Wall Street Journal – Cheerleader of the Fed

Here is an opinion piece from the Wall Street Journal today.  Talk about cheerleading for the government.  I wonder how much Bernanke and Paulson paid this guy to write this?

Well, actually, looking at the author, Frederic Mishkin’s bio at the bottom, he was a former member of the Federal Reserve Board of Governors, so I now know why he would write this kind of garbage.

He says that many have wrongly labled the current Fed policy as “pushing on a string.”  His argument is that the current crisis would be worse if we did not pre-emptively lower rates.

I really don’t understand how a person can teach economics for a living and be this clueless!  No wonder our business school graduates have no idea on how the real world operates!

From what a layman like myself understands, the problem with our economy right now is that no one is lending.  Pretty simple problem.  The media, Bernanke, Paulson, et al make it sound like it is amazingly complicated.  It really isn’t, when you just sit down and think about it for a second.

Right now, no one wants to lend money because they are scared they won’t get paid back.  Even the most creditworthy companies can’t get loans.  Normally, what would happen if the banks were scared to lend?  They would raise interest rates to take into account the extra risk.  If you have a bad credit history, the bank might charge you a higher rate than someone with perfect credit.

This practice encourages lenders because they will be making a return that is adequate to offset the risk.

What is the Fed doing right now, lowering rates?  They are encouraging borrowing and spending.  The are not encouraging LENDING.  That is the big problem.  You can have people lined up around the block to borrow money, but if the bank doesn’t feel safe lending it out, they won’t.

Also, right now, people are already be in debt to their eyeballs.  You can’t force them to spend or go into more debt.  Just because their credit card rate goes from 15% to 14% is not going to make them go out and buy a new plasma TV.  It’s not going to make my company go out and buy 10 new computers or me buy a new car.

What would make me or my company start spending again?  Having more work, expanding our business, and making more money.  How does that happen?  Our clients need to be able to get loans to fund their projects?  How does that happen?  The LENDERS NEED TO GET AN ADEQUATE RETURN FOR LENDING MONEY!

What’s wrong with high interest rates anyway?  It was very bad in the late 1970’s and early 1980’s but the situation is not the same now.  In this country, once something is associated with bad financial times, it is viewed as one of the worst things ever.  You hear all the talking heads on TV saying “We can’t have high rates because rates were high in the early 1980’s.”  How does that make any sense?  They don’t give any reasons why they were bad and why they were like that in the first place.

We have a lending crisis right now, and we need to figure out how to get financial institutions lending again.  It was caused by massive defaults on lines of credit like mortgages and home equity lines, but it isn’t a “credit” crisis.  The sooner the Fed and economists realize this the better.  It shouldn’t take someone like me to figure this out, but our leaders and experts are all concerned with easing the monetary policy and not fixing the macro-economic problems we are facing.

Advertisements

Tags: , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: