Harvard University economist Martin Feldstein, a member of the committee that charts American business cycles, said the Federal Reserve cannot count on low interest rates to buoy economic growth.
"Lower interest rates are not going to get us anything more,” Feldstein, who retired in June as president of the National Bureau of Economic Research. The economy has really shown one sign after another of weakening.”
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(why this sometimes works with on a Mac and sometimes not is beyond me)
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Source:
Feldstein Says Low Rates May Not Boost U.S. Growth
Anthony Massucci and Kathleen Hays
Bloomberg, Aug. 21 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aOSuPYNhx2bo
The first sentence contradicts the first in this Topeka paper. That last sentence sounds right though:
The Kansas enforcement actions are not indicative of a banking industry that’s unsafe and unsound, said Chuck Marshall, manager of the financial institutions group at accounting and consulting firm Kennedy and Coe.
“It says we’re in a different regulatory environment,” he said. “Regulatory agencies are being proactive to protect the banks and depositors and to ensure that the guidelines that are out there for safe banking practices are followed.”
“Our regulators are responding to circumstances that are far beyond the Wichita and Kansas markets.”
Low rates? Of course low rates won’t boost the economy if those receiving the loans are not investing in plant and equipment.
The answer to the following questions is only one:
Are there low rates for small businesses?
Are there low rates for individuals?
Are there low rates for credit cards?
NO, no, No-ooo and No!
Common people are a much better risk than hedge funds and money center banks. Bernake has it all backwards. He is just further eroding trust in large institutions. We don’t leverage 30 to one. This snowball is ROLLING.
And another thing:
Those who labor under the belief that interest rates on mortgages have been low should consider the math on a super inflated principal. What would you rather have?
1) A house for $450,000 at a 5% 30 year loan OR
2) The same house for $225,000 at a 9% 30 year loan? (Merced, California)
It was a scam, folks.
How about those “low interest rate” car loans? Are they giving you an over priced asset hidden by low interest? Think about it.
@ AGG. I couldn’t agree more.
The credit expansion mechanism of fractional reserve banking made making more and bigger loans a virtuous cycle until, as it always does, the inevitable realization occurs that over-sized overpriced houses are not much more useful than supposedly exotic tulip bulbs a la the great Dutch tulip bulb mania of 1500. Or any number of other great manias and crashes.
Fractional reserve banking is obviously inherently unstable. There should be much greater control over how money is lent and how banks lending between one another expand credit.
Banking in all it’s forms is out of control. Some people get rich and in the process make very many people very miserable.
Fractional reserve banking is the largest pyramid scheme there is.
Simon, I agree with you about 60%, but without a frational banking system in place how would an economy be able to lubricate the system? The crux of the problem is that the Economic Elites never let the system correct – think Greenspan’s Bubble-mania…
If rates are at least 1% too low for this point in the cycle,(with all the government intervention do we still have a business cycle, or have we bent the rim here?), I would like to see rates rise a little if it meant a stronger dollar…even if exports have been helped, the things we’ve done lately to weaken the dollar in our vastly overcredited economy won’t be good in the long run.
Bruce in Tennessee
The only thing that is helped by lower rates is the borrowings for the stock buy backs. With inflation running at 6-7-8% (pick a number) what good can a lowering of rates do? Are we so in debt that we have to lower interest rates in order to generate more consumer cash flow? And if the payoff of loan principle is getting eaten up by inflation, why bother? Isn’t this the real conondrum?
Now that everyone is an expert on bubbles and manias, and all seem to reference this event as the groundbreaking occurence, it should be noted that the Dutch Tulip Mania saw its heights in February 1637.
A common sense perspective lost in the interest rate debate is that corporations(people) borrow money when they can make money. The rate is often irrelevant. So, what are you going to make money on by borrowing now? Borrowing now is to stay out of bankruptcy and hope an environment returns where borrowing leads to making money. Sometimes that works and sometimes it doesn’t. It ain’t likely to work for a lot of companies(people) in this cycle. Hope – that wonderful human trait. Hope is the big brother of wishing. They came from the same womb. I have a fire sale on Wish Sandwiches. All you can eat for a Chapter 11 form.
A common sense perspective lost in the interest rate debate is that corporations(people) borrow money when they can make money. The rate is often irrelevant. So, what are you going to make money on by borrowing now? Borrowing now is to stay out of bankruptcy and hope an environment returns where borrowing leads to making money. Sometimes that works and sometimes it doesn’t. It ain’t likely to work for a lot of companies(people) in this cycle. Hope – that wonderful human trait. Hope is the big brother of wishing. They came from the same womb. I have a fire sale on Wish Sandwiches. All you can eat for a Chapter 11 form.
“Feldstein: Low Rates May Not Boost U.S. Growth”
Mr. Obvious strikes again.
.
AGG,
“Common people are a much better risk than hedge funds and money center banks.”
I believe ‘citizen’ voters have had some substantial responsibility in what has happened. Do they count as the ‘common people’?
-wtf
Pardon my ECO101 question (I’m the furthest thing from an economist or a trader), but since low rates do not appear to be helping much, is there really a difference between a 2% Fed Funds rate and a 3% rate (esp. since the banks have stiffened qualification criteria). Wouldn’t a series of 1/4% rate hikes send a message to the market, particularly with regard to inflation, the dollar and commodity prices. Even a 3% rate gives you your “reward free risk”, so is there a downside here?
Or am I totally missing the boat (not for the first or last time)?