CLARKONOMICS: The Federal Reserve will continue manipulating the money supply and holding down interest rates in an effort to get our economy on an even keel.
Under what’s called Operation Twist, the Federal Reserve will see to it that longer term rates are held down. The hope is that lower interest rates will encourage businesses to make long-term commitments for expansion and growth. At the same time, the lower rates will punish savers and force them to invest, while also continuing the low mortgage rates for homeowners.
In reality, today’s move was a minor one by the Federal Reserve. The big move will come if Europe melts down. If that happens, you’ll see a scenario that turns the clock back to 2007 and 2008 when the U.S. government and the Federal Reserve worked in concert making move after move to prevent worldwide depression.
So today’s minor move was taken now in June — as far from the November election as possible — so that it won’t be seen as interference in the presidential race.
Meanwhile, one thing our government should be doing is selling 50-year and 100-year bonds. That would give us the ability to lock in the cost of funding our deficit budget at an extremely low rate. I’m clueless as to why we’re not doing this already!