The Fed’s adventures at Jackson Hole (Sept. 1)
By Chuck Doud
The Madera Tribune
I remember Jackson Hole, Wyo., before it became a playground for the rich. It was (and still is) a beautiful place, and most of the tourism there was the result of hunters, fishermen and sightseers passing through and sometimes staying at one of the several motels. Then, the Rockefeller family built a big resort there, and the neighborhood turned blue-blood.
So blue, in fact, that the Federal Reserve board held its meeting with world financial policymakers there last weekend. While they were there, Ben Bernanke, the Federal Reserve chair, made it a point to tell everyone that the Fed still had plenty of cards up its sleeve to goose the U.S. economy into action again.
This in spite of the fact that a lot of people are saying the Fed has basically run out of cards.
The Fed can’t lower interest rates much further than they are right now. If they keep lowering them, the next thing you know, the Fed will be paying us interest to borrow money, instead of the other way around.
The Fed can invest money in U.S. Treasury notes or can buy up mortgage debt, but if that happens again, and keeps happening, it may not be long before the Fed owns everything.
The government is continuing to plow money into the economy in various ways, but most of that money is borrowed. Therefore, if that borrowed money has a stimulating effect on the economy, the expectation will be that the money will be paid back. But the question is: What with, and when?
Those companies and individuals who have cash are sitting on it. The reason for that behavior, even though the prices of things they could be buying are low, is that inflation has been a no-show. They expect prices to go down even further. More people are starting to worry about deflation — a general drop in prices and values — than are worrying about inflation.
It is good to know the Fed, glowing in the beauty of Jackson Hole, has confidence in its powers to save us.
