the price the rest of the world requires to make up for the US’s domestic dis-saving
you need to KEEP RATES HIGH to encourage saving (public and private). this will improve the external balance and keep inflation from rising. the currency from depreciating.
you will have a loss in output though, which obviously is taboo..

instead, you cut rates to keep it going. while fiscal policy is lose already.
usually, recipee for a disaster.

but all of the above is ‘old school’
now its different.. im being told(sarcastic)

Jeremiah

]]> By: Anonymous http://www.nakedcapitalism.com/2007/10/blog-post.html#comment-1306 Anonymous Tue, 30 Oct 2007 11:36:00 +0000 http://www.nakedcapitalism.com/2007/10/arguing-against-a-rate-cut/#comment-1306 During the eighteen years of the former Fed governor tenure the foreign exchange market has been manipulated with all possible combinations (a lower dollar in an up trend economic cycle, a stronger dollar in a softer economic cycle) the end result was an aggravating balance of payment deficit with a steadfast propensity to consume nurtured by asset appreciation and capital gain dependant US consumer.<br/>The foreign exchange is not a priority, savings, investments are the issues and lower interest rates will not help to encourage the domestic savings, large corporations have enough money in their coffers as they can indulge themselves in financial engineering (650 Billion USD in shares buy back) money is plentiful if corporations which are indebted are invited to repay their loans.<br/>Solvency will not be helped if there is a decreasing interest rates with no incomes or an unsustainable income /debt ratio.<br/>Conclusion no need to change the interest rate today, but there is an emergency to rebalance the fiscal policies, the supply and demand of money, the personal income of the various class of the US society .<br/>Inflation is made as a low priority since it does not include food and energy, this penalty on low incomes cannot be the benefit of Wall street. During the eighteen years of the former Fed governor tenure the foreign exchange market has been manipulated with all possible combinations (a lower dollar in an up trend economic cycle, a stronger dollar in a softer economic cycle) the end result was an aggravating balance of payment deficit with a steadfast propensity to consume nurtured by asset appreciation and capital gain dependant US consumer.
The foreign exchange is not a priority, savings, investments are the issues and lower interest rates will not help to encourage the domestic savings, large corporations have enough money in their coffers as they can indulge themselves in financial engineering (650 Billion USD in shares buy back) money is plentiful if corporations which are indebted are invited to repay their loans.
Solvency will not be helped if there is a decreasing interest rates with no incomes or an unsustainable income /debt ratio.
Conclusion no need to change the interest rate today, but there is an emergency to rebalance the fiscal policies, the supply and demand of money, the personal income of the various class of the US society .
Inflation is made as a low priority since it does not include food and energy, this penalty on low incomes cannot be the benefit of Wall street.

]]> By: Jeremiah http://www.nakedcapitalism.com/2007/10/blog-post.html#comment-1305 Jeremiah Tue, 30 Oct 2007 08:49:00 +0000 http://www.nakedcapitalism.com/2007/10/arguing-against-a-rate-cut/#comment-1305 a<br/>agree... if the Fed sticks to its mandate, then taking all the risks into account (including the money market distress, and the SIV mess) it SHOULD NOT LOWER RATES<br/>the falling dollar should be reason enough not to ease rates; on the other hand Mishkin said that there is no evidence so far that the weaker dollar has any meaningful influence on inflation. and this confuses me.. it might not have had a meaningful influence on the official statistics for some reason. either due to adjustments or simply because companies are slow to adjust prices.<br/><br/>BUT when the dollar falls in value, it means that whatever you want to buy with your dollars thats coming from outside the US you can buy less of it, unless foreign companies lower the prices in their own currency. but there is no evidence of that happening. <br/><br/>so just as the Fed took out insurance against further distress in the money markets, it should take out insurance against a falling dollar by at least leaving rates unchanged. if they stick to their mandate.<br/><br/>Jeremiah a
agree… if the Fed sticks to its mandate, then taking all the risks into account (including the money market distress, and the SIV mess) it SHOULD NOT LOWER RATES
the falling dollar should be reason enough not to ease rates; on the other hand Mishkin said that there is no evidence so far that the weaker dollar has any meaningful influence on inflation. and this confuses me.. it might not have had a meaningful influence on the official statistics for some reason. either due to adjustments or simply because companies are slow to adjust prices.

BUT when the dollar falls in value, it means that whatever you want to buy with your dollars thats coming from outside the US you can buy less of it, unless foreign companies lower the prices in their own currency. but there is no evidence of that happening.

so just as the Fed took out insurance against further distress in the money markets, it should take out insurance against a falling dollar by at least leaving rates unchanged. if they stick to their mandate.

Jeremiah

]]> By: a http://www.nakedcapitalism.com/2007/10/blog-post.html#comment-1304 a Tue, 30 Oct 2007 08:13:00 +0000 http://www.nakedcapitalism.com/2007/10/arguing-against-a-rate-cut/#comment-1304 My 2 cents...<br/><br/>Policymakers like generals fight the last war. The last war here is the Great Depression. Greenspan didn't want to be known as the guy who caused the Second Great Depression, so he lowered rates whenever he felt deflation and depression was a threat.<br/><br/>Bernanke has been dealt a losing hand. The U.S. economy is going to get poorer no matter what he does. If it goes into recession, poverty increases. And if it doesn't go into recession, it will (IMHO!) be because foreigners start spending their dollar hordes and keep Americans working. But those goods shipped abroad will be less goods for Americans; Americans themselves will still be poorer. So whatever Bernanke does is wrong; he can't win.<br/><br/>The choice, I think, is who gets poorer. If Bernanke lowers rates, everyone but the financial sector will get poorer, as lower rates will give more time to the financial sector to off-load their losses onto others. That is, the financial sector losses are minimized and the rest of the nation's losses are mazimized. And so that's why I think he should hold the line on rates, as the guilty party in this debacle should be suffering the most, not the least. My 2 cents…

Policymakers like generals fight the last war. The last war here is the Great Depression. Greenspan didn’t want to be known as the guy who caused the Second Great Depression, so he lowered rates whenever he felt deflation and depression was a threat.

Bernanke has been dealt a losing hand. The U.S. economy is going to get poorer no matter what he does. If it goes into recession, poverty increases. And if it doesn’t go into recession, it will (IMHO!) be because foreigners start spending their dollar hordes and keep Americans working. But those goods shipped abroad will be less goods for Americans; Americans themselves will still be poorer. So whatever Bernanke does is wrong; he can’t win.

The choice, I think, is who gets poorer. If Bernanke lowers rates, everyone but the financial sector will get poorer, as lower rates will give more time to the financial sector to off-load their losses onto others. That is, the financial sector losses are minimized and the rest of the nation’s losses are mazimized. And so that’s why I think he should hold the line on rates, as the guilty party in this debacle should be suffering the most, not the least.

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