Interest Rate Question

[bpw]

Can someone help me fathom the following conundrum?

a) Here in the USA credit is increasing to gargantuan levels, inflation is rising, and businesses are suffering with record liquidations and bankruptcies. The solution from the Federal Reserve is a period of tight fiscal control with gradual increases in the base lending rate and reductions in tax.

In the UK credit is increasing to gargantuan levels, inflation is rising, and businesses are suffering with increasing unemployment and a slump in high street sales. The solution from the Fat Controller is a period of Labor Doctrine fiscal control with hidden taxes, high public spending and gradual decreases in the base lending rate.

Why, in the ‘Push-Me, Pull-You’ world of national finance, are rates being increased here in the USA when the UK MPC are reducing rates? Before you answer, remember the US Federal Reserve have a very good record for fiscal management over several decades. Is the Fat Controller smarter than the Fed, or are we violating everything that Keynes taught us for political reasons?

[gone west]

Gordon knows that ALL the wind in his sails is from MEW and the house price "feel good" factor. If rates rise too fast (or at all), then he and the economy are in trouble. The US housing bubble is less widespread and mortgages tend to be long-term fixed rate so base rate increases have a smaller effect. The Fed also knows that the dollar is on a cliff edge. Sterling is too but GB cannot see it even if Mervyn can.

[frugalista]

Can someone help me fathom the following conundrum?

a) Here in the USA credit is increasing to gargantuan levels, inflation is rising, and businesses are suffering with record liquidations and bankruptcies. The solution from the Federal Reserve is a period of tight fiscal control with gradual increases in the base lending rate and reductions in tax.

In the UK credit is increasing to gargantuan levels, inflation is rising, and businesses are suffering with increasing unemployment and a slump in high street sales. The solution from the Fat Controller is a period of Labor Doctrine fiscal control with hidden taxes, high public spending and gradual decreases in the base lending rate.

Why, in the ‘Push-Me, Pull-You’ world of national finance, are rates being increased here in the USA when the UK MPC are reducing rates? Before you answer, remember the US Federal Reserve have a very good record for fiscal management over several decades. Is the Fat Controller smarter than the Fed, or are we violating everything that Keynes taught us for political reasons?

Both countries have high levels of private debt and low levels of private savings. However, the UK and US are in quite different positions. The UK has not has a recession since the mid-nineties, whereas IIRC the US had a moderate recession in 2000-2003. The UK has had a long and sustained boom in fact. The public finances are not at their best in the UK but they are not yet hugely out of control. In the US however, the public debt is incredibly huge.

frugalista