|The Nossiter Net
The net that shall enmesh them all
Edited, Written, and Published by J.C. Nossiter
|The Morning Mendacity
Thursday, August 12th, 2004
|The Nossiter Net is cast to snare some of the riper rascalities of the day. Comments? firstname.lastname@example.org|
|The Federal governmentís own numbers are startling. The economy grew at an annual rate of 4.5% in the first quarter. In the second quarter, economic growth slowed by a staggering 26%, to an annual rate of 3% (www.bea.gov.) As for the latest employment data, they lead to only one conclusion: job creation is at a standstill. Companies arenít hiring, the economy is slowing, and on Tuesday Mr. Greenspan raised the Fed Funds Rate, the most watched interest rate under the Federal Reserve Bankís control, by a quarter of one percent. Now why would he do that?
The Fed raises interest rates to cool over-heated economies that threaten us with inflation, that scourge of bankers and bond investors. Borrowers, at least those with fixed-rate loans, actually benefit from mild inflation, but they tend to have less influence on economic policy. Is the Fed Chairman worried about inflation, even though the economy is stalling, not over-heating? According to the Bureau of Labor Statistics (bls.gov), prices rose .3% in June, an annual rate of 3.6%. Two-thirds of that increase was due to soaring energy costs, the euphemism for our friends at OPEC jacking up the price of oil. The financial pages print much solemn cant about uncertainty in Venezuela and Iraq, production bottlenecks, and inventory problems, but the fact is that oil production is controlled by the OPEC cartel, and the cartel sets prices at the level of its choosing.
Take out oil and prices rose .1% in June, an annual rate of 1.2%. Thatís the equivalent of no inflation at all. Mr. Greenspan isnít raising rates because of rising inflation, because there is none. So what could he be thinking? The Chairman already demonstrated an unhealthy tendency to politicize the Fed when he endorsed the Bush tax cuts for the wealthy in the face of our giant government spending deficit. For a champion of fiscal responsibility, that was the equivalent of a life-long teetotaler going on a bender.
Mr. Greenspanís latest move can only be politically motivated as well. President Bush insists, in the face of all evidence, that weíre in the midst of an economic recovery. Were Mr. Greenspan not to raise interest rates at this juncture, it would be an admission by the Fed that there is no recovery taking place, giving the lie to Mr. Bushís economic cheerleading. The emperor isnít wearing a stitch of clothing, but donít count on Alan Greenspan to say so.
The Afternoon Affront
Letís say Mr. Kerry wins the election in í04, after the planned series of Fed interest rate increases in the face of a slowing economy. That could saddle our new President with a nasty recession that may take years to recover from. If youíre a Republican looking ahead to í08, whoís already written off G.W. Bush on the grounds of fatal incompetence, you couldnít ask for a nicer gift from Chairman Greenspan.
©J.C. Nossiter 2004
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