Fed financial theory smacks into reality

  • Article by: RUSSELL SWANSEN
  • Updated: December 30, 2012 - 2:07 PM

Ultra-low interest rates to stimulate the economy sound like a good idea, but there are consequences.

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theagonybhoDec. 31, 12 9:45 AM

The Feds have no idea what thier doing, in an effort to save Obama they have kept interest at near zer, when we finally pull out of it and interest goes to what it should be about 8% the housing market will tank a second time. Printing money also isnt working all temporary fixes artificial stimulation.

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teddygJan. 2, 13 9:43 AM

The Fed's low rates were not targeted to help the economy as much as there are intended to provide cheap capital to help banks and insurers get out from underneath bad loan portfolios from the go-go days. Had we not trashed the Glass-Steagall act, no bank would have be 'too big to fail', there would have been no need for Quantitative Easing, and the last 8 ugly years would have been just 2-3 ugly years.

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hobie2Jan. 2, 1312:54 PM

"The Fed has one tool in its box -- the level of interest rates."... Be a nice idea if the author had any idea of what the fed has in its tool box before they wrote the article - overnight rate, margin levels, and a few other toys to keep the money supply from swinging up and down and from inflation going nuts.

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liberty1231Jan. 3, 13 1:13 PM

I find it interesting that hobie2 chooses to address such a small part of the article instead of any of the other beautifully-argued points. This guy oversees over $70 billion in assets. I am sure he is up to speed on the individual mechanisms the Fed has at hand. I believe his point was that interest rates are far and away the Fed lever with the greatest effect on the economy.

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econtruthJan. 3, 13 8:31 PM

Hobie2, all of those things you list are used to influence the level of interest rates.

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g0f0r1tFeb. 7, 13 3:38 PM

There is a flaw in the logic of low interest rates hurting those who purely rely on interest on their savings. Nobody lives in a vacuum, meaning when interest rates are high, the 'earnings' evaporate in inflation. Maybe it's more visible that people are losing their savings due to spending when interest rates are low, but in reality there's hardly a difference between earning 6% with 8% inflation and earning 0% with 2% inflation. The difference runs into the third decimal place, i.e. it's hardly worth mentioning.

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