Economics

There's a lot I don't understand about economics. It's a complex subject, difficult to model, and easy to make simple, very wrong statements about it.

Are we in a recession? Are we headed for a recession? Can the Fed stave off a recession? The answers, as best I can figure are, probably not yet, very likely so, and unlikely. The Federal Reserve Bank only has one tool for affecting economic change: interest rates. With today's cut down to 3.5%, they're running out of room. Interest rates can't go negative.

The main purpose of interest rate cuts these days seems to be to prop up the stock market, as if the Dow Jones is the only important measure of our economy. Small things like employment, wages, the deficit, the cost of the war in Iraq: these all get reported in our media in terms of their impact on the market.

Meanwhile, we've had 7 years of Republican ultra laissez-faire regulation of said market, which has acted like risk is no longer operate, only gain.

So the Fed props up the market with another rate cut, and the President calls for a "stimulus" package. The package he wants would give tax rebates to taxpayers, who could then go shopping which would stimulate the economy. In other words, the government, which is running at a deficit, would give back money it doesn't have to citizens who are already consuming beyond their means, and ecourage them to spend it. Sounds like a great way to manage an economy.

Once upon a time, when the government wanted to stimulate the economy, it would create public works projects. These would create jobs, which create real income that people would spend, and have the added benefit of building the infrastructure that continued to support the growth of the economy. But the market isn't likely to be buoyed tomorrow by the kind of stimulus that takes years to have impact, and the market seems to be all that matters now.