The Fed Must Keep Raising Interest Rates

[Yavin4]

The markets resumed to their 11K plateau because the Fed will curtail it rate hike policy. Greenspan got us into this mess because he used interest rate policy to affectuate political outcomes. So, from late 2001 through early 2004, he kept interest rates at historical lows in order to help W's re-election. (Folks, low interest rates does far more to help incumbent presidents than a billion Diebold machines.) This set off a massive RE speculation bubble where every tin roof rusted shack sells for at leat $100K.

RE speculation has been the default career choice for millions of Americans. This explains why we have low UE AND miniscule job creation. People are buying and selling homes or they are playing equity games with their mortgages. All thanks due to Greenspan's interest rate policies.

But, here's the danger. The danger is that inflation is completely out of control. Yes, wages, a huge inflation catalyst are suppressed, but the cost of everything else is going up, fuel, RE, food, etc. Soon, wages will have to rise or people will literally be working for free. Inflation is only the friend of the working class when they have jobs that will pay them a cost of living raise. Otherwise, the working class will get crushed.

The Fed needs to do more to ward off inflation.

[On the Road]

1. You Beat Me to It on the Inflation

with Bernancke's famous fear of deflation, he may be underestimating the other danger. And Bush painting us into a corner with structural deficits, double-digit inflation may be the only solution. Of course, that carries with it the danger of a declining dollar and more expensive imports.

I'm not holding my breath on inflation. The US economy is resilient, and it's dangerous to underestimate it. One side-effect of all the job cuts and outsourcing is increased efficiency and lower prices.

Inflation isn't all bad. In fact, many countries that pour lots on money into social programs have inflation. A tight money supply usually doesn't benefit the working class. But at least the average Joe could be getting something out of it.

[Avalux]

2. But...but....

I thought everything was just wonderful! Market is up, oil prices are down, interest rates have stalled - could it get any better??

(sarcasm of course, but also what I heard on CNN this AM).

[ClintonTyree]

3. There's a TV program called "Flip This House"..........

I can't remember which channel. It verifies everything you've said. Sooner or later (I'm leaning "sooner") the bottom is going to drop out of the housing market and people are going to default left and right. All ancillary businesses of the housing boom are going to hit bottom as well.
Can you say, "second great depression"? It's coming folks, get ready!

[400Years]

6. When that happens I'll start buying up properties

want to get ahead? do the opposite of what the herd is doing.

[leftofthedial]

4. I've been working for free for most of the last five years.

am I a trend setter?

[girl gone mad]

5. The Fed won't have any other choice..

with our dollar in decline and foreign investors getting nervous, our only real option is to keep raising rates.

Also, I've had my eye on this latest rally. I'm seeing mid and small-cap stocks go up disproportionately (to any news or earnings) across the board. It looks like there is a ton of speculation going on on the part of small investors. It's eerily similar to action on the Nasdaq in January of 2000 and I don't think this one is going to end well, either. But that is just my personal opinion. I've been wrong many times before.

[400Years]

7. Will high interest rats curtail dumping of the dollar by China, et. al.?

[Yavin4]

9. It Would Help

It would help somewhat.

[girl gone mad]

12. Theoretically..

higher rates would make the dollar more attractive to investors. I'm not educated enough in the area to know how accurate the theory is, but I do know that historically, the Fed has raised rates on that reasoning.

[ProfessorGAC]

8. I Would Prefer They Didn't

They already have been overcontrolling the rates for the last 15 years. There was little mathematical evidence that the inflation rate was an issue and they were running on hunches in the 90's because they could not believe UE could be that low and growth that hot, without rampant inflation. They were wrong, but they moved interest rates anyway. Not one shread of information existed that prices were really overheating.

So, as long as that gang of idiots is on the fed board, i'd prefer they do nothing until there's an obvious problem.
The Professor

[Yavin4]

10. That's My Point

In the 90s, Greenspan overcontrolled rates, not because of inflation, but because he wanted to sack the economy in order to set up W's election in 2000. However, the timing was slightly off, and the economy started to tank in 2001 instead. Then, 9/11 happened. So, Greenspan pushed rates to their lowest levels in 40 years in order to set up W's re-election in 2004. Meanwhile, a massive RE speculation bubble formed because of these interest rates.

[ProfessorGAC]

11. I Disagree With Your Premise

The overmanipulation of the rates does not provide any correlation to the nature of the economy. All that messing around they did, and the economy stayed stable and growing for 6 years. They messed with it the whole time.

I think you are giving him too much credit for the economy tanking, albeit, in your view, late. That would have happened anyway, given that the one month after the SCOTUS handed him his victory, consumer confidence fell by 18% relative. The middle class knows republicans aren't really good for the economy. They vote for them anyway because they are distracted by tangential issues.

The low rates were not kept that way to assure Silverspoon's re-election either, IMO. It was an attempt to prevent STUNTING growth because there are some people on the Fed advisory board that acutally understand how things work. A gov't building deficits while interest rates press down on consumption is a recipe for economic stagflation. They left rates alone because it was the right thing to do. (For a change.)

Greenspan isn't smart enough to know he was doing the wrong things, or the right things. He couldn't predict someone getting wet in a thunderstorm. He and his cronies were knee-jerk reacting to the simple two dimensional constructs of microeconomics that they sort of understand and tried to apply them to the whole economy.

It was all just bumbling. I don't think it's any more nefairous than that. Not conspiratorial. Just incompetence.
The Professor