A Word On The Economy
Ryan | 6 01 2008If you're a first time visitor, you may want to subscribe to our RSS feed, which will keep you up to date with all the latest New School Politics posts. Thanks for visiting!
News this week was released indicating that the unemployment rate surpassed 5%. This along with $100/barrel oil, a very weak dollar, and growing inflation (here and here) are probably the consequences of the Federal Reserve cutting interest rates to the extent they have in the face of the credit crunch.
I surmise that this policy is probably creating more problems in the long run although it may calm the nerves of Wall Street in the immediate. Credit problems were the perril of loose credit, so it makes little sense to keep credit too loose in response.
Its sounds good, politically, to encourage the stimulation of investment with new money. However, economic laws still apply and by lowering interest rates against market forces we will reduce the incentive to save and essentially cause a shortage of investment capital.
Once again, there is a disparity between popular opinion and reality.
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I think a lot of people are probably asking themselves
Eftychis | 6 01 2008I think a lot of people are probably asking themselves how much sooner would the market have corrected itself if the Fed did not exist, and more importantly without these controlled interest rates that permitted the credit crisis in the first place, we would not be in this spot. Indeed it may be that we avoided a short term recession and are only creating an even bigger one in the future.
Additionally, you commented on the price of oil-of course that is tied directly to the inflation of the dollar. As Dr. Paul pointed out, the value of oil has not risen against the price of gold; once again a gold based standard seems like it would make the most sense and return stability to the markets along with value to our currency.