On Tuesday the Fed dropped the prime interest rate by 50 basis points in order to stimulate the economy. This indeed should be an incentive on the economy, and I think it was a good decision. The Fed has waited too long in my estimation to adjust the prime interest rate and this measure should prove to be very rewarding for the economy. What do you think?
– Bob
Dr. Beyster:
I certainly agree – the Fed went too far, too often in raising the discount rate. As I always argue, adjustments should be made slowly and in advance – not in response – of the perceived economic trend. While this rate decrease should help, it would have been better to have had a proactive response.
Paul
In the U.S. interest rate are going lower, Gold is going higher, Oil is going higher, inflation is going higher, the dollar is going lower. What is wrong with this? Everything! At some point the FED is going to have to raise rates bigtime. We are in a very, very, precarious situation at the moment. I think Gold will tripple to over $2,000 an ounce when the market finally wakes up and sees the real inflation. Last I checked a lower dollar = higher import prices. There is no inlfation deflator here. With commoditioes on fire you can forget about that. Bernanke should have never lowered rates last week. However, the Fed might be doing something that few have talked about. Maybe the Fed has abandoned the dollar to crush the trade deficit. Good luck, it will take 20 years to correct our 6% of GDP trade deficit and move it back to under 1% of GDP, unless you want to seriously disrupt the global economy. We are in for tough times people. Very tough! The FED will not be able to save housing with lower rates. We are in for a 10 year decline in home prices. It is called a cycle!
Paul: Thank you for replying to my blog post on the recent prime interest rate drop. As you know, there is a great deal of confusion in financial circles as to whether the Fed should have made any move at all. My understanding is they’re planning to further adjust the Fed Funds Rate. Many feel that the Fed should be holding the line and only time will tell. Inflation has not become a factor yet, although it’s a definite danger — certainly insofar as the value of the dollar in the world economy has been considerably impacted. Interesting things are going on, such as Greenspan’s efforts to disassociate himself from what’s happened. Out of sheer interest I’m trying to read as much as I can about what’s going on in the economy. Mr. Bush seems to be picking up a lot of blame from the observers. Although he shares the blame, he was not the only one involved — from either political party — in the decision to dramatically drop the prime interest rate after 9/11, nor was he the one who created the sub-prime mortgage mess.
Ames: Thanks for your provocative contribution to the blog. I’m not sure that I agree with all of your comments, but certainly the trends you’re observing I suspect are correct. Gold will clearly be worth more, though $2,000 an ounce seems high to me. Imports will cost more — there’s no question about that. Because of the instability in Washington today and a lame duck administration that’s struggling with the issues, and of course the future will depend a lot on the new administration which will take over in January 2009. Somehow this country always manages to sweat it out.