Novak says Fed threatens Bush election

[junker]

This is from robert novak. One of his columns. A conservative bastard who sees things clearly sometimes inspite of his bias.....

A Greenspan disaster
Thursday, July 3, 2003 Posted: 9:09 PM EDT (0109 GMT)



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WASHINGTON (Creators Syndicate) -- This question circulated for weeks in financial circles: Who will be Federal Reserve Chairman Alan Greenspan's "enforcer" when William McDonough is gone?

The answer is nobody. That became clear June 25 as the Federal Open Market Committee (FOMC) met without McDonough, retired as president of the New York Federal Reserve Bank. Prudent Fed-watchers called the result a "disaster" -- posing a threat to President Bush's re-election.

Greenspan had prepared Wall Street for a reduction in the federal funds (inter-bank lending) rate from 1.25 percent to .75 percent -- dropping 50 basis points. Instead, the FOMC astounded the financial world by cutting half that much -- 25 basis points, down to 1 percent.

Without McDonough's presence, a passive Greenspan submitted to the powerful Fed staff. The immediate consequences were opposite to what the central bank intended. The stock market fell and long-term interest rates rose.

EDITED BY ADMIN: COPYRIGHT

[Jacobin]

1. The difference between .75 and 1.0 on fed funds rate is meaningless

Greenspan is outta ammunition. The economy is stuck and will remain stuck until DEMAND is dealt with.....tax cuts for the rich to invest in plants which have no demand is stupid, laughable, dangerous, doesn't work, supply side voodoo economics.

Smirk has screwed up the economy and it will continue to get worse until someone with credibility and intelligence and the sense to understand that doing what's right for most of america will benefit the rich more than these stupid tax cuts for the wealthiest americans....btw, it will also help the rest of us.

[Loonman]

2. There really isn't that much Greenspan can do at this point

But try to keep everyone's heads above water.

Every economist worth his salt said before and many times that Boosh's brand of tax cuts are a future disaster waiting to happen.

[Jackpine Radical]

3. Whether it's .25 or .50,

the Fed has just about shot its wad. The interest rate is just about the only real tool they have for changing the course of the economy, and there's nothing left as a cushion. Thnat means they will be powerless to pull it out for Shrubco in 2004, and I predict that the economy will be in considerably worse shape in a year because right now it's making it strictly on consumer things like housing and automobile sales, which are in turn dependent on borrowing. Borrowing doesn't work anymore after you lose your job or have to take a burger-flipping gig. All those nice Yuppie jobs are moving offshore.

[Doctor_J]

4. They blamed Alan

for Bush the not-quite-as-stupid's defeat in 92 also. then they gave Greenspan all the credit for the Clinton Boom. What a buncha whiney losers.

[Loonman]

5. Non Sequiter

Not to mention that punkass "no facts" Novak is a shameless Boosh cheerleader, so it's surprising that he took an objective look at his hero, for once.

[AngryWhiteDemocrat]

6. junker.....

1) Welcome to DU
2) Posting full articles is never permitted at DU. Could you edit it to 4 or 5 paragraphs???

[MidwestTransplant]

7. Bob Novak is not an economis, that's for sure.

n/t

[Pepperbelly]

8. Attention economists ...

-snip-

What is known is that the central bank's staff was opposed to the bigger cut, fearing how a .75 percent rate would force them into "non-traditional" monetary operations.

What are "non-traditional" monetary operations?

Although not an economist, I did take substantial coursework in college and this makes me wonder: what sort of operations?

To me, this is such a bizarre economy right now. It is gravid with money yet no one is doing much with it. The tax cuts seemed geared almost to prevent employment growth rather than to stimulate it. So is there anything the Fed CAN do? It does not appear that additional money in the system will help. Could it be that Bush's tax 'reform' has actually led to institutional unemployment?

I see this in the dividend tax cut. Encouraging companies to pay dividends rather than using profits to expand/improve facilities and equipment seems counterintuitive to me.

[David__77]

10. Looting is the name of the game.

Dividends versus capital investment. That's a choice. Bushites want as much money, no matter how detached from the physical economy, floating around out there. The aim of course is to stave off the inevitable. "War" is eating up a certain percentage of real GDP. Resources are being destroyed.

I can't think what "non-traditional" means would be used, except perhaps massive open market securities purchases which would definitely raise the threat of inflation...

[brokensymmetry]

11. open market operations to buy T-bonds.

Quoting: "...the Fed may actually begin using some
of the “nontraditional” monetary policy
tactics that Chairman Greenspan and
Governor Bernanke have discussed in
recent months. Foremost among these
nontraditional tactics is an aggressive
open market operations program
including purchases of long-term
Treasury securities that would drive
down long-term interest rates."

Source: http://www.wilmingtontrust.com/Repositories/Pdf/2003-05-monthlyEconReview.pdf

[David__77]

9. Deja vu. Bush... Fed... threatens reelection...

The right complained about this with Bush Sr. I'm taking a class on this right now. The Fed of course is supposed to be "independent" of the federal government. This cutting and cutting the fed funds target can't go on much longer, we'll be zero soon! Simply put, as Bush exhausts soldiers and our economy and international good will, the tools to delay collapse are being spent at a rapid clip. High inflation or a deflationary collapse are real possibilities. I tend to suspect the former is a real possibility with these easy money policies.