With the stock market readily dropping this week, and seemingly bad economic reports published one after another, does the U.S. economy need some help? That question is being discussed in depth by Fed chairman Ben Bernanke, President Bush and other government officials. Anyone can look at the economy and see that it is slowing down, even struggling, but at what point should we look at intervention? There is a cost to everything, so simply lowering rates or beefing up government spending will not be without consequence. What should we do?
From the sounds of things, the Fed is likely to drop the Fed funds rate another 0.50 percent at the next meeting. It is also likely that things won’t stop there; President Bush has also been talking about additional ways to spur the economy. So shortly, we could see several different actions taken by the government to help jumpstart consumer spending and the overall economy.
While this stimulus package will probably help boost the stock market for a little while, and might make everyone feel a little better in the short term, what are the potential long term consequences? Presidential candidate Ron Paul and other leaders have been openly opposing short term fixes such as these, because they see that ultimately such fixes just make things worse in the long run. With inflation already at its highest level in quite some time, what do they think lowering the Fed funds rate is going to do to that number? What about the spending power of the U.S. dollar? What about the millions of retirees on fixed incomes? What about the fact that wage increases have been nearly stagnant? There are many people who are very worried about the events taking place, and rightfully so.
Whether or not you are for a short term intervention, or even if you would prefer the government butted out of this thing altogether, we must remember that there will be consequences to whatever action is taken. Will the best decision for America’s economy be made, or will the actions taken lead to bigger and worse problems? Only time will tell.