SEARCH BLOG: FEDERAL RESERVE
In response to a question from Bill, I wrote:
I've summarized what's going on regarding the Fed on my blog, but it boils do to two things: they enabled the housing bubble by making interest rates way too low and then they trapped too many people in financially untenable situations because they raised rates over 4 pp. At the end of last summer I posited that the Fed needed to take rates down immediately to 4%. They took them down gradually to 4.25%, but that simply allowed the situation to fester and make the decrease of interest rates far less effective. At this point, the Fed can do little right. Lower rates below 4% and the dollar crashes; don't lower rates and recession is probably assured. Pick your poison. 4% was the right target; the Fed process was simply inept...
The real problem now is that consumers can't rescue the economy and manufacturing, which is already weakening, will continue to weaken. We've gutted the forces that could avoid a downturn. The question is not whether there will be a recession, but can it be dampened sufficiently so that it is very short.
Of course, I'm looking at things from a very biased mid-western viewpoint. Perhaps things are rosy in the southeast.
Want a massive upswing in the economy? Cut corporate taxes by 75% and government spending by 5%. Okay, that won't happen.