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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: CalculatedRisk who wrote (57860)7/17/2006 12:53:18 PM
From: ChanceIsRead Replies (1) of 306849
 
>>>"Typical -- the fed cutting rate to 1% did not play a role in the economic recovery -- it was all due to the supply-side tax cut.<<<

It is clear to me that the Fed has really been screwing up the last eight years. Greenspan was worried about Y2K so he increased liquidity enormously. That also corresponded with the lowest crude price in decades - $10 in December '98. This was economic overstimulus, and IMO went a long way to explain the stock bubble of the late '90s.

Greenspan began raising rates to compensate - at about the same time that crude snapped to $37. The very shallow recession of early '01 was inevitable, and there was still an abundance of liquidity. After 9/11, Greenspan really opened the tap. It was a gross overreaction to a very ugly, but rather economically insignificant incident. The war has been hugely stimulative, but hasn't produced anything.

I can't see that there has been meaningful economic recovery. Justs lots of stimulative spending on overhead functions - homeland security and the war - neither of which produce goods. In fact, all that waiting in lines reduces productivity.

Its OK to print money occasionally to stimulate, but the need has to be great (it wasn't in '01) and you have to spend it on valuable things. Guards and holes in the ground in Iraq and not fungible assets.

Bernanke shouldn't be done raising rates any time soon. There is way too much liquidity out there.
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