Thursday, July 01, 2004
Cash Rules Everything Around Me
Sorry loyal readers, I’ve been away cramming for my last final and preparing for a whirlwind tour of the homeland. You may have noticed that the Federal Bank raised the interest rate. Since I have been studying for macroeconomics, I am in the mood to apply my knowledge for your interests. Here are some questions I have not been hearing from loyal readers on the topic.
What will happen to my stock account?
Don’t worry guys, you don’t need to sell the farm on this one. First of all, the Bank only raised the rate by a quarter of the point. Second this rate hike had been anticipated for about a month, so the market prices had already changed in anticipation. Prices should be largely unaffected
I am a student in a foreign country whose hate for George Bush has only been multiplied by realizing that his combination of cutting taxes and spending billions of dollars on illegitimate military actions has ballooned the budget deficit, thus causing the U.S. dollar to fall faster then the Red Sox in June. Is there relief in sight?
Yes and No. There should be some short term appreciation, although the expectation of rate hikes once again lessens the effect. Students in Australia, for example, can probably hope to see .65 cents to the dollar soon. Better than the .78 cents when I arrived, but a far cry from the glory days of .48 cents in 2002. (In case you haven’t noticed, rooting for currency appreciation is my new favorite sport.)
What the fuck is this guy talking about? Isn’t this a baseball or sports blog site? Where are my Bavasi-bashing articles?
For those who don’t know, the central bank controls the interest rate from which the central bank loans money to other banks, which controls the rate at which banks loan money to people and businesses, and the price of bonds and interest rates earned from savings accounts. Holding the rate at 1 percent (or even 1.25) was an irresponsible reaction to the U.S. economic slowdown of 2001-2002. I say it was irresponsible because, in order to stimulate growth (an after-effect of the low interest rate,) Greenspan and the Fed risked losing power to cut rates further in event of another economic crises, similar to the one following the 9/11 attacks. Since the Fed can’t cut rates below zero, they risked falling into a “liquidity trap,” which is one of the factors that caused the prolonged Great Depression and Japanese slowdown of the 1990s-2000s. Now Greenspan has raised rates slightly, to keep inflation from occurring, but not wanting to raise rates too fast to hinder economic growth. (My Democratic Conspiracy Theorist side think Greenspan doesn’t want the economy slowing down during fellow Republican Bush’s reelection.) Its bad enough that we have one economic leader instituting irresponsible policy; at least we can vote W. out. It’s really bad that a Left-winger like myself is chiding two Conservatives for financial irresponsibility.
What will happen to my stock account?
Don’t worry guys, you don’t need to sell the farm on this one. First of all, the Bank only raised the rate by a quarter of the point. Second this rate hike had been anticipated for about a month, so the market prices had already changed in anticipation. Prices should be largely unaffected
I am a student in a foreign country whose hate for George Bush has only been multiplied by realizing that his combination of cutting taxes and spending billions of dollars on illegitimate military actions has ballooned the budget deficit, thus causing the U.S. dollar to fall faster then the Red Sox in June. Is there relief in sight?
Yes and No. There should be some short term appreciation, although the expectation of rate hikes once again lessens the effect. Students in Australia, for example, can probably hope to see .65 cents to the dollar soon. Better than the .78 cents when I arrived, but a far cry from the glory days of .48 cents in 2002. (In case you haven’t noticed, rooting for currency appreciation is my new favorite sport.)
What the fuck is this guy talking about? Isn’t this a baseball or sports blog site? Where are my Bavasi-bashing articles?
For those who don’t know, the central bank controls the interest rate from which the central bank loans money to other banks, which controls the rate at which banks loan money to people and businesses, and the price of bonds and interest rates earned from savings accounts. Holding the rate at 1 percent (or even 1.25) was an irresponsible reaction to the U.S. economic slowdown of 2001-2002. I say it was irresponsible because, in order to stimulate growth (an after-effect of the low interest rate,) Greenspan and the Fed risked losing power to cut rates further in event of another economic crises, similar to the one following the 9/11 attacks. Since the Fed can’t cut rates below zero, they risked falling into a “liquidity trap,” which is one of the factors that caused the prolonged Great Depression and Japanese slowdown of the 1990s-2000s. Now Greenspan has raised rates slightly, to keep inflation from occurring, but not wanting to raise rates too fast to hinder economic growth. (My Democratic Conspiracy Theorist side think Greenspan doesn’t want the economy slowing down during fellow Republican Bush’s reelection.) Its bad enough that we have one economic leader instituting irresponsible policy; at least we can vote W. out. It’s really bad that a Left-winger like myself is chiding two Conservatives for financial irresponsibility.
# posted by Marmaniac @ 2:58 AM 
