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November 05, 2007
We do it to ourselves
According to my economics text book, the Federal Reserve moves interest rates up and down to spur investment and consumer spending in an effort to battle inflation and fight recessions. Starting in 2001, the Fed cut the federal funds rate repeatedly. "And the fall in mortgage rates helped start a housing boom, which had an expansionary effect on the economy. Housing starts-- the number of new homes on which construction has begun-- rose by one-third, from 1.2 million in 2000 to 1.6 million in 2004," write Krugman and Wells.
Later, the chapter says that all these efforts to control the short-run economy are essentially meaningless in the long-run. The economy does what it's going to do.
According to the U.S. Census Bureau, housing starts through September were down 25.9 percent from a year earlier. Employment is holding steady or even growing, but still a lot of people are worried about the "r" word. (For example, these people.)
I don't know.
Posted by Courtney_Sherwood at November 5, 2007 09:39 PM