Bad Credit Mortgage Refinance ®
		Home Page We're about Mortgage News You Can Use   Memo to Federal Reserve: Increase Interest Rates Now! by Dom Armentano Dom Armentano is an adjunct scholar of the Cato Institute. He lives in Vero Beach, Florida. Despite the continued pessimism of some analysts and politicians, America's economic recovery is now firmly established. The Bush Administration's tax cuts and the Federal Reserves "easy money"/ low interest rate policy have both worked to increase domestic output and employment. Improving incentives to work and invest while at the same time providing the financial capital to accomplish new production almost always leads to higher levels of economic activity. It's as close to a slam/dunk as there is in economics. With the recovery well along, however, it's time to reevaluate the Administration's economic policy. In my view, Bush's tax cut policy should be made a permanent part of the economic landscape. Reducing taxes is always a good idea; it puts more money in the hands of consumers and private investors. Indeed, income tax rates should be reduced even further and the federal government should be forced by formal spending caps to live within the revenues that lower tax rates provide. On the other hand, the Howard Dean proposal to rescind "every dime" of the recent tax cuts is bad politics and even worse economics. Federal Reserve policy is another matter entirely. Economists generally maintain that interest rates must decrease and the Fed must provide additional liquidity when the economy is in recession. Fine, the Fed has done just that. The recession officially ended more than 20 months ago, and today the overall economy is remarkably robust. Clearly, monetary stimulus is no longer necessary; indeed, if continued, it is likely to be harmful. Real interest rates (interest rates adjusted for inflation) are at a 30-year low and the real federal funds rate (the bank-to-bank interest rate) is nearly negative. This is now spectacularly incorrect monetary policy given the current economic reality. To see why this is so it must be understood that the Fed creates low interest rates by purchasing government securities from financial institutions ("open market operations") the effect of which is to increase liquidity (credit) throughout the financial system. The "new" money created by the Fed is then lent out or invested by these financial institutions and finds its way into the economy. As an example, here in Southeastern Florida the effects of the Fed's excess liquidity are all around us in the form of a housing "boom." Easy credit allows developers to purchase and clear land and allows builders (and their customers) to borrow and build, borrow and build. Now some home building is, of course, appropriate, but the recent vast expansion in residential housing (and the increase in prices) mostly has been fueled by "easy money" from the Federal Reserve. Absent the Fed expansion, homebuilders and developers would only be able to borrow what others had saved in savings, and interest rates would be far higher. It is time for the Fed to wean the economy back to levels of economic investment that are sustainable without Federal Reserve credit. Higher rates will serve two purposes. First, as already argued, they will slow the pace of investment in areas where investment has been too rapid and where inflationary problems are already apparent. Second, they will increase the private savings by providing increased incentives to save. Home building will not "collapse" as the Fed withdraws liquidity; higher interest rates will encourage private savers to increase their savings, which will then fund an appropriate and sustainable amount of new investment. Further, since rates on CD's and other fixed income assets will increase, savers will be rewarded with high incomes, which they can spend or invest. Unfortunately the Federal Reserve has pledged publicly to maintain low rates (that is, easy money) into the foreseeable future (or at least until the next national election). Bad idea. The real estate price bubble and the weakening dollar against gold and the Euro are signaling that real interest rates must increase. By continuing its anti-recession monetary policy into the recovery phase of the business cycle, the Fed risks sowing the seeds of the next business cycle downturn. This article was published in FOX News Online, Jan. 13, 2004. Back to Original Article: Mortgage News You Can Use   Continue with: Rate-shopping for home mortgage can hurt credit score Existing Home Sales Surge in December Fed Looks to Stand Pat on Interest Rates Bush withdraws mortgage regulator nominee Home Resales in U.S. Rise to 6.47 Million Rate, Ending Best Year on Record Greenspan is confident lost jobs will be replaced CBO Projects Record Deficit Weak Dollar Helps U.S. Firms, for Now U.S. Budget Office Deepens Fiscal Gloom for Bush U.S. Budget Office Deepens Fiscal Gloom for Bush Part Two Treasuries in No Mood for Risk Before Fed Rates on Short-Term Treasury Bills Rise Clinton Criticizes Bush Administration On Economy Greenspan: Flexible economy will replace jobs US Treasury's Snow: Global growth to top G7 agenda US TREASURY OUTLOOK-Consumer mood is market focus What the Fed is considering at FOMC meeting Hill budget office sees 10-year deficits totaling nearly $2.4 trillion Dollar Trade Choppy Before G7 Meeting Major business and economic events Economic growth could be derailed by soaring energy prices
		Bad Credit Mortgage Refinance Eliminate Credit Card Debt - San Diego Real Estate