Friday, February 16, 2007

Interest Rates, Inflation and The Housing Bubble

I'm no economist, but I know a few things, and one of the things I know is that when the higher-ups in charge of interest rates are worried about inflation, it usually means a coming contraction (whether of credit or currency in the olden days) that will send the economy into a recession. As Dr. Dollar Dollars and Sense puts it, inflation is usually the worry of owners (and creditors) while inflationary cycles might actually empower workers.

With inflation rising (albeit slowly, and still relatively mild at around 4.2%), some business sectors will no doubt begin clamoring for tighter monetary policies that sacrifice job-creation and wage growth by slowing the economy growth. But these fears of inflation are probably misplaced. A moderate rate of inflation is conducive to the growth of real investment, and in the context of a decades-long squeeze on workers' wage share, there is room to expand employment without setting off a wage-price spiral. What workers need is not greater fiscal and monetary austerity, but rather a revival of a Keynesian program of "employment targeting" that would sustain full employment and empower workers to push for higher wages. It's not likely, however, that the owners of capital and their political allies would sit idly by were such a program to be enacted.

So, when I saw the news item that Bernanke at the Federal Reserve would hold interest rates or even increase them, I thought, hmm...the housing bubble is going to keep making that hisssssing sound.
Am I wrong? What does this all mean?
I welcome your comments.....

No comments: