Fed Set to Cut Rates to 45-Year Lows

[adios]

Fed Set to Cut Rates to 45-Year Lows (http://story.news.yahoo.com/news?tmpl=story&u=/nm/20030622/bs_nm/economy_fed_dc_5)

Wonder why Bush never gets credit for historic low interest rates? If he deserves scorn for a stock market collapse he certainly deserves praise for the extremely low interest rate environment which is far more important to the average "working joe" in the US. The fact of the matter is that he deserves neither praise nor scorn for either. Ditto for Clinton.

[Mark Heide]

Tom,

I don't think it matters who the president is, because it's still the same person that's in charge--Greenspan.

Mark

[Ray Zee]

the market place sets both stock prices and interest rates. all the fed does is make them official for the banks and gives them an exact time frame.

[Easy E]

It's all based on the days of budget surpluses.... and when lying was centered on your personal life (well, and land deals) as opposed to WMD and war needs (well, and personal business deals).

[adios]

"It's all based on the days of budget surpluses"

Supluses when the unemployment rate was 3.9% and Fed government revenues were at records due to record low unemployment rates. An unemployment rate that the Fed didn't see as sustainable without bringing about widespread inflation. Thus the Fed's restrictive monetary policy that started during the Clinton administration. Today the unemployment rate is 6.1% which has resulted in significantly less in tax revenues collected by the Feds. Then there was this event on 9/11/01 that significantly increased the budget for security. I've already been through this on the stock market forum so I expect that these facts will be ignored. As far as WMD's in Iraq, Clinton said they were there too. Note following statement by Clinton after he ordered the bombing of Baghdad in 1998:

TRANSCRIPT: CLINTON ON PREEMPTIVE AIRSTRIKES AGAINST IRAQ (http://www.ceip.org/programs/npp/clintoniraq.htm)

Note the word "Preemptive" in the title. After many called Bush a liar in a recent post I posted this link where Clinton basically indicates Iraq is a threat for the same reasons Bush did. The reaction was that Clinton was lying too. I think it's much more likely that Bush and Clinton are made their evaluations based on the same intelligence.

[andyfox]

Bush (W) and Clinton have basically the same foreign policy, which posits the U.S. as the baddest man in the whole damn town. (Albright said if we have to go to war, it's because we're America, "the indispensable nation.")
Of course Clinton lied, he is a pathological liar and all governments lie when they go to war or use war-like actions.
Every rationale for war, whether it was the Truman Doctrine, Johnson and Nixon in Vietnam, Reagan in El Salvador, Nicaragua and Grenada, or Bush in Iraq, to cite just a few examples, is justified by the "fact" that we are good and right and our enemy is bad and wrong and the evidence must support this, even if the vice president has to go down to the CIA office to tell them as much or the secretary of defense has to "adjust" the numbers to assure that the "evidence" corresponds to the spin. The idea that a government that treats its own people well must also do the same when it goes abroad is supported neither by logic nor the evidence.

[John Ho]

Basically you are saying the govt. has no effect on the economy. I can't agree with you. The govt. budget and policy power is too huge not to have an effect on the economy.

But one certainly can argue that what a president does this year does not effect the economy for some time and thus Bush should not be chastised for the lousy economy. But he spends money we don't have like a drunken sailor. At least during the Clinton years the drunk actually had money to spend.

As for super low interest rates...they are not a positive in most environments since they promote inflation which kills the working joe in the long run. In my opinion we should not be overpromoting people going into debt since too many people are in over their heads anyway. But it's theoretically great for business which helps everyone. The problem in this circumstance is that businesses never really had a credit crunch to begin with so the lowering of rates doesn't do that much to stimulate the business end.

[John Ho]

Yeah but Clinton never started a war over Iraq because they were not an imminent threat. Bush must have other reasons for going after Saddam. And it's ridiculous of him or anyone to use 9/11 as a reason why Iraq needed to be taken out. If Iraq was such a grave threat to the U.S. why didn't Bush ever take or talk about military action against Iraq before 9/11? I think when it comes down to it a major reason we fought the war is that Saddam tried to kill his father. I can't think of any son who wouldn't be tempted to do the same thing W did.

If we as a country decide to have a foreign policy of overthrowing bad regimes that is fine as long as the people understand that. It probably would be better for the whole world to have our kind of freedom. But that's not our understanding...we were told they were a direct threat to us which is becoming with increasing clarity either a lie or exaggeration. Either way Bush has to pay the price if the truth does not match his speeches.

[Mason Malmuth]

Hi Tom:

I think Milton Friedman deserves the credit.

Best wishes,
Mason

[adios]

"Basically you are saying the govt. has no effect on the economy."

No way no how did I say that in my post /forums/images/icons/laugh.gif. Hopefully more later as time permits.

[John Ho]

Nice response. I'll explain it to you.

The stock market is one of the best leading economic indicators for how the economy is going. There is no denying this. Thus, the start of a bear market in stocks usually harbors a recession in the near future (probably 6 months or so). By implying presidents aren't to blame for bears or shouldn't get credit for bulls indicates you think govt. policy is irrelevant.

Unless you original post was your way of saying Presidents have no effect on govt. policy which of course is wrong.

[adios]

"By implying presidents aren't to blame for bears or shouldn't get credit for bulls indicates you think govt. policy is irrelevant."

I didn't imply anything, I made a straight forward statement. Why do you keep trying to twist into something it wasn't? Does George Bush deserve the blame for the severe stock market decline? Does William Clinton deserve the blame for the severe stock market decline? My answer to both questions is no. How you stretch this into my saying that govt. policy is irrelevant is beyond me. For the record government policy is very relevant as far as growth in the economy goes. If what you say about the stock market in your words "best leading economic indicators for how the economy is going" then effective government policy will lead ultimately to higher valuations in the stock market. Stock market valuations are one of the governments leading indicators and in the past the stock market has been one of the best leading indicators. It's no guarantee of future performance as an indicator although I believe it still is. Anyway I submit that the stock market "bubble" that developed did not do a very good job of predicting future economic growth. The point is that even though it is one of the best leading indicators it doesn't translate into being 100% accurate. Anyway what I wrote about the stock market has NOTHING to do with the point I was trying to make about Bush and to a lessor degree Clinton.

[adios]

"But one certainly can argue that what a president does this year does not effect the economy for some time and thus Bush should not be chastised for the lousy economy."

Ok and I'd also add as Ray, Mark, and Mason have pointed out that Bush is not the only government entity that has a bearing on the future of the economy.

"But he spends money we don't have like a drunken sailor. At least during the Clinton years the drunk actually had money to spend."

I invite you to go to the following sites:

Congressional Budge Office Site (http://www.cbo.gov)

Budget of the United States Government 2004 (http://www.whitehouse.gov/omb/budget/fy2004/pdf/hist.pdf)

I think you'll note that government revenue has declined while expenditures for homeland security have expanded greatly as have entitlements (which I believed were already anticipated). Here's an interesting perspective on the bugdet deficit that you probably will object to vigorously:

Washington Watch: The Truth about Deficits (http://www.soundmindinvesting.com/vsection/v_newsletter/0305/washington.htm)

Washington Watch: The
Truth about Deficits
By William Beach

© Sound Mind Investing | May 2003

[Washington Watch focuses on tax legislation and economic principles that will help you better understand the effects of government policies on your personal finances. The following is excerpted from an article by William Beach, director of Center for Data Analysis at The Heritage Foundation, a nonprofit, nonpartisan public policy research institute headquartered in Washington, D.C. — AP]

"Deficits." Of all the arguments being marshaled against President Bush's latest tax proposal, the one with the most sticking power can be boiled down to that one word. Pass this tax cut, we're told, and huge, economy-wrecking deficits will result. Unfortunately, many politicians are wildly overstating the likely budget deficits. Many economists, including those of us at The Heritage Foundation's Center for Data Analysis, predict the deficit under President Bush's proposed tax plan will actually grow by about $340 billion between 2004 and 2013 rather than the $1,500 billion claimed by some.

You get that result when you analyze tax policy changes with a forecasting method known as "dynamic scoring." This type of economic model, used for many years by state governments, predicts the president's tax cut would lead to more jobs, higher wages and a stronger economy. How? By taking into account the fact that changes in tax policy cause taxpayers and businesses to change their behavior. Cut their taxes, and they'll have more money to save, spend and invest. That means federal tax revenues will increase over time, bringing down the projected deficits.

But isn't any deficit of any size a problem? The Treasury Department examined trends between 1965 and 1983 and concluded that "high deficits have virtually no relationship with high interest rates in this time period." A series of university and government studies of other nations and time periods yielded the same result.

What really harms middle-income Americans is unemployment. Again, history shows that tax cuts — what the president is proposing — lead to more employment and economic growth. That will assure that families, as well as the federal government, have the resources they need to address pressing problems. The Bush plan would give some 123 million taxpayers more money to spend and boost consumer confidence. That will help the economy grow. And as it rebounds, tax revenues will increase as well.

Today's deficits are caused by a faltering economy, not tax cuts. When the Bush administration took office, the Congressional Budget Office predicted the economy would grow 2.4% in 2001 and 3.4% in 2002. Instead it sank into recession, costing the Treasury an estimated $145 billion of tax revenues in 2001 and $280 billion more in 2002. Of course, if lawmakers were really concerned about deficits, they could easily bring the budget back into surplus. All they need to do is cut spending by a relatively small amount. Instead, Congress actually increased spending each of the last two years.

