Thursday, January 10, 2008

Tough love

The Times this morning reported that Wall Street wants Bernanke to be "tougher," to deliver more hard news about the economy to the public. And how should he show this toughness? By lowering interest rates, of course. Free money is a tough nut to swallow.

Now, I'm no economist, so I don't know how M1, M2, M3 and all that interrelate, but I seem to recall that the ultra-accomodative monetary policy of the post 9/11 Greenspan-led Fed is said to have played a large part in pumping up the current bubble. Isn't the dollar to weak for us to be printing money? Wouldn't we be passing the credit risk back to the Treasury, further weakening the dollar's status as preferred reserve currency, driving foreign Treasuries out of T-bills and thereby pushing rates right back up?

And how, in the face of all this, are we going to allocate the 1-2% of GDP that experts say is necessary for America to attack climate change amelioriation in an effective way? We're not, of course, the short term demands of keeping the malls running will take precedence.

What America needs now is to take its medicine. Less consumption, less expansion, more concerted effort at the big CYA.

1 comment:

Anonymous said...

It's the private sector pushing for more "liquidity" from the Fed. The mortgage-backed securities owners need to take their medicine. Giving them more money is like telling a crack addict that the real problem is not the indiscriminate binging on crack, it's the fact that there's not enough crack to go around.
The air is rapidly leaving the dollar tire, I just hope we don't have a blowout.