Friday, August 17, 2007

Fed cuts discount rate - AMERICAblog: A great nation deserves the truth

Fed cuts discount rate - AMERICAblog: A great nation deserves the truth:

"Fourth - and not like they listen to me anyway - but unless there is a serious
slowdown in the economy, the Fed should not lower interest rates right now. That
would simply bail-out a lot of people who got us into this mess. And frankly,
they need for the market to hand them their hat (as it were). Sometimes the only
way to learn a lesson is to swallow the bitter pill called 'responsibility.'
Lowering rates just isn't the answer."


I tend to agree with this statement. It was cheap money that got this problem started. It could be said that people got addicted to that cheap money. When the cheap money vanished, all those dependant on it started to go through withdrawals. If you are treating a drug addict, the fastest and easiest way to treat withdrawals is to give them the drug they are withdrawing from. It does nothing to address their addiction though. Lowering interest rates is not going to address the over reliance on cheap money, it will just postpone the problem. If interest rates are not increased, it can lead to inflation and lower amount of savings. Raise the interest rates and allow those companies and people that over extended themselves to suffer from their mistakes - that is what capitalism is all about.

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