Tuesday, November 04, 2008

Jumping on the bandwagon? Hardly.

It is true that earlier in the election cycle I had endorsed Ralph Nader for President. This is because I believed that at the time he offered the best possible policies for the country. After all, he was the only candidate who would have implemented single payer health care and attempted to kick out the massive agricultural pork we have been handing out. Those two issues I considered to be the major differences between him and Barack Obama and John McCain. Though Nader had no realistic shot of winning, a vote for him would be a vote for my conscience back when I realized that whether I voted in New Jersey or Illinois my vote wouldn't matter.

As time went on, however, Nader's anti-free trade position began to eat away at me. This might have thrown my vote towards John McCain, except that now I was left with 3 candidates, none of whom I agreed with perfectly on the issues: I agreed with Nader on health care and special interests but not economic or foreign policy, I agreed with Obama on special interests and foreign policy, but not on economic policy or health care, and I agreed with John McCain on economic policy and special interests, but not on foreign policy and health care. In a sense, all of these issues were a wash.

But with the coming of the economic crisis I realized something: these issues don't matter as much as the expectations of who we elect. Voting for Nader would not symbolize the necessary direction this country needs to go in. Voting for McCain would send the wrong message to our allies abroad. Voting for Obama would both create a new direction that I can generally agree with and reinforce our world standing abroad. A vote for Obama would be a vote for calmer economic times and a better foreign policy.

It was based on that alone that I am voting for Barack Obama (assuming, of course, that my voter registration actually got through). I am endorsing him for change we need.

Monday, November 03, 2008

On the Federal Reserve's rate cute

The Federal Reserve's lowering of the Fed Funds target rate to 1% is the latest in a series of moves attempting to keep liquidity flowing in the financial markets. This one, unlike previous moves by the Fed, comes through its main channel. It was completely expected, which explains the stock market's relatively muted response. The Federal Reserve, however, is approaching the bottom of its bag of tricks.

At 1% the Fed Funds target rate is at the lowest it has been since 2003-2004. Because of the huge amount of liquid assets the actual target rate is lower than 1%. If the Fed somehow bottoms out and makes the interest rate reach 0%, they face the same problem that the central bank of Japan faced when it committed similar actions. The Federal Reserve cannot go much lower. It has to resort to alternative measures.

What this means is that the Fed Funds target rate's days as the primary tool of Federal Reserve policy are over. During this crisis alternative tools, like credit swaps, will replace the target rate in primacy. It is unlikely that the target rate will return to prominence except during inflation fighting. Thus, it is very likely that the Federal Reserve has effectively split its tool chest for achieving its two directives of economic growth and controlling inflation: the target rate will be used primarily for the latter now.

This is a welcome change. No longer will interest rates be used in a desperate attempt to boost economic growth at the expense of inflation as it was in the past. We might be seeing the rise of a new era of controlled inflation and economic growth through alternative tools at last.