To: DeaconBenjamin
Interesting info, it shows how desperate the Fed has become. The economy is keeping its head above water, but just barely. And this is with extremely low rates. The Fed has cut rates about 12 times in a row, and still no recovery. This is one half of a Keynsian solution to a recession, the other half being increased gov't spending. And we have this in spades, the deficit is how much, 300 billion? No, with the fed funds overnight rate at 1.25%, further cuts won't stimulate the economy.
8 posted on
04/07/2003 7:25:29 PM PDT by
plusone
To: plusone
300 Billion...is play money. If I remember correctly, I think the deficit was up to TWO TRILLION before the roaring 90's helped bring it under control.
It's going to have to surpass ONE TRILLION at least before the big "G" is felt...
11 posted on
04/07/2003 7:32:56 PM PDT by
Ronzo
(BOYCOTT HOLLYWOOD!!!)
To: plusone
"...No, with the fed funds overnight rate at 1.25%, further cuts won't stimulate the economy....."
plusone:
Lowering the target rate for federal funds in today's economy doesn't amount to much more than window dressing. Injecting high powered money into the banking system by way of outright purchase of term Treasury notes (a so-called coupon pass) is another matter entirely. It is in the baldest sense the Fed creating credit. It merely credits its own account and uses the funds to purchase assets held by commercial banks.
The effect of a coupon pass is to immediately increase the amount that banks can lend by a multiple of the actual credit creation.
End result: virtually immediate increase of economic activity, if the conditions are supportive of same. It's not a panacea, but if timed properly can be a real booster shot to the economy that a showy funds rate decrease could never match.
Downside: potentially inflationary. Once you've let the credit horse out of the barn, its hard to get it back in. The liquidity has to slosh somewhere, and it it doesn't inspire enough real investment and production you get inflation.
For the record, I think the timing is right. And, I'll bet St. Lawrence Kudlow and most of the Supply Side fraternity agree with me.
To: plusone
This is no Keynesian solution. Keynes' theory was devised to try and explain why interest rate cuts during the Great Depression did NOT stimulate more economic activity. He came up with the idea of the "Liquidity trap" which essentially says that a certain point interest rate cuts will be ineffective as a stimulus. This has to do with such technicalities as a flat portion on the LM curve.
Keynes description of monetary policy's ineffectiveness at combatting recession was because you cannot "push on a string."
Japan has been in a liquidity trap for years with interest rates in real terms being negative.
44 posted on
04/08/2003 9:07:06 AM PDT by
justshutupandtakeit
(Saddam's Democrat Guard will stage suicide attacks against Coalition forces)
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