Here's Why The Economy is "Booming"

[Yavin4]

Folks,

Here's why the economy is "booming". Simply put, you have a Fed chairman that's politicizing monetary policy to benefit Republicans. Below is a link to every Press Release statement from the Fed for the last five years.

Click from June 1999 to the present, and then tell me that you don't see a pattern. Greenspan raised rates from 4.0% in June 1999 to 6.5% in May 2000 (six months before the election), and then, right after the inauguration in 2001, he started cutting rates almost every month to a present-day low of 1%.

Yep, make debt cheap and see the economy boom:

http://www.federalreserve.gov/boarddocs/press/monetary/2003/

[picus9]

1. Hmm Yes and no.

I see your point, however any macroeconomics textbook will tell you that it is standard monetary policy to drop interest rates during a recession in order to keep money out of the banks and pumped into the economy. Furthermore, rates will be raised in order to prevent inflation and keep spending down once the economy truly is "booming".
It is nothing new. In fact, it should be telling of the crappy Bush economy that rates have hit and sustained these lows for so long. I would bet that the rates begin to inch up.

[Yavin4]

3. AHA!

however any macroeconomics textbook will tell you that it is standard monetary policy to drop interest rates during a recession in order to keep money out of the banks and pumped into the economy.

The recession officially ended in November 2001, so why have interest rates been kept so low two years later?!?!!? We haven't had a negative growth quarter in two years. The GDP just showed a 7.2% increase.

IOW, the Fed policy is managin monetary policy as if there were a recession, but there's no recession. You can't have growth and a recession at the same time.

[Nederland]

10. If you believe that

The recession officially ended in November 2001

If you actually believe that I have a bridge in near NY to sell you...

[picus9]

12. Because there has been stagnant economic growth.

a recession is just a general term for 2+ quarters of negative economic progress, just because we are no longer in a recession does not mean that the growth has been anything to speak of. It would have been idiotic for the fed to raise rates when the economy was growing at 2% per quarter. It would have chilled it back into a recession.

[Flaming Meaux]

15. That 7.2% is all borrowed money.

Where is it? In the crapper, that's where. Next quarter, we'll be right back to stagnant growth. Look for the Christmas holiday season to be another snoozer, thanks to persistent unemployment/underemployment.

[picus9]

19. read the headlines.

http://money.cnn.com/news/economy/

[newyawker99]

20. Hi picus9!!

Welcome to DU!! :toast:

[J B]

2. But that's what he's supposed to do.

I've been thinking about this seriously today. What were Democrats going to do differently? I mean, probably substitute government spending for tax cuts to get to the same result ,and hope Greenspan did exactly what he has been doing.

Running against Bush on the economy seems silly if Democrats wouldn't actually do anything differently. Bush has substantial control over foreign policy. Economic policy? He's just following in the footsteps of Keynes.

[bridge]

6. I agree with JB...

"Running against Bush on the economy seems silly if Democrats wouldn't actually do anything differently."

All indicators point to substantial recovery over the next few quarters. Will have to plug in to unemploymeny numbers (I think they'll be released Friday) as next piece of the data puzzle. If it drops below 6.1 % we may have to come up with Plan B (focus exclusively on Iraq?)

[tritsofme]

7. Its obviously going to go below 6.1%

look for real trouble for us if it goes below 5.5% which falls in the range of the natural rate of employment in the US.

[T Roosevelt]

16. And just how is it obvious?

Unemployment is going nowhere but up, unless Wal-Mart is hiring in your area. Even if the employment numbers do change, and somehow jobs are created in the current environment, nothing says they will be high-paying jobs. This all leads to wage deflation, meaning Americans have less to spend, which means less demand, which means lower production needs. It's a downward spiral which will take a someone who knows what the hell they're doing to get this country out of.

[West Coast Democrat]

17. The 6.1% Rate Does Not Include Long-Term Unemployed....

who have simply given up looking for a job. The 6.1% number only includes those actively looking for work. If those people decide there is truly a "recovery" and return to the job search, their numbers will be added to the unemployment rate, virtually guaranteeing that the unemployment rate will not decrease significantly for the next year.

