The Governor's questioning of the Federal Reserve's recent policy decisions may actual sit well with the financial community. At best, the Fed's lowering of interest rates is based on the assumption that if people aren't buying (no demand), the thing to do is to lower the price. Whether or not the assumption is correct (my experience in real estate suggests it isn't; whenever a house I was trying to sell didn't move at the starting price, I RAISED the price and it did), treating money like any other commodity doesn't seem rational to me.
In any event, making money cheaper can not have been good for the financial sector. I know the miserable little adjustable rate mortgage ($70,000) I pay on, to Bank of America, now earns them $200 a month less than it did two years ago.
At the same time, people who followed the call to be prudent and save and put their money into CD's have seen their return fall from 5% to 2% or less.
So what if the income tax owed on their capital gains is less? Which would you rather: to pay Uncle Sam $25 out of a hundred or $4 out of $40?
Would you rather have $75 left or $36?
Reducing taxes on earnings you ain't getting doesn't make a whole lot of sense, does it?
Of course, if the rate hadn't been cut and you owed Uncle Sam $10 out of those $40, then perhaps the Fed's games with the interest rates wouldn't have gone largely unnoticed.
On the other hand, if money is really like any other commodity, who buys something they don't absolutely need when they think it's going to cost less if they wait? Certainly not people who usually invest in dollars, as is evidenced by the fact that the value of the dollar has fallen over 25% in the last couple of years.
How does that affect the price of things we HAVE to import--like oil? Don't even ask.
While it may make us feel good to think that our current leadership in the White House is inept, I suspect that the MBA he got from Harvard is not coincidental to the fact that our economy is going to hell in a handbasket. To a large extent, economic theory is based on "received wisdom" rather than practical experience in actually managing physical resources and assets. In my book, if it isn't validated by experience, "received wisdom" is just another prejudice.
See up thread for my take on that.
Posted by Monica Smith at January 25, 2004 06:36 AM
Good morning carol in santafe:
Not meaning to be picky, I'd like to suggest a change in the order of those three words--experience, judgement, courage. The order in which we do things is very important. If, for example, we make a judgement BEFORE we have any experience, if we are "prejudiced," then we are likely to mis-understand the lessons of our experiences, leading to mistakes which no amount of courage can fix.
Of course, being open to experience without prejudice takes a considerable amount of courage in itself. Prejudice makes us fearful, almost unable to act on our own, easy targets for people who thrive on telling others what to do.
On another matter: An old friend in Germany (actually a homosexual pediatrician who treated my tonsilitis, whooping cough and chicken pox when I was a kid) observed in a phone conversation the other day that his country is in a desperate state because "when George Bush sneezes, the rest of the world catches cold." I reassured him that we were doing our best to fix it, with Doctor Dean's help.
Posted by Monica Smith at January 25, 2004 05:06 AM