Fortune tiring of bailouts
timeOday
paying the price, argues Fortune's Allan Sloan."
I feel this is true. Our economic policy seems centered around
promoting inflation for stocks and housing, thus transferring wealth
from those who work to create it, into the pockets of those who "earn"
money by already having it.
<http://money.cnn.com/2007/09/28/news/economy/sloan_bernanke.fortune/index.htm?cnn=yes>
"If you look at the financial markets' overall reaction to the Fed move
- not at just the stock market's reaction - you realize that as a result
of the cut, those of us who keep score in dollars and didn't need to be
bailed out are less wealthy than we were in terms of anything other than
our home currency.
Why? Because the rate cut contributed heavily to the dollar's recent
sharp drop in the currency markets - parity with the Canadian dollar,
for God's sake! - and to the price spike in hard assets like gold,
silver, copper, and oil. So our wealth, relative to these other things,
has diminished.
And wait, there's more. Even though the Fed has cut short-term rates,
long-term rates, which it doesn't control, have risen in reaction to the
cut. So whatever economic benefits may flow from lower shortterm rates
will be partly offset by the rise in long rates, which are at least as
important to the economy as short rates.
Finally, consider this. Even though Bernanke's cut may mean that some
junk mortgages will reset at lower rates, the cost of large,
high-quality fixed-rate mortgages, which are tied to long rates, will be
higher than they'd otherwise be. (Yeah, penalize the people who are
prudent - way to go!)"
amsm...@gmail.com
> "The reckless are getting relief from Bernanke while the prudent are
> paying the price, argues Fortune's Allan Sloan."
>
> I feel this is true. Our economic policy seems centered around
> promoting inflation for stocks and housing, thus transferring wealth
> from those who work to create it, into the pockets of those who "earn"
> money by already having it.
>
>
> "If you look at the financial markets' overall reaction to the Fed move
> - not at just the stock market's reaction - you realize that as a result
> of the cut, those of us who keep score in dollars and didn't need to be
> bailed out are less wealthy than we were in terms of anything other than
> our home currency.
>
> Why? Because the rate cut contributed heavily to the dollar's recent
> sharp drop in the currency markets - parity with the Canadian dollar,
> for God's sake! - and to the price spike in hard assets like gold,
> silver, copper, and oil. So our wealth, relative to these other things,
> has diminished.
>
> And wait, there's more. Even though the Fed has cut short-term rates,
> long-term rates, which it doesn't control, have risen in reaction to the
> cut. So whatever economic benefits may flow from lower shortterm rates
> will be partly offset by the rise in long rates, which are at least as
> important to the economy as short rates.
>
> Finally, consider this. Even though Bernanke's cut may mean that some
> junk mortgages will reset at lower rates, the cost of large,
> high-quality fixed-rate mortgages, which are tied to long rates, will be
> higher than they'd otherwise be. (Yeah, penalize the people who are
> prudent - way to go!)"
I hear ya, but I'm sure Bernanke took all of that into consideration
when making the rate cut. Even all of that being true, it's probably
better than the alternative which is recession and lots and lots and i
mean lots of extra houses. Lots of people are living above their
means in order to achieve some kind of "American Dream" scenario. In
reality, they are destroying it.
345ddd
> "The reckless are getting relief from Bernanke while the
> prudent are paying the price, argues Fortune's Allan Sloan."
> I feel this is true.
Yes, but the alternative is to let the fools that were reckless
suffer the consequences of their recklessness and wear the
damage to the economy that that would produce in the process.
> Our economic policy seems centered around
> promoting inflation for stocks and housing,
Nope, the effect of the low interest rates is largely an
undesirable consequence, not a deliberately intended outcome.
> thus transferring wealth from those who work to create it, into
> the pockets of those who "earn" money by already having it.
Yes, but just as welfare rewards the improvident at a real cost
to those who make their own provision for their retirement, that
sort of result is essentially unavoidable and is basically the
inevitable result of interest rates being a very crude way to adjust
the economy. The problem is that there is no real alternative.
Its an approach which has ensured that we havent seen another
great depression in what is getting on for a full century now.
There were lots of them in the century before the last one.
> <http://money.cnn.com/2007/09/28/news/economy/sloan_bernanke.fortune/index.htm?cnn=yes>
> "If you look at the financial markets' overall reaction to the Fed
> move - not at just the stock market's reaction - you realize that
> as a result of the cut, those of us who keep score in dollars and
> didn't need to be bailed out are less wealthy than we were in
> terms of anything other than our home currency.
Sure, but if the economy had been allowed to collapse
instead, those would be much less wealthy again.
> Why? Because the rate cut contributed heavily to the
> dollar's recent sharp drop in the currency markets -
Something which doesnt have much real effect on the wealth of most.
> parity with the Canadian dollar, for God's sake! - and to the
> price spike in hard assets like gold, silver, copper, and oil.
Those arent mostly the result of the fed move, they are mostly
the result of it becoming clear that the economy wont collapse.
> So our wealth, relative to these other things, has diminished.
Which again isnt really that significant for most people.
The economy collapsing would have had a MUCH more dramatic effect.
> And wait, there's more. Even though the Fed has cut short-term rates,
> long-term rates, which it doesn't control, have risen in reaction to the cut.
Thats happened before too.
> So whatever economic benefits may flow from lower shortterm
> rates will be partly offset by the rise in long rates, which are at
> least as important to the economy as short rates.
Sure, but a collapse of the economy would have a much worse effect.
> Finally, consider this. Even though Bernanke's cut may mean
> that some junk mortgages will reset at lower rates, the cost
> of large, high-quality fixed-rate mortgages, which are tied to
> long rates, will be higher than they'd otherwise be.
Again, that only affects those with variable rates.
And if the economy was allowed to collapse, and they lose their jobs instead, that
would have a MUCH more dramatic effect on their personal financial circumstances.
> (Yeah, penalize the people who are prudent - way to go!)"
The problem is that there isnt any viable alternative.
What should have happened was that Greenspan should have seen the problem with
non prime mortage securitization and didnt until it was too late to do anything about it.