Instead of pretending deficits are a major problem, Congress should work with the president to pass his tax-cut plan and get the economy moving again.


"As for super low interest rates...they are not a positive in most environments since they promote inflation which kills the working joe in the long run."

This is ridiculous where is your proof? Since Reagan took office in 1981 interest rates have been on a long steady decline as well as inflation (as well as growth historic GDP growth). Here's a site that explains the nature of inflation fairly well:

Inflation (http://www.bized.ac.uk/virtual/economy/policy/outcomes/inflation/inflth.htm)

"In my opinion we should not be overpromoting people going into debt since too many people are in over their heads anyway."

Ok we (I assume you mean the government) aren't though.

"But it's theoretically great for business which helps everyone. The problem in this circumstance is that businesses never really had a credit crunch to begin with so the lowering of rates doesn't do that much to stimulate the business end."

Wrong lower interest rates have certainly helped business general in many ways. Lower cost of capital and the ability to refinance higher interest rate debt have led to better profits (many surprises on the upside in the first quarter).

[adios]

Good post but my point is that Bush and Clinton came to the same conclusions about Iraq. Perhaps our, USA's, foreign policy is so institutionalized that it's intransigent and inflexible from administration to administration even when subsequent administrations are comprised of different parties.

[adios]

Ok but my point was about Iraqi WMD's i.e. that Bush and Clinton both came to the same conclusion that Iraq was in possession of a substantial number of WMD's and that they posed a grave threat to US security. I'm not saying that execuses a President from being wrong (the buck stops here) by any means.

[adios]

Right as always /forums/images/icons/smile.gif /forums/images/icons/grin.gif .

[John Ho]

The market bubble coincided with one of the great economic booms of our time.

My point was simply that Presidents do have an effect on the economy and thus have an effect on the stock market. Clinton was in office eight years so it is not unreasonable to point out that his fiscal policy (not all of which was his own thinking) helped the economy out.

[MMMMMM]

Well compared to Saddam we are good and right and Saddam is bad and wrong.

Also, to address another of your points, while a government which treats its citizens well at home may not always treat others nearly so well, it's also certain that a government which treats its own citizens terribly at home will treat others most horribly. Saddam's government brutalized the people of Iraq most horrifically for decades, so is it any surprise that Saddam's soldiers raped a great many Kuwaiti women while in Kuwait? The U.S. government treats its citizens not badly at home, and U.S. soldiers didn't go around raping Iraqi women during the war, either.

While your overall statements have some merit, in this particular case I think it's pretty darn clear cut--even to you--who the good guys and bad guys are. The overall is important but it doesn't alter the specifics here or change the good guys into bad guys or vice versa.

[John Ho]

Then we're on the same page here.

What I'm also upset about is the huge cluster [censored] going on in Iraq now. It seems that in the months leading up to the war little to no focus was given to the civilian administration of the country after we conquered it. You have U.S. military officers with no experience in govt. administration being asked to provide food, water, power, etc. to thousands of civilians in a foreign country where they don't speak the language.

If I was an Iraqi I sure would be pissed at the U.S. for not having a good plan to administer the country. The last thing we need is them looking back at the good ole days of Saddam and the Arab world hating us even more.

[John Ho]

Tom you are obviously a bright and well read guy but I wouldn't trust the Heritage Foundation to be objective. It's comical for them to claim nonpartisanship but that has it's tax benefits I guess. But granted, predicting the future budgest deficit is probably a hopeless endeavor whether you are liberal or conservative (or neither).

In any case, the fact that low interest rates the last 20 years have not created huge inflation is due in large part to the increase in productivity we've seen the last 20 years. As for low interest rates increasing profits this is CERTAINLY irrelevant. Making profits by refinancing does not promote new ideas, innovations, hiring, or much growth. It is simply a way to give a short term boost to business but is not going to affect the business cycle. Businesses will spend money and take on debt if they believe it will help profits. But there has to be something for them to want to spend money on regardless of rates. Low rates are not a magical elixir. Ask the Japanese.

I don't agree with you that the govt. is not promoting people going into debt. That is exactly what they are doing at this point since business spending is off sharply and the consumer spending has been the only thing holding the economy up in this recession. Politicians are horrible stewards of the economy but that is certainly not isolated to one political party.

As for spending on homeland security. It's needed with the new threats though unless all the money is going into espionage I don't see much of where the money is being spent. Most likely there's a whole lotta pork in that spending.

My feeling is that though we seem to disagree on much we are probably closer in thinking on the economy than people might think. Thanks for the good debate as always.