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Mix-Ansicht- Why the Fed Should Not Lower Rates / Artikel mises.org - --- ELLI ---, 21.08.2002, 15:27
Why the Fed Should Not Lower Rates / Artikel mises.org
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<font face="Verdana" size="1" color="#002864">http://www.mises.org/fullstory.asp?control=1027</font>
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<font face="Arial" size="2"><font face="Verdana" color="#002864" size="5"><strong>Why the Fed Should Not Lower Rates</strong></font>
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<font size="4">by Frank Shostak</font>
[Posted August 2<span class="965290613-21082002">1</span>, 2002]
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<font size="2">Historically, as we can see, the tendency for the relative
overproduction of durable goods versus nondurable goods takes place, not
immediately, but with a lag. It must be appreciated that a shift from a
tighter monetary policy to a looser one doesn’t produce instantaneous
effects; it takes some time. The time lag results because it takes time for
the money to move from one receiver to another.</font>
<font size="2">However, once a low-interest-rate policy begins to dominate
the scene--i.e., it outweighs the effect of the previous tight stance--there
is the tendency for the relative growth momentum of durable goods production
versus nondurable goods production to increase.</font>
<font size="2">Likewise, the dominance of the low-interest-rate phase
doesn’t disappear instantaneously with the introduction of a tighter
interest-rate stance. Obviously, there are some other factors that exert their
influence on the data and thereby cause the effect of loose monetary policy on
the pattern of consumption to be less pronounced in some phases versus other
phases.</font>
<p align="center"><font size="2"> </font>
<p align="left"><font size="2">The relative growth momentum of durable
consumer goods production tends to lead the relative growth momentum of
business equipment production by about eight months. The current loose
monetary policy has significantly lifted the relative growth momentum of
durable goods versus nondurable goods, and this raises the likelihood of a
strong increase in the relative growth momentum of business equipment in the
months ahead, all other things remaining equal. </font>
<font size="2">In short, loose monetary policy prevents the necessary
adjustment, thereby raising the likelihood of a much more severe economic
slump ahead.</font>
<p align="center"><font size="2">[img][/img] </font>
<strong><font size="2">Conclusion</font></strong>
<font size="2">The main problem with lowering the rate is not that the Fed
may lose a tool to fight a recession; the trouble is that lowering interest
rates will make things much worse. Low-interest-rate policy intensifies the
relative overproduction of durable goods against nondurable goods, which
subsequently slows down the adjustment in the capital goods sectors. All this,
in turn, is likely to set in motion a much more painful economic adjustment in
the months ahead.</font>
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<font size="2">Frank Shostak is an adjunct scholar of the Mises Institute
and a frequent contributor to Mises.org. Send him </font><font color="#000080" size="2">MAIL</font><font size="2"> and
see his outstanding Mises.org </font><font color="#3571ca" size="2">Articles
Archive</font><font size="2">. You can follow the financial markets at </font><font size="2">Mises.org
Financials.</font><font size="2"> Dr. Shostak expresses gratitude to
Michael Ryan for helpful comments during the writing of this article.</font>
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<a title href="http://www.mises.org/fullstory.asp?control=1027#_ftnref1" name="_ftn1"><font size="2">[1]</font></a><font size="2"> Murray
Rothbard, Man, Economy, and State, Nash Publishing, p. 711.</font>
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<a title href="http://www.mises.org/fullstory.asp?control=1027#_ftnref2" name="_ftn2"><font size="2">[2]</font></a><font size="2"> Ludwig
von Mises, Planning for Freedom, Libertarian
Press, p. 108.
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