Interest rates have been the policy du jour for the Federal Reserve since the creation of the oversight commission. By manipulating lending rates, and the use of other monetary policy discretion they have been the keepers of growth for nearly a century. But has the system they were tasked to protect changed significantly from the days they were incepted? Is monetary policy really capable of the cure-all we so eagerly await when the wizard du jour speaks?
While I do not have the research capability, nor the time to look deeper into this, I wonder how things like consumption vs. production economies respond to fiscal policy. I also wonder how in a consumption driven economy, like the US how needs like food and energy respond to fiscal policy, post housing-bubble, where consumption was being driven by loose economic policy at least in part supporting a home equity revolution. Or in an emerged (euphemism for Chindia) global economy, where the US as a central economic power has dissipated, how does our own fiscal policy adversely affect us, particularly in a world of consolidating currencies.
Clearly the need to ease rates is at clear odds with inflationary pressures. And the need to raise rates puts us in a new conundrum with anemic housing and credit markets. You’d think Greenspan would love to speak up, doesn’t he love conundrums?
As all conundrums do they end with a definitive outcome, but usually in a way not one us can predict, and typically after a lot of pain.
What would be the efficacy of creating new fulcrums for government(s) to restrain/stimulate growth? What would the best fulcrums be? What is the elasticity of demand for money today? Has it changed from 70 years past? Or have resources like oil trumped it? Is capital the core driver in resource constrained world? Capital, after all, is not fundamentally constrained when we can print it at will.
What we can’t artificially create are the tangible resources that drive our means of production and the goods and services we consume. Inherent in that may be the markings of a new fulcrum.