Would it be better if the government sought to stabilize interest rates at 5% (a general goal), or is it better to change the rates willy nilly? Is it better for people to know where they stand or is it impossible given the large number of economic events that remain out of our control?I was against the federal stimulus package and posted Fund roads & bridges NOT mad money stimulus and later Serious Money: Stimulate productivity not consumption contesting the federal governments economic approach, or lack thereof, under the current administration (White House and Congress) and this thought came to mind along similar lines.
All of the interest rate manipulations of the past dozen years have overheated and slapped our economy around. Adding to that the funding of the war effort and the price of food and energy means that almost every American household has been left in a quandary.
The government seems to be very bad at planning, and slow to react, or at least perceive a coming storm. They do appear reactionary at best and everyone cheers when they find a way to stave off disaster for one more day. That is the case today as they take over IndyMac Bank (NYSE: IMB) and bail out Fannie Mae and Freddie Mac.
All the while more capital is put into circulation. The perpetual increase in bad loans that overheated the housing market created phantom equity that is disappearing as reality sets in. We are seeing that the only way the Feds cans keep the country from total economic collapse is to replace the phantom equity with capital that is real, but of less value... because the printing presses are rolling night and day.
It might even be a positive thing if they had to actually print the money because they could not print it fast enough in small bills, and we would have less devaluation than when currency is created digitally.
The daily sighs of relief continue to come but there is no escaping paying the price. The devalued dollar is simply a mortgage on the nation and other nations are receiving the interest payments and will continue to do so.
In the future will we be able so stabilize interest rates and the currency or can we only look forward to continued manipulation and exasperation at increasingly more rapid rates?
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
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Reader Comments (Page 1 of 1)
7-14-2008 @ 3:30PM
rukidding said...
Are you frreakin kidding me, once again our senate and congress do absolutely nothing proactive and then take most simple reactive measures possible. The system is fundamentally flawed, its broken people, wake up! Lobbyist run our government please next election vote out every incumbent.
Signed,
Mad as Hell
7-14-2008 @ 3:38PM
william lindblad said...
Sheldon, the only way to get the economy back on track would be for the government to intervene with methods that are not widely accepted in a capitalistic system. They neither the courage or economic knowledge to do so. I am not an economist, but a political science major and I could see this coming back in Dec. 07 and am on record as such. The first line of defense was the House and Senate finance committees, primarily the House. They listened to Greenspan and Bernanke and since neither addressed nor percieved this problem, the committee did nothing. Mr Lockhart is supposed to be in charge of the Office of Housing Enterprise Oversight which is the guard dog for Fannie and Freddie. If one opens the OFHEO website their mission is clearly stated. Obviously, even the director can't read. These two entities are not supposed to have a portfolio full of SIV's & CDO's??? I guess the people running the two F's can't read either. I give them an old selective service rating of 4-F, which translates as useless. Than of course, we have the Economic Stimulus. Most of these checks were spent into the economy and it did have a small, but temporary effect which does little to allieviate the overall mess.
Can government solve this? Given their track record I would not hold my breath.
If they expect to have any effect at all they have to rein in the oil speculation (now before the Senate). They than have to rein in the shorts.(been done before) The Fed has to up the interest rate at least 1/4 point to get the dollar back to a better position against the Euro. If this is not done the export market that has been the one shinning star will dry up. I know this has consequences, but the hike is the lesser of evils. There is little that can be done for consumer confidence and the banks that are in trouble without addressing the root causes. If fuel can be brought back to at least a stable platform inflation pressures will be reduced and so will job loss. If they don't act quickly and in a forceful manner the domino's will continue to fall.
The problems originate in the U.S., but this is a world event and the consequences are showing in all quarters of the globe.
7-14-2008 @ 9:25PM
GoBoilers said...
The Treasury and Federal Reserve must regain control of the financial system and restore discipline in an orderly manner. Replacing the housing bubble with new excesses fails to address the issues and postpones necessary market corrections. In order to restore discipline, the government must resist the easy solution of taxpayer funded bailouts and instead facilitate the sale or dissolution of the failed institution.
http://www.beyondthemargin.net/2008/07/american-banks-house-of-cards.html
7-14-2008 @ 10:21PM
Mr. noitall said...
Well, I said it over a year ago, the Fed is in a "checkmate" situation, they won't be able to save the real estate & stock market & the dollar, and most likely they will fail at all three. It looks like my prediction was right. We can't expect the one's who were particially responsible for creating this mess to have the political will, or the economic knowledge to get us out of this mess.