Take Away the Punch Bowl? Hey, Ben, How ‘Bout Now?
I noted, much to my chagrin, that the Fed has decided to keep interest rates at near zero for the foreseeable future. C’mon, Ben, are you going to duplicate the disaster that your predecessor caused? Our current depression is the direct result of Greenspan keeping rates way too low for way too long. Surely you understand this? I know that you are a student of the depression of the 1930’s, but how about the current depression? You must be guided by the experience of the immediate past, not just the distant past.
The Fed has stated that low interest rates will persist until late 2010. This tells me that they won’t raise rates until unemployment has started to rise, the Michigan Consumer Sentiment Index has gone up a lot, news stories are uniformly cheery about our economic fate, and the GNP is on a solid upswing.
But, surely, this will be too late? Would not right now be the right time? Consider:
1) economists say the depression is already over
2) unemployment is a lagging indicator, so when it goes down, economic activity is already very robust
3) stock market prices and commodities are very strong
4) raising interest rates will strengthen the dollar, lower the price of oil, and reduce oil’s price drag on the economy
5) get investors out of fixed income securities and back to places where it will boost economic activity.
6) Oz and parts of the EU have already started to raise rates
7) parts of Asia and the South Pacific already show signs of economic growth.
I realize that the Fed is worried about chocking off the delicate economic recovery thus far. But consider:
a) C and AIG, the 2 biggest banking basket cases, are no longer in danger of immolating
b) the storm clouds have passed, and so has legislative impetus
c) financial markets absorbed, with aplomb, the bankruptcy of CIT Group
So, Ben, I ask you: would not right now be the perfect time to take away the punch bowl, when no one really seems to care, as 3Q profits and car sales are all beating expectations?