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What should the Fed do?
Friday, August 10, 2007
An online WSJ poll and discussion group asks what the Fed should do in light of the credit market melt-down - my vote was one of the 171 to the right.
The curent problem is not an interest rate problem.
7 comments:
Tim,
I went to the poll and voted for interest rate rise ... wishful thinking on our part ....
I don't get it.
If interest rates aren't the problem - what's the problem?
Too much credit?
Or the fact that all our productivity is based on credit? (as opposed to something of real value) -
are you proposing a return to the gold standard? what?
Too much money and credit are the problem - interest rates in and of themselves have not created the current mess.
I'm not big on proposing solutions.
Tim,
Did you happen to see that Brad DeLong is reporting that the Fed has been buying mortgage backed securities?
http://delong.typepad.com/sdj/2007/08/the-fed-is-buyi.html
Isn't that a bit unusual?
The streams are now crossing (i.e., this post and the previous one): Buyer of last resort
Three posts in just a little over an hour and a half - highly unusual.
It is the height of irony that the only austerity tool the Fed is willing to use, raising the funds rate, impacts predominantly individual consumers (e.g. I just had another "fixed" credit card jump 10% to a variable rate). For big banks and the well-heeled, the credit spigots are open. Their only hazard is exhaustion -- but the Fed is doing everything in its power (and maybe things that aren't) to ameliorate that.
It's a whacky world.
The relentless increase in the price of energy and the dawning realization that it's not going away...economies can not keep growing without increasing their energy input, and such increases have been stalled for over 2 years now.
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