Thursday, November 03, 2005

Greenspan raises the rates again... I guess you can't teach an old dog new tricks

Associated Press

18 year veteran Federal Reserve Chairman Alan Greenspan, commented after the 12th increase in the short-term interest rates that the Federal Reserve is expected to follow the same script by gradually increasing interest rates to make sure inflation does not get out of control. sound familiar

The Fed is trying to boost borrowing costs for consumers and businesses gradually as a way to slow the economy enough to keep inflation under wraps. The Fed's concern is that the surge in energy prices that occurred after hurricanes Katrina and Rita shut down Goff Coast production facilities could spill over into more widespread in inflation pressures.

June 2004 is when the Fed's first started tightening the interest rates and were bellowing the same concerns, "we are worried about inflation." Alan Greenspan, commented "But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"

This statement sent both analysts and the media to their dictionaries to try to figure out what the heck he said. (One thing is for sure, never asked this guy for directions)

Alan Greenspan's concerned about increasing inflation was unfounded as one senator tried to appeal to him at a Senate hearing, "I would like you to come down to Missouri and walk through our neighborhoods. Take a look at some real people instead of getting input from those thousand dollar plate dinners and wealthy friends of yours."

With the increase of interest rates, businesses could no longer afford to expand and buy more equipment. Businesses started to close their doors.

Mr. Greenspan relying on his 18 years of experience quickly found out that in a global economy things move a lot faster than they did in his day. You can't just make a little tweak here anymore without causing an and economic avalanche.

As more businesses close, unemployment became rampant. Oregon for example became number one in unemployment. Large companies started laying off thousands of people and going out of business.

Companies that you would think would be around forever like Sony and Hewlett-Packard for example started to lay off employees and close facilities.

The Fed's formula also does not take into consideration the increase in taxes that are being placed on the general public which also impacts the economy.

I'm not an expert on economy but it does seem more reasonable to me that if you lower taxes and give businesses an opportunity to put the money back into their company and with lower taxes the consumer will be able to keep more of their paycheck and thus spend more money. That it is a win- win situation for both business and government.

Taking money out of the consumer's pocket and given it to the government does not inspire growth, in fact, it suffocates it.

Alan Greenspan will be retiring in 2006 and will be replaced by Ben Bernanke who I would hope will look at the whole picture not just his little corner of Washington DC to make his decision.


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