Quote:
Originally Posted by sailaway21
If I heard the news correctly, last month's inflation numbers saw an increase of 1% on an annualized basis. That's not good. Mr. Bernacke and others might think about focusing on the dollar and inflation as lowering interest rates further is going to do nothing but more of the same harm it has done and produce more inflation. Martin Feldstein on the subject: Enough With the Interest Rate Cuts - WSJ.com |
I find myself in unfamilar territory as I'm in agreement with Sailaway or rather Feldstein in principle, but I do not agree completely with the article.
Bernacke made it very clear that the financial crisis is so critical and so important to solve that the dollar would be sacrificed.
After all these rate cuts...
| 350 |
| 8/17/2007 -- | 50 |
| 9/19/2007 -- | 50 |
| 10/31/2007 - | 25 |
| 12/12/2007 - | 25 |
| 1/22/2008 - | 75 |
| 1/30/2008 - | 50 |
| 3/18/2008 - | 75 |
Wall Street is avoiding disaster and homeowners have smaller mortages to pay each month as most ARMS are tied to the LIBOR and LIBOR does sort of track the Fed rate. To illustrate, the LIBOR was around 5.40% back in August, before the Fed began cutting it's rates, and is now
2.486%. You can figure that a mortgage payment is calculated by adding around 200 basis points to LIBOR.
The Fed rate is currently at 2.25%. There's talk of a 25 basis point cut at their next meeting.
Feldstein's argument is slightly shaky as he is saying that that lower interest rates are boosting commodity prices. I wonder where he gets his data? Greenspan had our rates this low for years and it did not have any effect on commodity pricing. Then in his next paragraph he goes on to say that price increases on oil and food, are due to the increased demand from China, India and other rapidly growing countries. This is our reality. 4 billlion people woke up one morning and decided they wanted the same consumer items we have here in the USA. Capitalism at it's best as Supply and Demand are the rule. How is raising interest rates going to stop the Chinese from buying rice?
I guess the truth is that pressure from very different places are affecting Fuel and food prices. I would agree that a weaker dollar is certainly a factor.
However, some idiot told us that ethanol, made from corn was gojng to solve our gas crisis. Instead, gas prices are at an all time high, and what do you know ... corn growers are selling their crops to ethanol producers and suddenly corn prices are out of sight. Now our older folks on SS are having trouble buying food and there are food riots occurring worldwide..
On a parallel track, has anyone tracked what fuel costs were before we decided to get into Iraq? Answer, a lot lower. Oil pricing also has other pressures which determine price.
My point is that to blame interest rates for the entire increase in food, fuel and commodities would be disingenuous. Mr Feldstein did not take these other factors into consideration when he wrote this piece.