What the Fed can do now

[sweeps]

Raise interest rates.

I agree.

[R]aise the Fed interest rate and it will stimulate the economy.

I disagree.

[jc3900]

Basically, our financial system has overleveraged and because of this overleverage the financial system is now taking many big hits and losses. Once all the losses started happening, Wall Street started crying and nagging old ben to give them easy money(aka lower interest rates. Something which badly positioned companies arn't supposed to have access too). Naturally, Bernanke gave in to the big banks and wall street and inflated the system by lowering interest rates at the cost of inflating everything else including oil, steel, corn, etc(the things we need to do business). Because the cost of doing business goes up, so does everything else(INFLATION). Bernanke needs to raise interest rates in order to strengthen the dollar and kill inflation. Along with that, our congress needs to come out with the biggest tax cuts and government spending cuts in our nations history. If this took place all simultaneously, you would see the dollar and the stock market have the rally of a lifetime. To bad tax cuts and spending cuts won't happen and interest rates will not be raised sufficiently to delt with our current dollar crisis. (Apparently Bernanke is still in love with his Phillup's Curve and thinks that high inflation leads to lower unemployment)

Originally Posted by Scanner
[R]aise the Fed interest rate and it will stimulate the economy.

I disagree.

Sweeps, By far the most evil financial beast is inflation. Kill inflation and you will increase real interest rates and strengthen the dollar. Just look at what Paul Volcker did. He was unpopular when he took such extraordinary measures of 18 and 20 percent interest rates, but he laid the ground work for a bull market in the 80's. Create Price stability and you will create a stable economy. I don't see why the country needs to suffer inflation all because of some sorry bankers overleveraged. I say raise the interest rates and don't let them have the cheap credit that they don't deserve. In fact, some would say tough love on the banks would actually be good for them and lead to better risk management of their assets.

[JBinKC]

Enforce the law!! The SEC and NASD has been looking the other way on naked short selling and reinstate the uptick rule. Force hedge funds to deliver of securities within the 3 day requirement when shorting would definitely help the situation in many cases they short phantom shares. (See reg sho list).

[gamecock43]

our congress needs to come out with the biggest tax cuts and government spending cuts in our nations history.

If the govt really slowed down on spending, then wouldnt our unemployment go up and the economy get worse? I thought a good deal of our economy is kept up because the govt employs so many people and has fingers in so many businesses. Or would that be a short term problem, and then a long term resolution? I am all for short term pains for long term gains. I am tired of band aids.

[tripods68]

Here's what needs to happen IMO.

-Raise the interest rate today by 100 basis points. This will strengthen the dollar once again, inflation in-check, but tame the growth of the economy since the cost of borrowing would be higher. This takes 'real' leardership action from the federal reserve chairman or lack of to act on during a presidential election year.

-Let ALL publicly held companies including BANKS fail. Let FDIC do its job than Taxpayers. The market will recover a lot fast if politicians stop catering. However, I would provide some assistance so let Freddie and Fannie continue to exist. They hoards a combined total assets of 5 Trillion in US home loans. Letting these two companies Bankrupt would certainly put this Economy in state of "depression" instead "recession" and market instability.

-Provide a federal mandate on domestic oil production to decrease foreign oil dependency. Make it 50% domestic requirement which will make the US much more keen to develop alternative energy sources like nuclear facility, offshores drilling includes Anwar, shales, natural gas etc.

-Lift Tariff from Brazil. Let Brazil have a free-trade agreement with the US to let them export higher volume of sugars. The US consumer is paying more on food prices than a year ago because of US policy concerted effort towards increasing Ethanol productions at the risk of high food prices.

[Scanner]

I don't think a tax cut is a good idea at all unless we can have an in-kind budget cut.

We are in the red as it is and that has an effect on the US Dollar/Inflation itself.

If anything, a tax hike would help matters as it stands now.

[tripods68]

Raise interest rates and it will stimulate the economy.

Not true. Under normal economic conditions, raising interest or the cost of borrowing effectively restrict the economy from growing.

[jc3900]

I don't think a tax cut is a good idea at all unless we can have an in-kind budget cut.

We are in the red as it is and that has an effect on the US Dollar/Inflation itself.

If anything, a tax hike would help matters as it stands now.

I am very concerned about our fiscal situation. We just went over the 9.5 trillion dollar debt mark and our defecit is fast approaching 500 billion. With that said, the producers of our country our currently getting hit with 30 and 40% taxes. The people that really spur on economic growth have an extraordinary high cost of doing business. So now we have two problems high taxes and a high debt and defecit. What should we do? My answer is to take a MONSTROUS SPENDING CUT , at least 40% for the first year,to put our country in positive territory for the year and to start paying off our enormous debt. Including in this spending cut would be virtually all entitlement programs. This would greatly reduce liabilities currently not seen on the books.To help pay off the debt, I would also auction off as much government property as I could get private hands on. To go along with this spending cut, I would propose a HUGE TAX CUT to go along with it probably within the 30% range for the first year and more for every year we receive to much in revenue. I would be willing to bet my life on it that if these measures were taken by our lovely legislative and executive branches, the Dow would go up at least 40% this year. Man if the Founding Fathers could see the taxes we have put on ourselves to day, they would most likely spit in our faces. I mean the founding fathers started a REVOLUTION over what... less than 5% taxes!

