Former Fed Analyst says Fed should have raised rates a long time ago
This is an excellent interview of former Fed analyst Danielle Dimartino Booth ( Dallas Fed) by Erin Ade at Boom Bust. I fully agree with her
Listen closely to her analysis of the housing market. She points to one area where low interest rate policy backfired.
higher rates=higher debt.
Here is a better interview with Erin Ade where Richard Werner explains that the story that the Fed controls interest rates is fiction.
Higher rates will deter higher debt. Look at China with it financial repression, didn’t lower rates increase debt? Yes…
I have not been impressed by Richard Werner over the years.
Not to discuss Werner; but, there is a difference between China and the US. China (Gov) was artificially inflating the economy by investing in it. The US was coming off of the 2008 crash with millions of people idle.
Good to see you back.
The big problem is that the interest rate is a blunt instrument. Whichever direction you choose , you run the risk that undesired effects outweigh desired effects.
We have slow ngdp growth , high debt loads and low inflation , which argues for low rates , but asset bubbles , speculative lending activities , low returns on savings , misallocations , stressed pension and insurance funds , etc. , which argues for higher rates.
There are sensible solutions , but they go beyond simple interest rate manipulations. Unfortunately , we don’t do sensible. I think we used to , but if we did , it’s been so long ago that I’m not really sure.
Though I never thought I would quote an economist and especially Mises; this quote is in an article of another Fed insider quits. In its stead, economists had to concede that an era of benign monetary policy had encouraged malinvestment, the scourge that Austrian Ludwig von Mises warned of in the early 20th century.” An overabundance of debt, if left unchecked, inevitably leads to the misallocation of resources.” In the case of the first years of the 2000s, the target was, of course, the housing market.
Richard Werner’s claims are based on looking at the data.
The familiar fiction that the Fed controls interest rates obviously is passed along by those who don’t or won’t look at the data.
The data shows the Fed rate follows market rates and not the other way around:
If you ask ten economists the same question, you will get twelve different answers.
That is why the Fed votes on these things.
the sort of support Jim – you keep confusing symptoms with causes. Low interest rates are a symptom not a cause (and there is no obvious reason to think that it causes “malinvestment” or that “malinvestment” is an unusual phenomenon). Low interest rates and lots of speculation are both symptoms of a lack of good investment opportunities. You need to find out why there is a lack of good investment opportunities, not attack the Fed for responding appropriately to macro-economic conditions.