Federal Reserve policy

[Fred]

Now that the economy is in full recovery and people are making a lot of money (arguably thanks in large part due to the tax cuts and low interest rates), there is talk about hiking interest rates up.

Evidently Greenspan is concerned that the economy is recovering too rapidly and inflation might show up again.

There is an ongoing debate about whether thats a wise move or not.

Thoughts?

 

[pax]

Full recovery would mean job creation. And a few million of those are needed before anyone can claim this. At the very least wait for inflation to show up before hiking rates. Consumer (and gov!) debt is still sky high tho not increasing anymore and the subsequent moderation in consumer spending.

Wait for jobs, real signs of inflation and real increases in consumer spending that isnt followed by a renewed increase in consumer debt. Then Id say increases in rates to ward off inflation may be warranted if it passes 4% (and even then Id like an analysis for the causes of that inflation) for the whole of 2003. In any case Id wait at least till early 2004...

 

[epicstruggle]

what pax said got me thinking, what does full recovery mean anyway. Should we go back to the internet bubble age where companies are speculating themselves into bankrupcy? Many people figure count full employement when the unemployment rate is 5% or lower. However there is some debate about raising that number up.

later,
epic

 

[diarrhea_splatter]

Now that the economy is in full recovery and people are making a lot of money (arguably thanks in large part due to the tax cuts and low interest rates), there is talk about hiking interest rates up.

Evidently Greenspan is concerned that the economy is recovering too rapidly and inflation might show up again.

There is an ongoing debate about whether thats a wise move or not.

Thoughts?

Full recovery? Who is feeding that BS? <edit>Best thing for the U.S. to do is to get out of the Federal Reserve. <end edit>

 

[fbg1]

At the very least wait for inflation to show up before hiking rates.

By the time inflation occurs, it's too late, if your goal is to fight it, as is the Fed's. Greenspan has been very specific on that point. He fights inflation by pre-empting it, b/c in his experience there is no other reliable way.

 

[fbg1]

what pax said got me thinking, what does full recovery mean anyway. Should we go back to the internet bubble age where companies are speculating themselves into bankrupcy?

As Warren Buffet wrote in one of his recent Berkshire Hathaway annual reports, bubbles tend to occur when new industries are created. It happened with the auto industry, the airline industry, the TV industry, and most recently with the computer and internet industry. The creation of new industries brings with it overspeculation and irrational exuberance, and inevitably the bubble bursts when people realize that 80% of the companies/ideas were worthless. But the result is that the strongest companies and ideas survive, consolidate, and go on to form the basis of a solid new industry. That's all that's happened here. Expect more sustainable and level-headed growth, rather than another out-of-control bubble, in the IT industry from now on.

 

[fbg1]

<edit>Best thing for the U.S. to do is to get out of the Federal Reserve. <end edit>

Interestingly, Alan Greenspan agrees with you. He thinks the US should go back to the gold standard. He's stated it before Congress, and his reasons are explained in more detail in his biography, Alan Shrugged, among other places.