Not true. Under normal economic conditions, raising interest or the cost of borrowing effectively restrict the economy from growing.

You would raise interest rates to SAVE THE DOLLAR AND KILL INFLATION. Tame inflation and you will lay the ground for a sound stable economy, which leads to economic growth. You must remember that by lowering the interest rates so much, you inflate the economy!

[gamecock43]

I would also auction off as much government property as I could get private hands on.
This I dont agree with. Are you talking about National forests, wetlands preserves and city parks? I hope not, because selling off that land might make this country less debted for a short term, but long term lead to really sad consequences.
The rest of the message sounds good. And the settlers revolution over 5% taxes part is an interesting history lesson.

[tripods68]

You would raise interest rates to SAVE THE DOLLAR AND KILL INFLATION. Tame inflation and you will lay the ground for a sound stable economy, which leads to economic growth. You must remember that by lowering the interest rates so much, you inflate the economy!

If you have read my first post you will know I agree with your post for the most part.

Except I don't agree in your statement raising interest rate kills inflation. The feds can never Kill Inflation. That's a inherent risk built in a capital market (the same way a political risk can never be tame). If you study finance (I did in college), there was never a period in time in this country's history that we had ZERO inflation year. Some economists will even tell, a ZERO inflation is NOT a good thing on overall growth of the economy since it interest rate has to be set high enough without increasing consumer borrowing cost, in turn, ultimately "halt" economy from growing. Therefore, zero inflation rate can never be achieve. However, the feds can manage inflation by raising the interest at certain percentage without causing the economy to stop expanding. It's a true balancing act the feds plays all the time.

I also don't agree with stable economy equates economic growth. That's a mouthful statement. Again, the only way you can stimulate the economy is to have lower interest rate. Stable means exactly what it is, it prevents the economy from growing. That's exactly what the feds has done aftter the "tech bust" at the end of 2000. Subsequently, the feds started lowering the interest rate in 2001, all the way to where housing boom began cheap borrowing cost caused over-inflated home prices. Feds started raising interest rate incrementally in June 2005 to manage run-a-way inflation rate. Then, home values started falling due to higher borrowing cost. We end up where we are today. Feds began lowering interest rate again hoping it will revive the economy 6 to 1 year from now long enough to impact economic growth. At least that's the hope.

[jIM_Ohio]

it should be noted the economy and the stock market are NOT the same thing. If you want to stimulate the economy, that is one thing, if you want the markets to just go up, that is another.

I say this because I see this posted

I also don't agree with stable economy equates economic growth.

A stable economy does wonders for the stock market- the stock market does not like the unknown.

[WineAndCheese]

I don't think a tax cut is a good idea at all unless we can have an in-kind budget cut.

We are in the red as it is and that has an effect on the US Dollar/Inflation itself.

If anything, a tax hike would help matters as it stands now.

This tax hike you speak of needs to target people with incomes over $2million a year. The upper middle class (~170k to 650k) is already getting screwed enough. They should not be treated the same as the Alex Rodriguez's and the Steve Jobs's out there.

[Scanner]

I think taxes need to be raised across the board - rich, poor, and middle class alike, since we are all consuming the same things (army, infrastructure, Medicare).

[jc3900]

This tax hike you speak of needs to target people with incomes over $2million a year. The upper middle class (~170k to 650k) is already getting screwed enough. They should not be treated the same as the Alex Rodriguez's and the Steve Jobs's out there.

I think taxes need to be raised across the board - rich, poor, and middle class alike, since we are all consuming the same things (army, infrastructure, Medicare).

Are you kidding me! Am I the only one who thinks the rich allready pay more than their fair share. The top 1% in america pays nearly 35% of all the taxes. How much more of a screw job can you throw at these guys. I am sorry but even if you are a millionare, that is no reason to tax you over 40%. No one needs a tax hike and everyone in this country NEEDS a tax cut.. The government does not need another incentive to continue their glutted spending.

Also, how can you people not be for an in kind budget cut? I am sure you people are unaware but the government spends 10,000 dollars for every man, woman, and child in the United States each year. And that is only considering the federal level! I am sorry but a 3 trillion dollar budget, 500 billion dollar defecit, and a 9.5 trillion dollar debt need to be corrected. Spending must be cut and I don't care what programs must be cut to do it. The answer is not tax the rich to pay for it. As I said earlier in this post, the rich are allready getting killed by huge tax burdens. The out of control spending and entitlement programs need to end now! If no one steps up and does the right thing, the United States will go bankrupt.

[jIM_Ohio]

I think expenses and government programs should be cut before taxes are raised. If anything I suggest raising the taxes on the poor, because I know I already pay quite a bit, and don't get nearly as much as people making less than me (foodstamps, unemployment).

My thought would be to increase restrictions on collecting unemployment (must have worked for 18 months prior to collecting, for example).

Increase restrictions for foodstamps (not sure how, but something similar to above).

My wife and I qualified for foodstamps and goverment (SS) assistance because our babies had low birth weights. Programs like that just slowly bleed the system.

I would also tighten restrictions on imported goods.

I would emphasize a strong US dollar (so companies want to do business here).

Once you cut goverment spending and make it easy for american companies to compete, the economy should fix the other problems.

The best way to balance the budget is to have more people working. It worked for Bill Clinton.