Magnus Itland ([info]itlandm) wrote,
@ 2008-05-02 16:06:00
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Current location:Kristiansand
Entry tags:economy, politics

Irony of fate
Bernanke's bind (The Economist)
This article more than implies that the interest rate cuts by the Federal Reserve play a role in pushing up commodity prices, especially for Americans but indirectly for the whole world.


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[info]publius1
2008-05-02 04:06 pm UTC (link)
Well, more money being out in the public (which is essentially what the interest rate cuts do, not to mention the federal government auctioning off money for loans recently), is an inflationary pressure. So they're not entirely wrong, but it's only part of the picture. What's REALLY pushing the price of commodities up is one commodity in particular, and I bet you can guess which one that is.

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[info]itlandm
2008-05-02 07:03 pm UTC (link)
Yes, oil prices and several other commodities were already high before the rate cuts. It is just that they seemed to have thrown oil on the fire rather than oil on the water, so to speak.

I am actually all in favor of bottomless short-term loans to the banks. I even think backing J.P. Morgan was acceptable to restore confidence to the financial sector. But I sincerely doubt the wisdom of general rate cuts at a time where the stock markets are still hovering near all-time high and inflation is picking up. The whole idea that "there must never be another recession" strikes me as unsound. If you want to never have another recession, you can never have another boom either. Furthermore, if the Fed loses credibility on inflation, it will take blood and tears to get it back, far worse than keeping it now.

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[info]publius1
2008-05-02 08:03 pm UTC (link)
The problem is that we're about to experience the joys of Stagflation -- recession + inflation. There's little in the Fed's arsenal that can combat this; the fulcrum only goes up or down, not diagonally. But yeah, you're right, "allowing" a recession during an election year will NEVER happen.

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