Friday, April 27, 2012
Fed: Near-zero Interest to Stay Amid Halt to Bond Buying
Fed: Near-zero Interest RatesDue 4 May 2012. You now have the tools to answer this one. Do you agree or disagree with Bernanke's evaluation of the economy? Do you agree with zero-interest rates? What alternate strategies could be used?
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Ok I couldn't get the link to work for the article but I'll just use my knowledge for this one. If interest rates are really low that means Bernanke is using expansionary monetary policy which means that Bernanke feels that we are in a recessionary gap. I would agree I guess but I think that zero interest rates are too low, especially given that we have inflation so then we have negative interest. An alternate strategy could be fiscal policy.
ReplyDeleteThe Fed have purchased a lot of treasury bonds in order to push down the interest rate. Having a negative real interest rate, as Kevin has addressed above, would encourage people to spend their money instead of putting the money in the banks or investing somewhere else. I have to admit that this kind of policy works since my parents do not save money like they used to be. I think the alternate strategy would be raising the tax. With more tax revenue, government is able to distribute more social benefits and it would encourage more people to spend.
ReplyDeleteBernanke is clearly engaging in expansionary monetary policy, as the Fed is continuously buying government bonds. He is even considering buying more in order to ease us out of our recession, as both Kevin and Xiaowen pointed out. Expansionary policy is demonstrated by lowering the reserve requirement, buying bonds, or lowering interest rates. I think that Bernanke is on track in regards to his evaluation of the state of our economy. I don't think we will be out of a recession for at least five more years. I think that zero interest rates will never occur as the government tries to keep the interest rate between a certain range. Lower interest rates will encourage people to spend, which will ultimately boost our economy. Another method of dealing with our economy would be to engage in expansionary fiscal policy by cutting taxes or increasing government spending, putting more money into the pockets of the people. The ultimate goal here is to encourage the growth of our struggling economy. The only way to do this is to have people spend their money.
ReplyDeleteBernanke is trying to increase consumer spending by buying bonds which causes the lowering interest rates to where they are technically negative, which is what everyone said above. The Fed are planning to buy bonds again which would lower the taxes even more, but its said that our economy is rising again but slowly of course. Like Xiaowen said my parents are saving money but not as much as back than. They are actually spending more. Even though it is increasing consumer spending, families debt are raising. I think we should have low interest rates for now for a certain time, but zero interest rate is too low.
ReplyDeleteBernanke explicitly uses expansionary policy, the lowering of interest rates and the buying of bonds, in order to support his argument. He does make the valid point that these policies will encourage spending through the increase in aggregate demand. He also has a point in noticing the recessionary period we are suffering through. However, he's pushing the policies to an extreme. Lowering interest rates to almost zero could risk our economy's well being to the point where we slow growth rather than build it. Zero interest rates is going to plummet our economy even more than it is now. It would decrease our capital outflow and investments made by foreigners. Lowering interest rates is one thing, but completely removing them is another.
ReplyDeleteBernanke has decided with the federal board to use expansionary policy to encourage spending and slowly grow the economy. I am questioning whether Bernanke is doing the right thing. Although people are spending money rather then saving, people really have no money to spend, and what they do spend they only run our economy more into debt. It is a good strategy if people actually had money to spend. Zero interests are in no one's best interest. Having some sort of interest to encourage even a little bit of saving is important. Alternate strategies could include an increase in taxes or cuts in government spending.
ReplyDeleteI mean... It's hard to disagree with Bernanke or the 9-1 vote...
ReplyDeleteI think Bernanke's got the right idea. The economy isn't something to screw around with; it's probably best we see where things go before we make them unnecessarily worse. As far as we see it right now, we're on a track to recovery, and it's probably best to keep it that way...
But I don't think we're quite out the woods yet. The state of the economy over in Europe looks gloomy at best, which invariably will have a serious effect on the World economy - and we'll certainly be feeling that blow here at home...
All this is just soooo stressful. I've got to get out of this place -- Too bad there's nowhere left to run in this Global Economy.
Bernanke is using expanisionary policy, which I do support, considering the state of the economy. However, he is lowering interest rates to the extreme. If the interest rates are too low, there will be no incentive for investors to loan money, decreasing the supply of loanable funds. I believe that the he's on the right track with decreasing interest rates, since it does help out the consumer who took out the loan, but he needs to also consider how the investor will see this.
ReplyDeleteBernanke is trying to increase consumer spending through expansionary monetary policy. Considering the currect economic state we are in I believe this is a good choice. The whole thing with the zero interest rates on the other hand is not a good idea. If interest rates are too low then nobody will invest. Interest rates need to be decreased but not to such an extreme extent.
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