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Politics : PRESIDENT GEORGE W. BUSH -- Ignore unavailable to you. Want to Upgrade?

To: Zoltan! who wrote (130491)	3/6/2001 9:56:21 AM
From: DavesM	Read Replies (1) \| Respond to of 769670

Zoltan, I was lead to believe that large budget deficits bias the economy over time toward inflation, to which the Fed applies monetary policy to control. Large budget surpluses, are a different kettle of fish IMHO. They probably bias the economy toward deflation, but unfortunately, central banks have shown that they CANNOT control deflationary pressure very well. During the Depression, the Fed lowered interest rates, but the Country suffered through grinding deflation and almost 10 years of depression. Witness Japan, their Central Bank has lowered interest rates to levels that are shocking low (I thought I saw that the discount rate is like .2%), and the Nikki has hit FIFTEEN YEAR lows. No wonder Greenspan is now in favor of tax cuts. Don't forget there are dangerous downsides to very low interest rates (just as high). Low interest rates put great pressure on large institutions like Life Insurance Companies and Pension Funds. If Government Bonds and High quality Corporate Paper have very low interest rates, these institutions must either purchase a higher portion of higher yielding junk, stocks, and real estate - or face defaulting on obligations when policy holders reach retirement.