Juicy Estates

A Catch 22 and The $64,000 Question

January 7th, 2009 by James Venney
Categories: Home, Mortgage News
Comments: 1 Comment »

In their infinite wisdom the Federal Government has engaged in some heavy spending in an effort to prop up the ailing economy. These programs in the aggregate appear to be having the desired effect as evidenced by historically low interest rates and a thawing commercial credit market. But no good act goes unpunished…..

The Catch 22

The next administration will be faced with the unenviable task of managing what amounts to a race. When the vast public works projects commence as a means of creating jobs and getting the economy on the right track it will have two effects. The first is that consumer spending will increase which is positive but the other effect is that as a result of increased consumer spending inflation will creep into our economy. The Fed, in an effort to control inflation will begin to raise the Fed funds rate which is referred to as ”tightening” their monetary policy. Higher interest rates make it more difficult for individuals to purchase large ticket items causing consumer spending to slow once again.

The $64,000 Question

The question is this: Will the stimulus created by the massive goverment programs be enough to accelerate consumer spending, create jobs and get the economy back on the right track or, will the Fed have to start “tightening” monetary policy before we get there in an effort to keep inflation from soaring into the double digits thus slowing consumer spending?

Oh and let’s not forget the estimatesd $1.2 trillion Federal deficit that will be hanging over the economey as a result of the massive spending.

We should have the answers to these questions in 1 to 3 years.

This entry was posted on Wednesday, January 7th, 2009 at 10:29 pm and is filed under Home, Mortgage News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.