WHEN RATE CUTS RUN OUT, FED MAY REV UP THE PRINTER
Enviado: 30/6/2003 16:21Ben Bernanke, a Harvard and M.I.T. guy and one of the Federal Reserve governors, sent out a trial balloon on the subject last November. He told a group of economists that "the government has the technology, called a printing press - or today, its electronic equivalent - that allows it to produce as many U.S. dollars as it wishes, at essentially no cost." I picked up that statement in a column Nov. 26. Strangely, nobody else seemed to take notice, even though Bernanke was stating one of the most radical positions on economic policy since Germany in the 1920s.
Remember those wheelbarrows full of worthless paper currency being totted to the store? In our worst nightmare, that's what happens - the dollar's value sinks enormously as the government keeps printing more.
The 21st century version of events is a little different.
The U.S. Treasury, with a nod from the Fed, would print money and use that to repurchase government bonds from banks and other holders. That puts money into people's hands, presumably to spend, in an effort to keep the economy going.
The term for this is innocent-sounding enough: monetizing the debt.
But adding liquidity this way when interest rate moves run out could cause foreign investors to take their money to other countries, especially given the new unified currency in Europe.
The bigger problem is that if an exodus begins, there may be no way to stop it.
Bernanke issued a statement for my previous column that said he was only trying to reassure those listening to his speech that the government has a full range of tools to deal with deflation and a weak economy.
So, here we are: The fed funds rate was cut yesterday by a quarter point, to just 1 percent. There is probably only one cut left before the government has to start doing strange things.
The volume of Wall Street research is down, which is not surprising considering all the layoffs and the new rules.
There were only 184,000 reports and research notes issued by Wall Street firms in May, compared with 266,000 in April and 213,000 in March. The better comparison is with May of last year, when 213,000 came out. The number of reports usually increases as the quarter expires. But the May numbers reflected other dynamics.
* The political pressure must be intense, but the National Bureau of Economic Research still refuses to say when the nation's economic recession ended - if it has.
In a memo put out last week, the NBER - the unofficial dater of our recessions - said, "according to most recent data, the U.S. economy continues to experience growth in income and output but employment continues to decline."
The group said it needs more time to determine what the economy has been doing these past two years. Republicans and the Wall Street gang have been hoping for some better news for some time.
The recession officially began in March 2001 and - when the determination is finally made - probably lasted a year.
By: John Crudelle
Remember those wheelbarrows full of worthless paper currency being totted to the store? In our worst nightmare, that's what happens - the dollar's value sinks enormously as the government keeps printing more.
The 21st century version of events is a little different.
The U.S. Treasury, with a nod from the Fed, would print money and use that to repurchase government bonds from banks and other holders. That puts money into people's hands, presumably to spend, in an effort to keep the economy going.
The term for this is innocent-sounding enough: monetizing the debt.
But adding liquidity this way when interest rate moves run out could cause foreign investors to take their money to other countries, especially given the new unified currency in Europe.
The bigger problem is that if an exodus begins, there may be no way to stop it.
Bernanke issued a statement for my previous column that said he was only trying to reassure those listening to his speech that the government has a full range of tools to deal with deflation and a weak economy.
So, here we are: The fed funds rate was cut yesterday by a quarter point, to just 1 percent. There is probably only one cut left before the government has to start doing strange things.
The volume of Wall Street research is down, which is not surprising considering all the layoffs and the new rules.
There were only 184,000 reports and research notes issued by Wall Street firms in May, compared with 266,000 in April and 213,000 in March. The better comparison is with May of last year, when 213,000 came out. The number of reports usually increases as the quarter expires. But the May numbers reflected other dynamics.
* The political pressure must be intense, but the National Bureau of Economic Research still refuses to say when the nation's economic recession ended - if it has.
In a memo put out last week, the NBER - the unofficial dater of our recessions - said, "according to most recent data, the U.S. economy continues to experience growth in income and output but employment continues to decline."
The group said it needs more time to determine what the economy has been doing these past two years. Republicans and the Wall Street gang have been hoping for some better news for some time.
The recession officially began in March 2001 and - when the determination is finally made - probably lasted a year.
By: John Crudelle