Sunday, January 13, 2008

Larry, Curly, Moe and The Economy

A month ago, the Fed lowered rates by only a quarter of a percentage point instead of making the half-point cut that many were expecting. The Fed appears to have made a big mistake about oil and aggregate demand at the last rate-cut session — for several reasons.

First, the big drivers of added demand for oil are not really subject to Fed control. China, India and other developing nations are responsible for the bulk of increased demand. The Fed does not have the power to lower demand for oil in the developing nations, except in a very indirect way.

In other words, punishing the United States economy because oil prices are high is attacking the wrong culprit. It’s sort of like a Three Stooges movie in which the wrong person keeps getting hit on the head.

From the always entertaining and provocative Ben Stein, writing in today's NY Times, arguing for continued Fed interest rate cuts.

3 Comments:

At 1/13/2008 10:34 AM, Anonymous Anonymous said...

...the big drivers of added demand for oil are not really subject to Fed control. China, India and other developing nations are responsible for the bulk of increased demand.

So there is a "hidden" cost to the consumer as all these "cheap" goods are imported into this country and services are "off shored."

I wonder if over time there will be any net benefit (from off shoring) to the American consumer. So far we have exported technologies, exported manufacturing and what do we really produce in this country that the world wants or needs?

There is nothing we do in this country that can't be done cheaper and faster somewhere else.

America's days as a world power and world leader are numbered. Eventually America will become irrelevant to the rest of the world and historians will talk about how we had it all but pissed it away with a false sense of superiority and security.

 
At 1/13/2008 11:28 AM, Anonymous Fred said...

I knew Bernanke had some cognitive problems when he told Congress that dollar inflation didn't matter to Americans who were trading with each other in dollars. He doesn't see the rest of the world? He never heard of Zimbabwe?

 
At 1/13/2008 4:35 PM, Anonymous Anonymous said...

when did demand-pull inflation become "widely accepted" as the driver of inflation? i thought we learned that demand-pull inflation cannot be sustained unless accomodated by expansionary monetary policy....

 

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