December 2, 2002
ZERO, THEN BUY:
Greenspan details Fed's options (Martin Crutsinger, November 20, 2002, Chicago Sun-Times)Federal Reserve Chairman Alan Greenspan said Tuesday that the Fed would not be ''out of business'' in terms of stimulating the economy even if it pushes a key interest rate to zero. [...]''The general view is that, as the Fed funds rate gets closer and closer to zero, that at zero we are out of business,'' Greenspan said. ''That is not the case.''
Greenspan said the Fed could buy other U.S. Treasury securities with varying terms of maturity to pump cash into the financial system and stimulate economic activity.
Greenspan recalled that from 1942 to 1951, the Fed bought 25-year Treasury bonds at a fixed interest rate of 2.5 percent as part of an agreement with the U.S. Treasury to keep borrowing costs low to support the war effort.
''We are very far from the Fed being restricted'' in its ability to stimulate the economy, Greenspan said. His remarks were an expansion of comments he made last week before the congressional Joint Economic Committee.
Considering that we've been in a deflationary cycle for years now, the rate should have been at zero by some time in 2000 and they should be buying these bonds post haste. Waiting for Japan and Germany to help get the world economy going again, as Mr. Greenspan's hints at here, is sheer folly. It's us or no one. Posted by Orrin Judd at December 2, 2002 8:29 AM
Well, commodities are deflating, reminding me,
at least, of the late 19th century.
I have not observed any general deflation.
The big change in the economy has been the
mulitiplication of sources; most obvious in
petroleum but it is a general phenomenon with
any produce or service that can be commoditized.
If you think demographic imbalance portends
difficulties, think about resource imbalance.
If things keep going the way they are, highly
educated people used to high incomes are
going to find their services unsalable.
That'll create instability, I guarantee.
Orrin - It's not deflation of prices, but deflation of credit, that is economically dangerous. There's been no sign of that. Greenspan is hardly being excessively tight.
Harry - Do I understand you correctly - you are predicting a rebellion of college professors as the returns to teaching diminish? And that this new proletariat will bring about Marx's revolution at last?
pj:
Price deflation causes massive problems, especially in a consumer driven economy because it encourages you to put off purchasing. Why buy a car for 21k today if it will be 19k by Spring?
Something like that, yeah, though I cannot predict it would take a marxist turn. History says they will go fascist, I think.
Posted by: Harry at December 2, 2002 11:01 PM