Which policy do you support? Why?
The Federal Researves have repeatedly announced that it would maintain a lower interest rate policy, while providing more liquidity (money) to the markets. Of course, more supply of liquidity can cause inflation in the near future. Which political groups support which policy? What are their supporting logic (or rationality)?
Just feel free to link website or post your opinions on this issue.
Quantitative Easing should be maintained for another 1-2 years depending on how the economy is doing. Having a lower interest rate is good for small business owners because it’s easier and cheaper for them to take out a loan. Although this tends to cause inflation, small businesses will have a chance to thrive through the tail end of this recession.
A financial crisis of too much debt and spending (w/ low dollar value) can not be fixed by more of the same.
Low interest rates penalize savers and especially those on fixed incomes like seniors. It allocates money to riskier assets and encourages dangerous speculation. The domestic purchasing power is diminished. Is $5 gasoline good for the economy? Is borrowing money for financing a business better than use of savings?
Justin, I like your point. Declining currency power of the U.S. dollar can be a long-run concern. But at the moment, lowering interest rates in the U.S. did not pose a real challenge to the currency power of the U.S. dollar. We will review this aspect when we review the financial globalization and its impacts on the U.S. financial markets.
Professor I have to disagree with your view ” lowering interest rates in the U.S. did not pose a real challenge to the currency power of the U.S. dollar” by contrast lowering rates will be the death of the US dollar. Since Pres. Nixon changed the US from the gold standard to Fiat Money the power of our currency has been in the confidence placed in it. With the recent administration we have seen the Fed lower rates to almost 0, implement 2 QE (1st was done under Bush) and the SEC lower America’s credit rating twice. The confidence in America is in decline continuing down this road will cause a collapse of the dominant US dollar, the only saving grace is there is no where for people to go. It’s like having a potentially insolvent bank but it’s the only bank so you have no choice but go there.
Did I say like that? Yes, temporarily it’s OK, but the long-term effects, probably, as you pointed out, it won’t be good for maintaining the currency power of U.S. dollar. There are short-term and long-term conflicts of policy goals.
We need to think about counterfactuals as well. What if QE has not been implemented at all? Would it have been better for the U.S. economy? Probably not.
http://www.forbes.com/sites/greatspeculations/2012/09/04/fed-is-killing-the-recovery-with-quantitative-easing/
The article from Forbes says that the QE can help us now but in long term it is more harmful than good. I agree with the point what professor said that it is going to lead us to inflation. To recover for the long run, the market will need the correct allocations of resources that resulted from prior stimulus. If continued with QE and continuation of the allocation of the resources its going to another rough path for the States. So not sure which point to support because Tightening policy is not going to most helpful in current situation and Quantitative easing is not guiding us towards a good future. I will rather stay in the middle of both points.
Cool, Sidharth! Yes, more often than not, a middle ground or a moderate position cannot make serious mistakes. But, if you have to choose one, either continuing current QE policy or stopping it, what would you choose?
My position? Continuing the QE policy looks better. Of course, as you know, there are strong opposing views out there. But, I don’t think the U.S. economy has gained the momentum (or spurt) for the economic recovery yet. It can still slide back into a long recession at the moment. So, despite many negative long term effects, it looks unavoidable to continue the QE policy.
Of course, you can disagree with me, but that’s the way it goes. No one monopolizes truth in reality and freedom of speech is a very valuable one.