In a recent testimony, Greenspan argued that we must be grateful to the Fed for its loose interest rate policy since January 2001. Without this policy, he suggested, we would probably be suffering a terrible economic slump by now. Shostak's analysis, however, shows that instead of strengthening in financial conditions, the Fed's policy produce the exact opposite. The data show an unsustainable recovery and deteriorating underlying conditions.
Federal Reserve Chairman Alan Greenspan testified before the House Financial Services Committee on Wednesday and the Senate Finance Committee on Thursday. As usual, Wall Street and financial journalists were all in a tizzy. The Dow reached highs not seen since 2001, and the S&P 500 reached recovery highs. Bonds and the dollar scurried off in opposite directions.
Before the Fed blessed this country with unlimited liquidity, American history saw two previous attempts at creating a centralized institution of money and credit: the First and Second Banks of the United States. Both generated financial havoc, and were rightly opposed by the champions of freedom and sound money. Historian Scott Trask explains.
The answer is no, says Joseph Salerno. The Fed's performance has been astoundingly bad throughout Greenspan's tenure as Chairman. Perhaps worse, Greenspan has been a relentless purveyor of economic fallacies designed to obscure and justify this egregious performance. However, his departure from the stage might not be cause for unalloyed joy among proponents of sound money—Ben Bernanke could be lurking in the wings.
The disappearance of gold from the monetary scene is perhaps the most tragic economic calamity to befall the world of money in the twentieth century, writes Christopher Mayer. Views on gold in the first two decades of the twentieth century compared to those held today could scarcely be more different.
The consultation of oracles, a practice long thought dead, continues on today in many forms, perhaps in a more subtle and less institutionalized than during antiquity, but powerfully nonetheless. The head of the Fed, writes Christopher Mayer, is a good example.
How damaging would another round of protectionism be? With international relations already highly strained—thanks largely, if not wholly, to the unwontedly belligerent approach generally adopted by the current U.S. Administration in its dealings with others—the clear peril here is that a series of escalating trade disputes impairs the ability of flows of goods to discharge the existing financial burdens of debt service and repayment as they come due.
The idea behind the cuts is more or less that by forceably lowering the interest rates, the costs of businesses and households will fall, consumption and investment will commence, and profits will recover. But why hasn't it worked the former 12 times? Is there something wrong with this idea?
Any upturn whether in economic statistics or in the stock market is almost certain to follow the patterns not of economic recovery but rather a mini-boom. There is no way that this particular boom, as pathetic as it is, can be sustained for a long time, unlike the boom of the late 1990s. In fact, the Fed's recent actions can only force more malinvestments which themselves will have to be liquidated in the future.
In recent newspaper columns, Paul Krugman of Princeton University and Lawrence Kudlow have sounded deflation alarms. The solution to combat falling prices, they argue, is for the Federal Reserve System to increase the money supply.
