Friday, Jan 18, 2008
Time to panic - the Fed is asking politicians for help
MoneyWeek: Time to panic - the Fed is asking politicians for help
"...Bernanke has his hands on the reins of monetary policy. He can pump the economy full of credit, just like his predecessor Alan Greenspan always did, by cutting interest rates. Now under Mr Greenspan, this worked very nicely - but that‘s because there were still bubbles left to inflate. But now the biggest of them all, the credit bubble, has burst, and Mr Bernanke‘s little money machine just doesn’t seem to be doing the job anymore."
Posted by mary @ 11:19 AM (430 views) Add Comment
4 Comments
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1. drewster said...
Personally I wouldn't mind some of that attitude over here. C'mon Gordon, how about a tax cut to boost the economy?
2. maddison said...
I agree taxes are appalling here especially on the middle income. Australia has been able to cut taxes significantly due to mining boom. Since when has a Government cut taxes on middle incomes following on from the financial services boom and high oil revenues.
3. Icarus said...
Unfortunately the UK has a significantly greater fiscal deficit relative to GDP than the US has, so it has far less scope for a fiscal stimulus. If you think the US is looking shaky..........
4. drewster said...
@Icarus: You're right, alas......
Sadly the UK economy does seem to be in trouble because of Brown's massive fiscal deficit. I suspect he over-estimated the North Sea oil revenue - when Labour came into power in 1997, oil output was pushing 2.5mbpd; today it's down to 1.5mbpd. North Sea oil output has fallen more sharply than most people expected, politicians and experts alike.
One way out of the fiscal deficit would be to slash public spending: the money saved could be used to pay down the debt. Of course this would be both political suicide and very damaging to the economy in the short term, with hundreds of thousands of public sector workers laid off, and companies with government contracts also suffering.
Alternatively a hefty devaluation of the pound would correct the balance-of-payments deficit, thus allowing the UK to earn money with which to pay off the fiscal deficit. Inflation would run a few points higher and most people would feel poorer, but Brown could just blame it on the American sub-prime crisis like he did earlier this week. This is by far the easiest solution politically.
Neither solution gets us a tax cut though - the debt has to be paid off somehow, and it can only be paid by the workers of today and tomorrow. Perhaps Bob Geldof will go cap in hand to the rest of the world, asking them nicely to write-off our debt....