[picus9]

18. Economics is cyclical - period

Presidents get too much credit when it is going well and too much blame when it is going poorly. However, people are always looking for someone to blame.
Jobs are always a lagging indicator. The fact of the matter is the jobless rate of the last economy was relatively low compared to previous recessions. That is why it has taken so long to drop below 6% - If the UER was at 8% two years ago(like in the early 90's) then Bush could harp on all of the job growth he has created once it reached 6%. (Similar statistics to 1992 -1995) fact of the matter is, the economy has been doing nothing until a few months ago that is why the rate has hung around its current rate or "equilibrium". However as the economy starts to improve so will the jobless numbers. I can still see the candidates taking a 5.5% unemployment rate as being a bad thing, and people will listen because they are for the most part unaware when it comes to what "good" numbers are and aren't.

[T Roosevelt]

14. Which indicators would those be?

If you're referring to the ones on CNBC and Lou Dobbs, you can pretty much throw those out the window. The ones that count point to a worsening situation - unemployment, rising deficits (federal), worsening consumer debt, states in trouble, increasing trade deficit, and a soon-to-be housing bubble, which will pop once Greenspan is forced to start raising interest rates. So far any growth has been on the backs of consumer refinancing (and spending) which is unsustainable, federal deficit spending (the same thing occurred under Reagan), and wage deflation/layoffs/jobs lost overseas, all of which make for a better bottom line, but result in a worsening situation for the American consumer. Bottom line is - the shit's going to hit the fan...it's only a matter of when.

[newyawker99]

21. Hi bridge!!

Welcome to DU!! :toast:

[mistertrickster]

4. You pose a good question . . . how can interest rates be so low

if the economy is so good?

I don't think Greenspan is a Bush lover, but what he does backs up the notion that the economy remains in the crapper. Also, the gov't is pumping tons of BORROWED money to fund its horrible wars, so that's got to help in the short term. Long term, it's typical Bush FUBAR . . .

[tritsofme]

5. I'll

agree with you inasmuch as the fed dropped the ball in 2000 with that huge 2.5% rate increase in May. It really should have been much more gradual to try to calm fears of inflation. But we have to remember that he was also trying to juggle around the aftermath of the 1997 Asian financial crisis to avert recession.

We also need to remember that 7% growth in this stage in the economy, is not the same as similar growth in 1999.

[ender]

9. rates go up much faster than down...

i think the fed got worried about inflation a ton in the beginning of 2000 - a 2.5% increase is standard.

Which is what I would expect from the fed shortly. a 7.2 jump in the GDP is insane and unsustainable. it *will* result in inflation.

the fed will couter with much higher interest rates.

lock 'em in now gang.

[tritsofme]

11. But we're not going to see 7% growth for another 20 years.

The next few quarters will probably be 4-5% growth, and that is sustainable, with very little inflation.

Nevertheless interest rates will have to go up fairly soon, because they are at rock bottom.

[theboss]

8. He's been following the same playbook forever

I hardly think Greenspan is trying to save Bush, considering he's been following the same anti-inflation program for years. In fact, his glasses probably shattered when he read the number for the last quarter. He seems to get alarmed when growth gets in the 5.5 to 6 percent range.

[Hammie]

13. And the alternative?

I don't get what you are proposing. Lowering interest rates stimulates the economy. A growing economy leads to higher employment. Greenspan overeacted to inflationary signs and together with the dotcom bust helped send the economy into a recession that was probably going to happen anyway.

So in fairness, Greenspan should do something stupid during this administration too? Snatch defeat from the jaws of victory to even up the score? Payback? Gosh, you know my wife's already lost her job, I could be next. I don't think I want Greenspan to torpedo the economy again. If low interest rates make the economy grow, then keep the damn interest rates low. Who do think it hurts when the economy tanks anyway?