The recent Wall Street Journal article discussing the pitfalls of raising interests rates in near future was so utterly fully of incorrect information and assumptions, that I felt compelled to call out the author, Mr. Narayana Kocherlakota, for his pomposity. He contends that raising the interest rates — we’re talking .25% here — would “create profound economic risks….given the prevailing economic conditions.” Though Mr. Kocherlakota recognizes the fragility of our current economy, he fails to recognize that Obama’s economic policies and the Fed’s meddling are the chief sources of the malcontent.
So here we have the current president of the Federal Reserve Bank of Minneapolis blathering on and on as if his point of view — that very low interest rates are necessary and good — is a foregone conclusion. But it’s not. Any economist worth his salt knows that the problem all along is one that Mr. Kocherlakota has not even considered, because it is the exact opposition of his world view. Low interest rates have been the problem all along, not the solution. Yet we have this Fed chief who can’t even understand basic economics and has the audacity to pontificate from the Wall Street Journal on a point that is incorrect.
These sustained low interest rates have been harmful to our recovery. The assertion that inflation is merely 0.3% (and therefore well under the “target 2% rate”) is laughable. Ask anyone who has purchased food or paid energy costs in the last several years, and they will tell a different story. Everything is more expensive than it was a few years ago. Compound that with soaring healthcare costs, rising taxes (at all levels of government) and stagnant wages, and the result is an anemic economy.
For Mr. Kocherlakota to suggest that a .25% rate hike, therefore, would “discourage spending” and “create a drag on economic activity” is a slap in the face to all the Americans who diligently saved for their retirement golden years — only to watch their investments and savings shrink because of the non-existent interest rates and loss of Return On Investment (ROI).
These Fed officials are just out of touch with reality. For instance, QE1, 2, and 3 were miserable failures. The open-endedness of floodgate printing left consumers and investors unsure of what to do with their money for a very long time; now that quantitative easing has ended, with no measurable positive results, we have prolonged, and thus weakened, our ability to recover satisfactorily. But officials like Mr. Kocherlakota believe otherwise.
Case-in-point: Mr. Kocherlakota suggests that, “when the public comes to doubt a central bank’s commitment to its goals, the economy can land in a permanent low-interest-rate trap. The central bank is then much less able to fight recessions effectively.” This is patently untrue. The public doubt stems from ineffective policy by the Fed, which creates market uncertainty and a reluctance to invest. Smart Americans know that the best way to fight recessions are curbing government spending, promoting entrepreneurship, and letting the market correct itself without excessive, unconventional tinkering by a central bank. The public doubt is mainly about the Fed leaders — like Mr. Kocherlakota — who fail basic Economics 101.
What Mr. Kocherlakota and many other Fed officials and Washington bureaucrats fail to recognize, is that artificial monetary policies do not create jobs or businesses, which are the greatest source of expanding an economy. This is achieved by a free market and private capital, with minimal government regulation and reduced government spending. Anything else than that, such as prolonged low interest rates, is a recipe for failure.
Having business cycles in a free market environment that is our capitalist economy is nothing new. What is new is the current POTUS’s administration to spend and spend and regulate and regulate which is causing the most anemic recovery on record. Our nations debt is reaching (if it hasn’t already surpassed) unsustainable levels with no hope of repaying or at the very least will condemn future generations of Americans to lower standards of living. I agree that the Feds role in all this is just delaying the inevitable decline that will surely hit this nation. The one positive thing about the Fed keeping interest rates at nearly zero is that it forces people to look for other sources of deriving income namely it is the major reason for the stock market surge. Alan Joel you are right on target to say that this POTUS’s economic policy is exceedingly devastating to seniors who depend on interest income to supplement their retirement income. Oh and one more thing is that Obamacare doesn’t fully kick in until the current occupant in the WH leaves office. What kind of impact do you think that will make to our economy and its fragile recovery as well as the jobs market ? When the economy turns south what weapons does the FED have left to fight with then ? Answer NONE !!!